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Green (washing) Finance: Sustainability funds do not live up to their name | Greenpeace int.

Switzerland / Luxembourg - Compared to conventional funds, sustainability funds hardly direct capital into sustainable activities in this way a new study Commissioned by Greenpeace Switzerland and Greenpeace Luxembourg and published today. In order to expose these misleading marketing practices, Greenpeace calls on policymakers to ensure binding standards to combat greenwashing and to keep sustainability funds in line with the climate goals of the Paris Agreement.

The study was carried out by the Swiss sustainability rating agency Inrate on behalf of Greenpeace Switzerland and Greenpeace Luxembourg and analyzed 51 sustainability funds. These funds barely managed to divert more capital into a sustainable economy than conventional funds, did not help to overcome the climate crisis and misled asset owners who want to invest their money more in sustainable projects.

While the results of the study are specific to Luxembourg and Switzerland, their relevance is far-reaching and indicates a wide range of recurring problems as both countries play a significant role in the financial markets. Luxembourg is the largest investment fund center in Europe and the second largest in the world, while Switzerland is one of the most important financial centers in the world in terms of asset management.

Jennifer Morgan, Executive Director of Greenpeace International said:

"There are no minimum requirements or industry standards by which a fund's sustainability performance can be measured. Financial actors' self-regulation has proven ineffective, allowing banks and asset managers to go green in broad daylight. The financial sector must be properly regulated by the legislature - no ifs, no buts."

The funds analyzed did not show any significantly lower CO2 intensity than regular funds. If you compare the Environmental, Social and Corporate Governance (ESG) Impact Score of sustainability funds with that of conventional funds, the former was only 0,04 points higher - a trivial difference. [1] Even the investment approaches analyzed in the study such as “best-in-class”, climate-related theme funds or “exclusions” did not flow more money into sustainable companies and / or projects than regular funds.

For an ESG fund that received a low ESG impact score of 0,39, over a third of the fund's capital (35%) was invested in critical activities, which is more than double the average share of conventional funds. Most of the critical activities were fossil fuels (16%, half of which came from coal and oil), climate-intensive transportation (6%), and mining and metal production (5%).

This misleading marketing is possible because sustainability funds do not technically need to have a measurable positive impact, even if their title clearly implies a sustainable or ESG impact.

Martina Holbach, climate and finance campaign at Greenpeace Luxembourg, said:

"The sustainability funds in this report do not inject more capital into sustainable companies or activities than traditional funds. By calling themselves “ESG” or “green” or “sustainable” they are deceiving asset owners who want their investments to have a positive impact on the environment."

Sustainable investment products must lead to lower emissions in the real economy. Greenpeace urges decision-makers to use the necessary regulation to promote real sustainability in financial markets. This must include comprehensive requirements for so-called sustainable investment funds that are at least only allowed to invest in economic activities whose emissions reduction path is compatible with the Paris climate targets. Although the EU has recently made important legislative changes related to sustainable finance [2], there are gaps and shortcomings in this legal framework that need to be addressed in order to achieve the desired results.

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Notes:

[1] The ESG Impact Score for conventional funds was 0,48 compared to sustainable funds with a score of 0,52 - on a scale from 0 to 1 (zero corresponds to a very negative net effect, one corresponds to a very positive net effect).

[2] In particular the EU taxonomy, the sustainability-related disclosure in the Financial Services Sector Regulation (SFDR), changes to the benchmarking regulations, the Non-Financial Reporting Directive (NFRD) and the Markets in Financial Instruments Directive (MiFID II) .

additional information:

The study and the Greenpeace briefings (in English, French and German) are available Click here .

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Photos: Greenpeace

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