Publish date: 21 January 2022
Today, more than ever, we are seeing a groundswell shift of Australians looking for sustainable investments.
Highlighting the extent to which money is jumping ship to responsible investments, the Global Sustainable Investment Alliance found that between 2018 and 2020, sustainable investment assets grew 25% across Australasia.
Clearly, investments that are kind to the planet as well as people are in hot demand. The catch is that it’s not always easy to be sure you’re backing an ethical investment.
These preliminaries settled, he did not care to put off any longer the execution of his design, urged on to it by the thought of all the world was losing by his delay, seeing what wrongs he intended to right, grievances to redress, injustices to repair, abuses to remove, and duties to discharge.
Sustainability – the new must-have isn’t so clear cut
The past decade has seen a huge emergence of ‘sustainability’ awareness. In the early days, companies may have put an ethical spin on steps they were already taking – like recycling, for instance, which might have been introduced chiefly to lower costs rather than help the environment.
More recently, however, claims about sustainability are being put under the spotlight.
Close to nine out of 10 Australians expect their super and other investments to be invested responsibly and ethically. So there’s a real incentive for companies to get serious about sustainability initiatives.
The downside is that getting a clear picture of a company’s environmental, social and governance (ESG) approach can be challenging, and there are plenty of grey areas.
There is no standardised ESG reporting requirement for companies to follow. A lack of consistency in ESG terminology can add an extra layer of confusion. And when companies do report on sustainability initiatives, it’s not uncommon to find they elaborate on what they are doing well, while glossing over areas where they could do better
Greenwashing – a key concern for investors
The real problem can lie with ‘greenwashing’. This is when companies exaggerate their green credentials, making their products or practices appear more eco-friendly than they really are.
Fortunately, investors have cottoned on to the ‘green sheen’ marketing spin. A UK study found greenwashing is the number one concern of investors when it comes to responsible investing.
The good news is that there are ways to identify possible greenwashing – and sort the facts from the fiction.
Five ways to spot greenwashing
1. Watch for vague claims or language
A company’s marketing material can tell you plenty about its commitment to sustainability. But keep a lookout for vague or over-the-top claims.
In 2021, for instance, the UK advertising regulator banned a Hyundai advert which claimed “A car so beautifully clean, it purifies the air as it goes” because it couldn’t be substantiated.
2. Don’t be fooled by buzzwords
If a company’s website features buzzwords like ‘organic’, ‘eco-friendly’ or ‘100% natural’, it’s time to dig a little deeper to see if the business is really meeting scientific standards.
3. A picture doesn’t always tell a thousand words
Companies love to present glossy images. But when it comes to sustainability these images can be misleading. And a study by the University of Illinois found less experienced investors can put more weight on images than the accompanying text in a financial report.
Bottom line, don’t let the photographs of nature convince you of a company’s eco-credentials.
4. Read company reports
Poring over a company’s annual reports and disclosure information is an essential step in getting to know just how green a company is. It’s not always a quick process though.
This is an area where Jaaims has an advantage. Our algorithm can analyse multiple data points including annual reports, in a matter of seconds.
5. Use independent intel
Relying solely on company reports isn’t always failsafe. That’s why Jaaims takes an additional step – one that individual investors can, in theory, undertake themselves.
We use intel provided by Sustainalytics, a globally-recognised provider of ESG research, ratings, and data. This allows us to really put a company’s ESG credentials under the microscope.
Subscribers to other services such as Bloomberg can access ESG data in much the same way. The drawback is that this brings an additional layer of cost for individual investors.
The search for sustainability can bring rewards
Being able to see through greenwashing may call for extra research, but it can be financially rewarding.
As the Responsible Investment Association Australasia puts it, “responsible investors are ahead of the game. They are identifying key themes influencing markets and returns, which helps them better navigate turbulent times, avoid the biggest risks and capture more opportunities.”
It could make ‘return on environment’ the new ‘return on investment’, and taking the time to find companies with a truly green approach can help your portfolio – and the planet.
Read the original article via this link: https://www.moneymag.com.au/sponsored-greenwashing-sorting-spin-from-science