Superannuation funds and investors need to ensure they are not participating in ‘greenwashing’ when they have a desire to invest ethically, according to Australian Ethical.
At a media briefing today, Australian Ethical’s head of ethics research, Stuart Palmer, said it was possible for banks to issue green bonds and for a super fund to invest in those green bonds whilst engaging in other activities that exacerbated climate change.
Palmer said that often environmental, social, and governance (ESG) integration approaches did not mean the fund would be investing in a better future.
“If I’m adopting an ESG integration approach and I’m considering continuing further investment on fossil fuels then I’m going to think about things like how likely governments are going to take strong climate policies,” he said.
“If I happen to think that governments are not going to act and follow Trump and withdraw from Paris, then I might be happy to continue investing in fossil fuel projects because they will still be viable.
“So, a purely ESG integration approach doesn’t actually mean the fund will be investing in a better future. It also depends on largely whether the fund manager has an optimistic or pessimistic view about that future to start off with.”
Palmer said there was also a challenge for investors and advisers to find and analyse fund disclosure to ensure there was not any “greenwashing” happening.
“We think responsible funds have a clear strong obligation to provide a high level of transparency – they need to explain what tools they are using, and the impact, how they are using those tools, what their different screenings are, and what impact is it actually having on their investment portfolios,” he said.
Palmer noted that while green bonds were issued by the Big Four, there was a potential for greenwashing issuers or investors.
“It’s not an attack on these green bonds or the market in general, but the green bonds issued by the four Australian banks… didn’t themselves fund any renewable lending via banks,” he said.
“It's possible for banks to issue green bonds and for a super fund to invest in those green bonds whilst at the same time in their other activities are exacerbating climate change by continuing to lend to fossil fuel projects.”
Palmer noted that super funds had an important voice to contribute to public debate.
“Because they invest for the longer term and across the economy they bring a balance perspective that is a powerful counterpoint to sometimes narrowly focused interests of particular companies and industries,” he said.