A new study by the CFA Institute has found potentially misleading elements in the disclosures of some investment funds, emphasising the importance of clear communication about ESG factors.
The CFA Institute’s study, ‘An Exploration of Greenwashing Risks in Investment Fund Disclosures: An Investor Perspective’, focused on 60 funds geared towards retail investors, half from the EU and half from North America.
From the scrutinised funds, five instances were detected where discrepancies, overstatements, omissions or baseless claims might mislead an investor, potentially giving rise to greenwashing suspicions.
Interestingly, the study indicates that regulations akin to the Sustainable Finance Disclosure Regulation (SFDR) have been instrumental in diminishing potentially misleading information about funds’ ESG factors.
The SFDR mandates asset managers within the European Union to communicate a fund’s environmental and social objectives, methodologies, data sources and other key details, aiding retail investors in comprehending how funds are overseen and the integration of ESG in the investment procedure.
The CFA Institute’s findings suggest while SFDR’s stipulations have probably curtailed the dissemination of certain data, the intricacies of SFDR and the EU Taxonomy regulatory framework might nudge funds to establish loftier sustainable investment targets.
Beyond these specific instances, the Institute offered insights into the broader landscape of investment fund disclosures.
Investors are advised to look beyond marketing materials, giving more weight to in-depth fund documents and sustainability reports.
Asset managers, on the other hand, are encouraged to ensure full disclosure and to use plain language, especially when describing a fund’s sustainability objectives. If specialised ESG terms are incorporated, they should be clearly defined to avoid ambiguity.
Additionally, the study touched upon the role of regulators, hinting at the potential benefits of harmonised terms and definitions across jurisdictions.
Such standardisation could provide asset managers with clearer guidelines when crafting and marketing their sustainable funds, said the CFA Institute.
Chris Fidler, head of global industry standards, CFA Institute, and contributor to the report, said, “Comprehensive regulation coupled with proactive, positive action from asset managers – such as adhering to independent, global industry standards – can help to improve the quality of information provided to investors and ultimately mitigate the risk of greenwashing.”
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