A new study is sowing doubt into the legitimacy of dozens of ESG-labeled investment funds. Researchers are asking the SEC to investigate.

Simone Del Rosario Business Correspondent

ESG liars? SEC investigating misleading sustainability claims from investment funds

Jan 31, 2022

Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Ryan Tiedgen (Video Editor)

A new study is sowing doubt into the legitimacy of dozens of ESG-labeled investment funds, while researchers behind the work are asking the U.S. Securities and Exchange Commission to investigate misleading claims. ESG, which stands for environmental, social, governance, is a trendy moniker meant to designate investments funds prioritizing what’s considered to be “socially responsible investing.”

But in a report sent to the SEC, researchers said out of the 94 ESG-labeled funds analyzed, 60 of them failed to closely adhere to ESG principles. The shareholder advocacy nonprofit “As You Sow” teamed up with University of California, San Diego researchers to look at whether ESG funds are “greenwashing,” claiming they’re environmentally friendly without substance.

The people behind the study reported that they met with the SEC to report the findings. For some months, the SEC has said it is investigating misleading sustainability claims.

In an original report on ESG investing, Straight Arrow News spoke with Kimberly Griego-Kiel of Horizons Sustainable Financial Services about the movement behind ESG and the issues that remain. One of the main problems that came up is the lack of set criteria to be able to affix the ESG label to an investment fund.

“If each individual creates a definition and puts that in their documents, then they also have to follow through with that,” Griego-Kiel said. “So does the SEC want to have a broad definition that everyone follows to make it easier for them? Or does everyone get to decide their own definition?”

For now, the SEC has not determined which road it will take. Griego-Kiel noted that allowing each individual fund to create its own ESG definition is onerous for oversight and for the individual investor.

SIMONE DEL ROSARIO: TODAY I’M GOING TO TAKE YOU BACK TO ONE OF MY FIRST STORIES AT STRAIGHT ARROW NEWS – ON E-S-G INVESTING. THIS IS A REALLY BURGEONING SPACE IN INVESTING WHERE YOU PUT YOUR MONEY WHERE YOUR MOUTH IS. SO IF YOU REALLY CARE ABOUT ENVIRONMENTAL ISSUES – INVESTING IN COMPANIES THAT REFLECT THAT VALUE.

E-S-G ACTUALLY STANDS FOR ENVIRONMENTAL, SOCIAL, GOVERNANCE – HOW A COMPANY TREATS THE ENVIRONMENT, WE TOUCHED ON THAT. HOW A COMPANY TREATS ITS PEOPLE, AND HOW RESPONSIBLY THE COMPANY IS RUN AND WHAT KIND OF DIVERSITY DO THEY HAVE ON THE BOARD OR IN THE C-SUITE.

THE PROBLEM WITH E-S-G – AND IT WAS A CLEAR PROBLEM ALREADY WHEN I DID THIS STORY LAST YEAR, IS THAT THERE’S NO SET CRITERIA TO BE LABELED AN E-S-G FUND.

SO THERE ARE TONS OF FUNDS OUT THERE THAT CLAIM TO BE E-S-G – AND WILL GLADLY TAKE YOUR MONEY – WHICH YOU THINK IS GOING TO COMPANIES THAT REFLECT YOUR VALUES – BUT IT MIGHT BE A LIE.

AND NOW THERE’S A NEW STUDY THAT CAME OUT THIS MONTH THAT SUPPORTS WHAT WE SUSPECTED – IT’S THE WILD WEST OUT THERE.

THE SHAREHOLDER ADVOCACY NONPROFIT “AS YOU SOW” TEAMED UP WITH U-C-S-D RESEARCHERS TO LOOK AT WHETHER E-S-G FUNDS ARE “GREENWASHING” – THAT IS – CLAIMING WITHOUT SUBSTANCE THAT THEY’RE ENVIRONMENTALLY FRIENDLY.

THE STUDY REVEALED 60 OF THE 94 E-S-G FUNDS THEY ANALYZED – TWO THIRDS – FAILED TO CLOSELY ADHERE TO E-S-G PRINCIPLES.

AND THEY BROUGHT THOSE FINDINGS STRAIGHT TO THE S-E-C.

THE BOTTOM LINE – IS THESE RESEARCHERS ARE ASKING THE S-E-C TO STEP UP AND CREATE A CONCRETE DEFINITION FOR E-S-G SO INVESTORS AREN’T FOOLED. AND THAT’S SOMETHING I SPOKE ABOUT WITH MY EXPERT IN MY REPORT MONTHS AGO.

KIMBERLY GRIEGO-KIEL: If each individual creates a definition and puts that in their documents, then they also have to follow through with that. So does the SEC want to have a broad definition that everyone follows to make it easier for them? Or does everyone get to decide their own definition?

SIMONE DEL ROSARIO: WHILE OVERSIGHT USUALLY LAGS BEHIND TRENDS, WE DO KNOW THIS ADVOCACY GROUP MET WITH THE S-E-C THIS MONTH – AND THAT FOR SOME MONTHS – THE S-E-C HAS BEEN INVESTIGATING MISLEADING SUSTAINABILITY CLAIMS.

THAT’S ALL FOR NOW FROM NEW YORK!

YOU CAN CHECK OUT MY STORY ON E-S-G INVESTING BY JUST SEARCHING E-S-G ON STRAIGHT ARROW NEWS DOT COM.

I’M SIMONE DEL ROSARIO AND IT’S JUST BUSINESS.