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Pressure on regulatory authorities to police the ESG claims of companies and funds has been intensifying as the market for green investment grows.
In 2019, Morningstar reported that this market was around $1trillion - in 2022, $2.8trillion. Exaggerated claims and false statements have the potential to undermine growth in the sector that should otherwise be applauded. The action taken by the SEC is on the front page of the FT and many other business publications this morning and we should expect other regulators to follow suit to protect consumer confidence. As the taxonomy of this form of investment develops to deal with the different shades of green, funds will need to monitor compliance carefully.
A fund marketed as 'low carbon' might be unable to sustain this classification under greater scrutiny, and declassification could give rise to investor claims if they can demonstrate that (a) they lost money; and (b) their investment relied on the green credentials stated.
