How to avoid greenwashing in impact investing

Avoid asset managers that underperform when the incentive alignment is low.

The Singapore Management University released an article about greenwashing on impact investing and how to avoid it.

Greenwashing, according to Robeco Asset Management, means the practice of trying to make people believe that a company is doing more to adopt sustainability than it is. Usually, this is done for public relations reasons. 

Hao Liang, Associate Professor of Finance, Singapore Management University, a number of PRI-endorsed hedge funds indulge in greenwashing.

The limited knowledge surrounding environmental, social, and governance (ESG) aspects, is one of the reasons for greenwashing to occur, Liang said.

The forces behind greenwashing include increasing interest for responsible investment by investors, high demand for ESG investing amongst asset owners and managers, and current ESG ratings being evaluated by public equity.

To avoid getting greenwashed, the general consensus of asset managers is to avoid asset managers that underperform more when the incentive alignment is low. Tools such as the United Nations Sustainable Development Goals can be used to measure impact performance. 

The article is available at the Singapore Management University’s website, check out this link.