2021 RIA Conference Summary – Greenwashing: Addressing Retail Clients’ Concerns

June 16th, 2021

Ian Robertson, VP, Director and Portfolio Manager, Odlum Brown
Jackie Cook, Director of Investment Stewardship Research, Morningstar
Michelle de Cordova, Principal, ESG Global Advisors Inc.
Greg Dalgetty, Senior Editor, Investment Executive

With more and more headlines about “greenwashing” in the news, RI advisors will likely need to spend increased time fielding questions and addressing concerns about the topic.

At the RIA’s final conference session, Greg Dalgetty, Senior Editor at Investment Executive, explained the concept of greenwashing as “when an investment fund makes false or misleading claims about how sustainable it is.”

“Greenwashing really poses the question: what’s inside the tent?” he added.

One extreme example of greenwashing is a fund that says it has no holdings in the energy sector but, in reality, holds positions in multiple oil and gas companies.

“However, just because a responsible investing (RI) fund invests in oil and gas doesn’t mean it’s greenwashed. A fund may invest in the energy sector through an ESG lens or use shareholder engagement with energy companies,” Dalgetty said.

Clients concerned with greenwashing may question why certain securities are in their portfolio based on their perceptions of the company and how it behaves in its communities.

Audience poll

“It comes back to an education process and making sure that client expectations are aligned well with the processes being used. For example, are we using an exclusionary process that’s maybe a best-in-class approach where you’re trying to screen out complete sectors altogether or more of an ESG integration approach?” said Ian Robertson, Vice President, Director and Portfolio Manager at Odlum Brown.

“It’s an ongoing process of communication and education.”

Audience poll

Using Nestlé as an example, the panelists discussed how bad press can make clients question companies in their portfolios.

“One of the challenges is trying to marry what may be an individual client’s personal feelings, memories and so on about a particular company against what we may call the objective research on that company,” said Michelle de Cordova, Principal at ESG Global Advisors Inc.

“Nestlé is a great example,” she said, “It’s a company people feel extremely strongly about, partly because of the baby milk scandals of the 1990s, but at the same time, on many of the benchmarking exercises, Nestlé comes out very, very high. They have very good policies and processes. The values reaction of an investor and what we may call the objective research on a company can be quite different.”

The discussion then turned toward how advisors concerned about greenwashing can evaluate an asset manager’s commitment to the ESG products they manage.

“Investment managers would be well advised to have a good overview of what the ESG commitment level is of the asset managers behind the products that they’re recommending, said Jackie Cook, Director of Investment Stewardship Research at Morningstar.

At Morningstar, for instance, their evaluation is built around three pillars: philosophy and process, resources and active ownership. .

“If an advisor is wanting to get a quick lay of the land when it comes to the ESG commitment level of an asset manager behind the products that they’re recommending or advising on, look at the public disclosure around stewardship. That’s really where the rubber meets the road,” Cook said.

“If an asset manager is engaging and voting and using their influence to advocate on ESG, it really does reveal a stronger level of commitment.