Greenwashing in ESG Investing: An Asia Perspective

ESG investing has grown strongly in Asia in 2021 with data showing that flows into ESG funds have more than doubled to over $100B USD.¹ Yet alongside this growth, greenwashing risk is often an understandable concern to investors.

The risks of greenwashing

Broadly speaking, greenwashing in ESG investing refers to strategies or initiatives that are not true to the sustainable label that an investment is being marketed for. Often, the lack of ESG data availability and comparable standards and disclosures could cause ESG investing to be susceptible to greenwashing. Greenwashing activity over time could result in the loss of investor confidence in ESG investing and more importantly become a distraction to making actual ESG and climate progress.

Asia’s developments to address greenwashing risks

Addressing greenwashing risk requires effective government standards and regulations, coherent reporting frameworks and industry support and collaboration. First, government policies help bring coherence and comparability to ESG investing. In Asia, the People’s Bank of China’s ongoing collaboration with the European Union on the Common Ground Taxonomy and other regional taxonomies (e.g., Japan Transition Taxonomy or ASEAN Taxonomy) are the first steps in building a classification standard on sustainability. At the same time, growth in both corporate disclosures (e.g., Singapore Exchange’s mandatory Taskforce for Climate-related Financial Disclosures reporting or the Securities and Exchange Board of India’s Business Responsibility and Sustainability Reporting requirements) alongside investor disclosures (e.g., Hong Kong Securities and Futures Commissions’ Climate Risk Disclosures) also help provide a baseline of disclosure requirements. This is further supported by the rapid adoption of global reporting frameworks and standards such as Science-based Targets or Taskforce for Climate-related Financial Disclosures (TCFD) (for example, Invesco publishes an annual TCFD report in line with TCFD standards). Such reporting standards help to ensure interoperability especially on quantitative metrics. Finally, industry support is key, whether it is providing reporting guidance (e.g., Hong Kong Exchange’s net zero guide) or working groups on regulations or taxonomies, these initiatives help educate and provide resources as reference.

Invesco’s approach to ensure integrity in ESG investing

Ensuring integrity in our ESG investing and integration process is key to being a client-centric asset manager. First, our commitment to the integration of ESG as a financially material investment consideration, as well as to ESG product development, is an important part of our ambitions as an asset manager. Our fund managers integrate ESG practices into their investment processes with ESG factors incorporated into investment construction and monitoring alongside firmwide resources. We’ve also dedicated significant resources to developing purpose-built ESG ratings and analytics, including Invesco’s proprietary ESGIntel and SovereignIntel rating platforms and corresponding governance and risk monitoring processes. Second, we believe ESG investing is a journey where there are a spectrum of different ESG approaches. From basic integration and exclusions to positive screenings to investing for sustainability objectives like energy transition or net zero, each strategy has different ESG requirements and allow greater transparency in how we communicate our ESG investing approach. Finally, investors education about ESG is critical to enable both our investment teams as well as partners to be well versed with different ESG concepts. Invesco has our own proprietary ESG education content and is an active partner in more than 30 different industry bodies and associations² helping to advance ESG investing. As a client-centric manager, we recognize the risks of greenwashing and are reminded on the importance of ensuring integrity in our ESG investing process. ESG investing is a journey, and we look forward to continually improving our approach to deliver transparent and sustainable returns for our clients.

^{^1 Morgan Stanley “Sustainability AUM in APAC”, Asia Sustainability: Sustainability AUM in Asia Pacific totalled US$103bn in 2021 (ms.com) (Data as of Jan 2022)
^2 Invesco Stewardship Report 2020 (pg 34) contentdetail (invesco.com) (Data as of Apr 2021)}