“It’s not that easy bein’ green”
Geoff Kellett, Head of Distribution
So lamented Kermit the Frog back in 1970 (1), and while our favourite Muppet may not have been referring to investment managers at the time, it has certainly turned out that way for many large players both here in Australia and abroad.
With greenwashing practices more frequently under the watchful gaze of regulators, investors should rightly question the stated credentials of those entrusted with their savings who promote a strong adherence to environmental and other ESG factors. One way to be sure that your chosen investments remain aligned with your personal values is to take back control, leveraging technology to ensure you are getting what you paid for.
‘Greenwashing’, the practice of making misleading claims (or inadequate disclosures) about the environmental benefits of a product, service, or company, has become a significant concern in recent years. As consumers become more environmentally conscious, businesses are increasingly tempted to espouse their green credentials to attract environmentally minded investors. However, this practice is now under the microscope, with regulators stepping up their efforts to ensure transparency and accountability.
The financial services sector is not immune, as recent media reports have highlighted. Legal action commenced by ASIC has subsequently resulted in multi-million-dollar fines being imposed for what it deems false and misleading claims made by a number of high-profile asset managers. In fact, the regulator made nearly fifty regulatory interventions targeting greenwashing in the fifteen months leading up to 30 June 2024 (2). This is ahead of newly passed legislation which sets out the framework for Australia’s first climate-related financial disclosure regime which will take effect in January 2025, and further turn up the heat on product providers (3).
In defence of asset managers, this really isn’t entirely their fault. Regulation is evolving rapidly and applying traditional thinking to solve a modern challenge is always challenging. The issue writ large is every investor is different, yet the unit trust structure is a catch all. Furthermore, ESG is not a monolithic virtue that every investor can subscribe to in the same way.
So, what can be done when even some of the most well-resourced businesses in the country are struggling to match their investment credentials with the claims they make in disclosure documents and advertising? The answer for investors may lie in taking matters back into their own hands, and fortunately the solution exists today to do just that.
By combining the latest technology with advanced portfolio management techniques, Direct Indexing providers now enable investors to apply their own environmental and other values-based filters to the investments they make. A well-designed Direct Indexing portfolio can not only make it easy to exclude investing in companies that don’t meet an investor’s preferences, but by design, it also closely tracks an index, ensuring that investment performance is not compromised.
The benefits continue when you consider that even well credentialed and intending ESG managers still require an investor to subscribe to the manager’s own exact definition of what constitutes ESG. With a Direct Indexing portfolio, the investor decides exactly what they want to address, retain or exclude.
Maybe being green isn’t all that hard after all.
About Briefcase:
Thanks to our innovative technology platform, Briefcase’s portfolio construction expertise can be utilised by financial advisers to design, implement, monitor and rebalance personalised Direct Indexing portfolios for their clients. It’s a transparent and low-cost approach to investing, yet a powerful one that combines index investing with customisation to deliver truly personalised portfolio for every investor.
References:
“Bein’ Green” (song) performed by J. Henson, Sesame Street (episode 87), produced by the Public Broadcasting Service, February 1970.
“ASIC’s interventions on greenwashing misconduct: 2023–2024 Report 791”, August 2024
“Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024”, Parliament of Australia, September 2024.