ESG
Greenwashing – A Sign Of Maturing Market

Greenwashing is a problem, but also a sign of how far the world of green/sustainable investment ideas has gone, according to the author of this article – the chief impact officer of Reyl Intesa Sanpaolo.
The following article comes from Jon Duncan, chief impact
officer at Geneva-based Reyl Intesa
Sanpaolo. This news service recently met Jon to talk about
how the world of ESG/sustainability is evolving and what the role
of private banking in that area should, or could, be.
Jon has insightful views on the field (more about the author
below). This news service is pleased to publish his views
on “greenwashing” – the dressing up of investment and
business in the garb of environmentalism in order to encourage
clients to invest in that sector. Regulators have sought to stamp
out greenwashing, fearful that it could discredit the whole
field. Sharp gyrations in energy markets in 2022
and Russia’s invasion of Ukraine prompted investors to push
back – perhaps with justice – against certain forms of “green”
thinking. There have even been lawsuits in the US in this
area.
With all this going on, Jon’s comments are particularly timely. The editors are pleased to share these views; the usual disclaimers apply. Remember to jump into the conversation! Email tom.burroughes@wealthbriefing.com
Jon Duncan
2023 saw a sharp increase in reported allegations of
greenwashing, notably in the energy and finance sectors (1). In
many cases, these allegations resulted in formal legal
proceedings and in some instances fines (2). Tackling
greenwashing in this way is a welcome sign of a healthy
functioning market and should not be mistaken for evidence that
the science of sustainability is a “woke leftie agenda” to be
rooted out of the “free market.” Dismissing sustainability
risks on this basis is a classic case of throwing the proverbial
scientific baby out with the bathwater.
Our current global understanding of sustainability issues is well
supported by a diverse set of international academic institutions
focusing on complex system science. Supporting the development of
this collective understanding is the rapid growth of real-time
geospatial monitoring of water, air, soil, pollution, and
biodiversity metrics along with a step change in both computing
and processing power. This fast-growing set of satellite and real
time monitoring technologies provides a strong evidence-based
view of the emergent system risks facing the planet. While there
is growing consensus amongst global scientific bodies that
sustainability risks are material, there is also a growing
political divide about the solutions.
Within the US, there are several politicians pushing “anti-ESG”
rhetoric, while in the EU there is political push-back on the
green economy and decarbonisation plans, which some say clash
with national labour and economic self-interests. As the broad
topic of sustainability becomes increasingly politicised, what
has become clearer is that ’greenwashing’ is simply “evidence” of
the persistent market tendency to mis-sell products and, on
this point, ‘green finance’ is no exception.
Managing expectations – “direct” versus “indirect”
impact
Further evidence of the maturing world of sustainable finance is
the growing appreciation of the difference between direct and
indirect impact. In simple terms publicly traded, liquid
securities mostly offer indirect impact, achieved via exposure to
companies with lower levels of operational ESG risks and/or
enhanced exposure to “green revenues”. Direct impact, on the
other hand, is best achieved through exposure to private market
assets, e.g. private equity investment in an alternative protein
business, or private debt allocation to renewable infrastructure
or affordable housing. Achieving direct impact via the
liquid public markets is currently limited to ‘green/sustainable
bonds’ and select niche equity strategies.
Ticket size and liquidity concerns have historically resulted in
the private markets being underrepresented in wealth portfolios.
Average portfolio exposure across various global wealth markets
ranges from 8 per cent and 12 per cent, with real estate being
the favoured private market “alternative.” For comparison,
the 2023 BlackRock Global Private Markets Survey
indicates that global institutional investors have an average 24
per cent allocation to private markets (3). Harvard
Endowment is famous for its pioneering large scale, long-term
allocation to private markets, with a current 39 per cent
allocation to private equity alone. Within the family office and
high net worth investor community, there is a growing appetite
for private market assets, driven by diversification benefits, as
well as a growing recognition that this asset class provides
direct access to the emerging green economy opportunity set.
Growing demand drives innovation for access to private
markets
In recognition of this growing demand from the wealth market,
several platforms, such as Moonfare and iCapital, have emerged
offering digital access to private market assets. Most of these
platforms provide access to opportunities that have been through
institutional-level due diligence, have transparent
pricing/valuations, allow for digital onboarding/reporting and
importantly, allow for reduced ticket sizes.
From an impact perspective, it is encouraging to see that these
digital platforms naturally reflect the emergent business
opportunities associated with low-carbon, resource-efficient and
socially inclusive outcomes, i.e. automated soil carbon
reporting, plastic waste recycling, or micro off-grid energy
companies. This technology-enabled alignment between long-term
private capital, private market assets, and green economic growth
opportunities is a positive trend for the world of sustainable
finance in general, and for high net worth/wealth investors in
particular.
(This news service has also just launched its latest Wealth
For Good Awards, giving participants in the global wealth
management industry the opportunity to demonstrate their
commitment to and pre-eminence in the areas of ESG, impact,
diversity and inclusion. For more details about this awards
programme,
click on this link, which includes information about the
judges, categories and sponsors.)
Footnotes
[1]
Banks behind 70 per cent jump in greenwashing incidents in 2023
-report | Reuters/others
[2]
DWS to pay $25 million to end US probe into greenwashing, other
issues | Reuters
[3] https://www.blackrock.com/hk/en/institutional-investors/insights/global-private-markets-survey
About the author
Jon Duncan began his career in 1996 in South Africa, where he worked in environmental research, consulting, and engineering. As a senior sustainability researcher and consultant at Trialogue between 2004 and 2006, Jon designed and implemented corporate sustainability and social investment strategies. In 2006, he became a partner at Environmental Resource Management, a firm focused on climate and sustainability for Southern Africa, where he worked at enhancing businesses’ understanding and ability to manage the key risks and opportunities presented by sustainability and climate change.
In 2011, Jon became head of the Group Responsible Investment Program for Old Mutual. In that role, he led the development and implementation of the Responsible Investment Program across the business’ global operations. He developed Old Mutual’s ESG research and analysis capabilities, developed ESG integration and sustainability focused product propositions across the various investment capabilities and asset classes, and led the business’ engagement with key stakeholders including regulators, academia, clients and the media, as well as industry associations. Jon joined REYL in 2022 as chief impact officer.