As sustainable investments have grown in popularity, so has the number of organisations eager to play up sustainable attributes of their businesses. When their claims are exaggerated—or meant to distract from other unsustainable practices—the tactic is known as greenwashing or variations on that theme: social-, rainbow-, or ESG competence-washing.
These terms refer to unsubstantiated or misleading claims about environmental benefits, social impact, contribution to the UN Sustainable Development Goals, and subject matter expertise, respectively. And they can make investors feel skeptical about sustainable investing.
Below Janet Shum, Sustainable Investing Specialist for APAC at Citi Private Bank (CPB), outlines what to look out for when selecting investment opportunities to meet your sustainability objectives.
Where and how should I begin the evaluation process?
First and foremost, investors need to seek transparency in their investments and investment managers. In the materials you read and the discussions you have, be alert to poorly defined information on investment processes, opportunities that sound too good to be true, and vague assurances rather than verifiable answers to your questions.
Once you do this, you can apply multiple lenses to evaluate the likelihood that an investment or investment manager will further your sustainability objectives. At the company level, the two key evaluation components include:
What a company does: For companies in sectors such as renewable energy, electric vehicles and financial inclusion, one may feel comfortable that by the very nature of what the company creates or provides, they are sustainable.
How a company does it: Businesses that employ strong sustainability practices will identify the material ESG factors that impact their business and stakeholders; develop appropriate policies and practices to manage them; and set ambitious targets for improvements. At the same time, they will assess how their day-to-day operations impact the environment and community and take actions to minimise potential negative impact. Transparency is a critical component of companies with high sustainability standards.