Figuring out how you should invest your money is no simple feat.
Now, there’s an extra wrinkle to take into consideration, with growing concern over “greenwashing” in the financial world.
The term is used to describe misleading information about a company’s environmental performance, and it has come into focus as people and governments pay more mind to the impact businesses have on the environment and society.
Corporations and investors are also increasingly considering risks associated with a company’s operations through an environmental, social and corporate governance (ESG) framework.
ESG-related risks range from the carbon footprint of a company, to its labour practices, to the diversity of its workforce.
“Interest in ESG factors, as part of investment decision-making, has clearly been increasing significantly over time,” said Alexander Dyck, a professor of finance at the University of Toronto.
But as authorities, too, turn more attention to ESG ratings and disclosures, debate is bubbling around whether these investments are exactly what they claim to be.
On May 31, German police raided Deutsche Bank as part of a probe into suspected greenwashing by its asset management firm. And more recently, the U.S. Securities and Exchange Commission began investigating similar accusations linked to Goldman Sachs.
In both cases, there are suspicions they overstated the extent to which their investments were driven by ESG principles.
