A new study is sowing doubt into the legitimacy of dozens of ESG-labeled investment funds, while researchers behind the work are asking the U.S. Securities and Exchange Commission to investigate misleading claims. ESG, which stands for environmental, social, governance, is a trendy moniker meant to designate investments funds prioritizing what’s considered to be “socially responsible investing.”
But in a report sent to the SEC, researchers said out of the 94 ESG-labeled funds analyzed, 60 of them failed to closely adhere to ESG principles. The shareholder advocacy nonprofit “As You Sow” teamed up with University of California, San Diego researchers to look at whether ESG funds are “greenwashing,” claiming they’re environmentally friendly without substance.
The people behind the study reported that they met with the SEC to report the findings. For some months, the SEC has said it is investigating misleading sustainability claims.
In an original report on ESG investing, Straight Arrow News spoke with Kimberly Griego-Kiel of Horizons Sustainable Financial Services about the movement behind ESG and the issues that remain. One of the main problems that came up is the lack of set criteria to be able to affix the ESG label to an investment fund.
“If each individual creates a definition and puts that in their documents, then they also have to follow through with that,” Griego-Kiel said. “So does the SEC want to have a broad definition that everyone follows to make it easier for them? Or does everyone get to decide their own definition?”
For now, the SEC has not determined which road it will take. Griego-Kiel noted that allowing each individual fund to create its own ESG definition is onerous for oversight and for the individual investor.
