Greenwashing, or instances of companies overstating environmental claims, isn’t a distinctly U.S. phenomenon. It’s a problem for money managers around the world, which makes sense because environmental, social, and governance (ESG) investing has taken shape in markets outside the U.S.
Looked at another way, investors embracing international equities and the related exchange traded funds need to be mindful of greenwashing. Perhaps more so than they need to be with domestic assets. Investors mulling international equity exposure while seeking to dodge greenwashing may want to consider the (CVIE ).
First, a caveat. CVIE allocates 21.65% of its weight to financial services stocks. In Europe, that sector is the worst offender when it comes to greenwashing, followed by the traditional energy sector. CVIE has no exposure to the latter and it’s not a dedicated Europe ETF, indicating that it has some avenues for mitigating greenwashing vulnerabilities.
Deeper Dive on Greenwashing
Due to ESG being somewhat fresh as an investment style, the same is true of greenwashing. As such, there’s a lack of clarity surrounding efforts to support the energy transition while avoiding greenwashing.
As the European Banking Federation (EBF) recently noted, banks are vital in helping companies in carbon-intensive industries reduce their carbon footprints, but transition finance is a new concept, meaning banks that are lending to ESG improvers may be inaccurately painted with the greenwashing brush.
“Over 50% of these climate-specific greenwashing risk incidents either mentioned fossil fuels or linked a financial institution to an oil and gas company. These incidents are not happening in isolation and regulators are increasingly aware of the scale of the problem,” according to a recent report by RepRisk.
Still, greenwashing doesn’t dent the case for many ESG ETFs and CVIE is an example of one that can benefit from increased clarity around greenwashing and efforts to narrow the field of legitimate offenders. Clarity is emerging in the U.K., which is the second-largest geographic exposure in CVIE behind Japan.
“UK Finance, which represents the banking and finance industry, said in a statement that firms across the sector had put environmental and social responsibility ‘at the core of their strategies.’ It is working with regulators on transparency and ESG product labeling, it added,” reported Reuters.
There are other compelling reasons for companies, regardless of home domicile, to be clear and honest about ESG intentions.
“Misleading communication around environmental and social topics not only impedes progress towards collective goals, but also damages trust with consumers and investors,” added RepRisk.
For more news, information, and analysis, visit the Responsible Investing Channel.