ESG principles are being embraced by the business and financial communities but the greenwashing of ESG investment products have become an issue of concern. There is a need for more disclosure standards to protect investors from misleading claims.
“Given the prevalence of greenwashing in the finance sector, the various initiatives by Singapore regulators are a key step forward,” says David Gerald, founder, president and CEO of the Securities Investors Association of Singapore.
“However, as Singapore investors increasingly demand more ESG investment products, there is also a fear that the needs of investors will not be met, and their interests may not be protected,” says Gerald on Oct 10 at the launch of the association’s annual corporate governance week.
Back in June, deputy prime minister Heng Swee Keat warned that the rise of greenwashing is becoming the bane of global financial systems and could affect financial stability.
He noted how Morningstar recently removed ESG tags from roughly 1 in 5 funds - over 1,200 funds managing over US$1 trillion in assets. Major companies have come under scrutiny too. Fashion retailer H&M and sporting goods chain Decathlon were required to remove sustainability-related labels from their products and websites and were fined by the Dutch regulator following an investigation.
According to Gerald, SIAS plans to enhance its Q&A on annual reports to extend to more questions on sustainability.
“While SIAS has already begun including questions on the companies’ sustainability disclosures, there will be an increased effort moving forward. Eventually, we intend to expand to review all listed companies’ sustainability reports and ask questions to raise accountability and improve investor protection,” he says.
“Fundamentally, companies should be aware of the pressure posed by both shareholders and stakeholders regarding sustainability practices, as well as the increased gender diversity may have an intermediate role between corporate governance, sustainability, and financial performance,” adds Gerald.
However, this is never a straight forward issue. The implementation of a sustainability strategy is not without its challenges.
For example, says Gerald, how should businesses and investors reconcile their views towards sustainability, in other words, the bifurcation of investment horizon between short-termism of the markets and the long gestation period of meaningful sustainability efforts?
Other problems are starting to surface and manifest as well, as part of the wider and growing move towards ESG principles.
“The issue of inequality, though long-standing, has been exacerbated on many fronts and is now brought to the attentions of governments and leaders globally.
“Income inequality between citizens and/or countries – while an issue by itself – is further complicated by other forms of inequalities, such as the unequal distribution of vaccines worldwide, and the asymmetrical social pressures placed on working-from-home mothers,” says Gerald.