Study reveals decline in sustainable fund investments due to greenwashing surge
![Study reveals decline in sustainable fund investments due to greenwashing surge](https://sustainabilityeconomicsnews.com/wp-content/uploads/2024/02/poster-2.png)
A recent study conducted by Elise Gourier and Helene Mathurin at ESSEC Business School has uncovered a concerning trend: investments in sustainable funds are dwindling due to a surge in greenwashing and growing skepticism towards Environment, Social, and Governance (ESG) focused investing.
Greenwashing, the act of misleadingly presenting products as environmentally friendly, has escalated significantly over the past five years, particularly within the financial sector, according to the whitepaper. The study tracked the rising prominence of this issue by employing natural language processing to analyze a vast corpus of news articles mentioning greenwashing or related terms.
Traditionally associated with sectors like oil and gas or specific incidents such as the Volkswagen scandal in 2015, greenwashing has now shifted its focus towards investment firms. This unprecedented surge has made investment firms the primary target of greenwashing accusations, surpassing even the energy and construction industries.
Notable cases such as Deutsche Bank’s asset management arm DWS being fined $19 million by the US Securities and Exchange Commission for misleading statements regarding ESG factors and Scottish asset manager Baillie Gifford facing criticism from climate activist Greta Thunberg highlight the severity of the issue.
The study found that an increase in greenwashing stories prompts institutional investors to reduce investments in green funds by eight percent the following month, while retail investors withdraw by 12.6 percent. Interestingly, retail investors tend to withdraw from funds with strong ESG ratings, indicating a lack of trust in the ratings themselves.
ESG ratings have also faced scrutiny, with accusations of bias leveled against firms like MSCI for allegedly pushing investors towards their indices. Consequently, the study argues that withdrawals exacerbate the distortion of prices for sustainable firms due to greenwashing.
In response to these challenges, the Financial Conduct Authority is set to implement new rules to combat greenwashing and enhance trust and transparency in sustainable investment products starting May 31st, marking a significant regulatory clampdown on the financial industry.
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