In sustainable finance, a lot of “greenwashing” and little effect according to Greenpeace

Investment funds qualified as sustainable are increasingly popular with investors concerned about the environment. However, the majority of them do not contribute, or very little, to solving the climate crisis, according to Greenpeace. The NGO accuses financial institutions of greenwashing.

This assertion is based on the conclusions of a study presented on Monday and carried out at the request of the Swiss and Luxembourg branches of Greenpeace by the rating agency Inrate. The study examined 51 investment funds qualified as sustainable in Switzerland and Luxembourg – two countries at the forefront of this evolution – as well as 25 conventional funds, to assess their effectiveness according to four criteria.

Focusing on a few problems is not enough

On two of these aspects, CO2 emissions and the share of income coming from “critical activities”, the analysis shows “no statistically significant difference” with conventional funds, explained Regina Schwegler, co-author of the study, except in the very specific areas of the cement and armament industries.

On the same topic: How to avoid sustainable finance failure

When it comes to addressing environmental, social and governance issues (ESG impact), the difference is ‘minimal’ and has very little influence on a fund’s ESG rating. The only criterion that shows a significant difference in favor of sustainable funds (about 70%) is that of their involvement in major environmental issues. But in economic terms, these issues “are just the tip of the iceberg,” notes Regina Schwegler. Thus, staying away from the big environmental controversies is not enough for the allocation of capital as a whole to be truly sustainable, contrary to the promises made by the funds. “When promises of sustainability are not kept, it is called greenwashing», Asserts the expert.

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The study cites, without naming it, the case of an investment fund whose name contains “ESG”, which nevertheless displays an overall ESG impact score of 0.39 (on a scale of 0 to 1). More than a third of the capital of this fund (35%) is placed in critical activities, “which, say the experts, represents more than double the average share among conventional funds”.

“Legally binding standards”

Invited to react to the presentation of the study, the director of the Swiss Bankers Association, Jörg Gasser, hailed a “very good study” of which he “in no way disputes the conclusions”. However, he underlines the complexity of integrating ESG criteria. He calls for “a common definition of what constitutes a sustainable activity” as well as “methods of measurement” and more transparency, both for financial players and players in the real economy. Without a measuring tool, it is difficult to agree, according to him. On the accusation of greenwashingJörg Gasser tempers: “Banks and financial institutions do not seek to deceive their customers”, it is about their image.

Read also: Big banks will have to communicate on their climate risks

When the world of finance and some politicians point out that Switzerland is well advanced in the field of sustainable investment funds, there is a “commodity deception”, which “harms the climate and the environment” and will not allow not to achieve the objectives set by the Paris Agreement, denounces for his part Peter Haberstich, climate and finance campaigner for Greenpeace. Like the author of the study and Jörg Gasser, he deplores the lack of tools to assess the real effects of these investments. Greenpeace therefore calls on the Federal Council and parliament to set up “minimum standards”. The Swiss NGO and its counterpart in Luxembourg are thus calling for “legally binding, sufficient and clear standards in terms of transparency and methodology” which would allow fund managers to be better trained and to set clear objectives. The only way, according to them, to get out of this “worrying situation”.

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