How to measure impact?
Bioy said that managers should measure and report impact – not just positive impact but also negative impact. However, she acknowledged that reporting can be tricky.
“There are no common metrics, so the industry needs to develop standards to measure environmental and social impact.”
She added that it can be challenging: “For example, how do you measure the value of education to society?”
But other metrics focused on the environment, such as carbon intensity and the use of fossil fuels, are easier to determine and can be disclosed in a product’s marketing documents, Bioy said.
Greenwashing may also be seen in “engagement” with a company to improve an ESG profile, according to Bioy.
She said there is a debate on whether it is better for a fund manager to sell out of a company with unsatisfactory ESG ratings or “engage ” with the senior management to drive change.
“[Some investors] say engagement is an excuse to continue investing the same way. I think engagement is a perfectly valid strategy, but the issue with it is [lack of transparency], so it is difficult for the end investors to form a view on the merits of engagement.”
Transparency of goals and results is key, according to Bioy.
Regulators globally are attempting to counter greenwashing by setting rules for clear disclosure.
The European Union’s revised shareholder rights directive will take effect in June this year, according to Bioy. Under the directive, institutional investors and asset managers are required to disclose information about engagement, including voting activities and their use of proxy advisor services.
Additionally, Hong Kong’s Securities and Futures Commission (SFC) is the the latest agency to require managers to disclose how they include ESG factors in their products.
