How well are ethical managers managing their strategies?

The Financial Markets Authority has checked the labels on the cans with funds claiming to be ethical invested.

Friday, September 20th 2024, 8:29AM

The regulator has completed a review looking at how managed investment scheme managers present information on their ethical investment strategies and ensuring alignment with regulatory requirements. It did not find any cases of greenwashing, but highlighted some concerns.

It found that many managers were not clearly explaining their ethical investment strategies. Issues identified include using ethical labels without detailing the underlying strategies, unclear application of ethical scoring systems, and a lack of information on actions taken when investments no longer comply with ethical criteria.

The report highlights instances where advertising and reporting did not align with ethical investing policies, lacked clarity on planned activities (such as carbon offsetting), or failed to provide regular updates on progress toward ethical targets (like net-zero emissions). The FMA engaged with these managers to improve transparency and accuracy.

The FMA reviewed certain funds to determine whether their holdings complied with the managers' stated exclusion policies (eg: excluding tobacco or fossil fuels). While most managers could provide adequate explanations, some chose to divest questionable assets to avoid risk or doubt.

The FMA plans to continue its proactive supervision of ethical investing practices, aiming to improve disclosure quality through engagement, education, and feedback. The regulator also considers exercising regulatory powers if conduct or advertising is found misleading or likely to confuse investors.

The report notes a trend towards standardising definitions of "sustainable" and "ethical" investments globally. The FMA is closely monitoring these developments and considering their impact on New Zealand's investment market.

Is Greenwashing an Issue for fund managers in New Zealand?

The FMA's report indicates that while there were no deliberate cases of greenwashing, there were several instances of misleading or unclear disclosures.

These included inadequate explanations of ethical strategies, discrepancies between advertised and actual practices, and lack of transparency in reporting progress toward ethical goals.

The FMA's continued oversight and focus on improving disclosure practices aim to address these concerns and prevent greenwashing in the future.

Tags: FMA greenwashing