Would an asset manager dare to turn down a sustainability badge? That’s the dilemma that many investors face as the growth in labels and initiatives mirrors the growth of sustainable investing itself.
The financial sector is completely awash with such labels. There are dozens of SI collaborations, membership organizations, initiatives and product tags by which an investor can apparently prove their seriousness or success with sustainability. Getting one is like a badge of honor that few will want to do without.
Yet it’s not clear that all of them are worth having, or even if they continue to do what they claim. The problem now is that many investors fear that not joining one would make them look bad, creating a kind of self-imposed greenwashing.
Take the UN Principles for Responsible Investment (PRI), the mother of SI initiatives that kick-started the acceleration of sustainable investing on a global scale. Such was its significance that it quickly went from being a voluntary commitment – which it still is – to one that has become a de facto obligation.
The PRI quickly became the leading initiative for responsible investors following its launch in 2006, and being a signatory is now often a requirement by prospective clients of asset managers of SI funds. When the PRI was criticized a few years after launch for making too few mandatory requirements of signatories and lacking any enforcement capability, reporting requirements were tightened and some signatories were expelled.
The initiative did its job, at least initially. A study published in the Journal of Business Ethics in 2021 found that after signing, PRI signatories did indeed integrate ESG significantly more than non-signatory firms. However, the increased performance was significantly higher in early signatories compared with more recent ones, suggesting that some later signatories may have been free riding. The same criticism has been levelled, albeit based on anecdotal rather than empirical evidence, at some other initiatives that have gained considerable momentum, such as Climate Action 100+.
The study also produced some recommendations for managers of ‘voluntary’ thematic initiatives which are also useful for evaluating the credibility of any commitments made by companies in any industry. Investors can consider factors such as when did they sign up to the commitment, what elements are binding, how comprehensive is the public reporting on progress, is there an assurance process, and do the commitments match with the available resources?
Another issue for investors is ensuring that the labels they use are still relevant. Europe is awash with codes, initiatives and semi-regulatory bodies that are too numerous to list, though some of the most significant ones include the Eurosif Transparency Code, Febelfin QS, Greenfin, Nordic Swan, LuxFlag and FNG.
Their criteria may reflect prevailing views at the time of launch, but investor priorities evolve over time to reflect changing consensus or social norms. Labelling organizations themselves face a dilemma of whether to stick with their original principles, or adapt to reflect the changing times.
Consequently, any investor relying on a particular label in place of internal due diligence needs to ensure that it continues to align with their beliefs and needs. They also need to make sure that they agree with the assessment criteria, methodology and reliability, and monitor this over time in case these factors change.
Furthermore, they need to make sure that the label covers enough funds to choose from. Most SI labels are voluntarily adopted, so it is not the case that a fund without a particular label does not actually meet the criteria that the label assesses. Investors relying on specific labels for any particular fund may thereby unnecessarily reduce their fund choices.
For an asset manager, adopting a label is an economic and business choice and can often be a difficult decision. The potential positive reputational and marketing benefits have to be offset against the often significant costs of gathering the information, going through the application and the auditing process (often annually), as well as paying the label issuing body. More accolades seem like a good thing, but they can add to the cost of running the fund, and so are not necessarily in the best interests of all investors.
Collaborative initiatives present a similar dilemma. These range from the larger collaborations such as the Climate Action 100+ group (which Robeco openly supports) to more minor initiatives such as Gender Lens in Switzerland and the Platform Living Wage Financials in the Netherlands. Questions about which initiatives an asset manager supports are common in Requests for Proposals (RfPs) that are received from potential investors interested in investing in a particular fund. How you answer them can act as an indicator of the asset manager’s values and commitments.
However, attaching importance to such collaborations and initiatives is fraught with challenges. Like labels, asset managers cannot support all of them, as their financial and human resources are limited. They need to balance the demands of participation with the likelihood of actually contributing to the impact goals, and the ultimate benefit to their own investors.
Sometimes, it can backfire. An overcommitment to initiatives that are not truly supported may be an indicator of organizational greenwashing or free riding – signing up to something to demonstrate sustainability credentials, but ultimately doing nothing to help achieve their aims.
The dilemma of which initiatives to support is made even more challenging by the emergence of voluntary or collaborative movements that are so high profile, or which gather so much momentum through the volume of signatories, that it becomes difficult not to participate without appearing to not support the cause.
This crowd-following is not necessarily in the best interests of investors and de facto ‘required’ participation can even encourage greenwashing, or perhaps ‘greenwishing’ – when financial institutions believe in the cause, but are not actually achieving the intended results, usually through a lack of real action.
Then there is the horror of dropping a label or exiting a commitment, even if it is for the right reasons. The risk is that this can be interpreted as an indication that a company or fund is becoming less sustainable, or is seen as damaging the credibility of a label or initiative, even if the decision is taken for sound business reasons and nothing actually changes in the underlying strategy.
What is important is that asset managers can credibly communicate to their investors why these labelling decisions have been made, so that the client can evaluate whether it still meets their needs.
So, it should be clear that simply looking for certain labels or commitments is not a fool-proof way of finding the most sustainable funds. Equally, collecting labels and commitments is not a smart approach for asset managers to market funds, and it could ultimately impact performance if investment processes are fitted to labels instead of the other way round.
Still, these activities can provide an important signal as to an organization’s key values. Decisions on sustainability commitments are rarely taken lightly, and questions always need to be asked by investors to ensure that any investment really does what it says on the tin.
当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。
商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号
加入協会： 一般社団法人 日本投資顧問業協会