Doubts Emerge on Funds’ Sustainability Claims

Stockholm (NordSIP) – A forthcoming report from sustainable hedge fund manager Auriel Investors is suggesting that many European sustainability funds are not as sustainable as they claim to be, with some performing even less sustainably than the market.

The report, which has been evaluated by Aktuell Hållbarhet and which was reported in Swedish business daily Dagens Industri last week, suggests some supposedly sustainable funds may even be having a negative sustainability impact.

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“It’s frightening that there are funds claiming to be sustainable that are actually less sustainable than the market,” said Antti Savilaakso, a researcher and partner at Auriel Investors with over 15 years of experience in sustainable investments with MSCI and Nordea, among others.

Auriel Investors developed the Impact-Cubed tool as a basis for the analysis, which has been tested and recommended by several European pension managers.

With the help of the tool, and using 14 different measurement criteria ranging from water use to gender balance and company business models, the report’s authors examined the proportion of the funds’ portfolio that has an active sustainability impact according to indices.

Savilaakso points out that if a fund is asserted to be sustainable, the expectation is that it will differ from its benchmark. He gives the example of indexed funds, where several fund companies have taken expensive fees for active management when they have in fact been close to indices.

“Many sustainability funds make daring statements about how sustainable they are. They charge for these claims and are very expensive. At the same time, they do not always deliver on that promise. That is basically what our report says,” Savilaakso said.

Among the 25 examined funds are well known managers such as Aberdeen, Goldman Sachs, JPMorgan, Nordea and RobecoSAM. The report’s authors, however, have chosen to report earnings for each individual fund anonymously on legal advice, as the results are controversial.

Savilaakso identified a trend that smaller management companies dedicated to sustainability tend to have more positive impacts. “It does not necessarily mean that small managers are better, but rather that sustainable investment is not something that can be easily addressed,” he said. Sustainable investments require dedicated teams and resources, something larger banks and investment organisations have an easier claim to, even as they don’t reach their objectives results-wise.

Marketing by sustainability funds should therefore be taken with a small pinch of salt, he says.

“Asset managers always have an incentive to say that their funds are more sustainable than they actually are, as there is an extremely high demand for that kind of product right now,” Savilaakso said, comparing the phenomenon to the time before the IT bubble burst when almost all companies branded themselves as IT companies overnight.

He denied it was a matter of ‘greenwashing’, however. “I don’t think it’s about deliberate greenwashing by fund managers, just that they’re very comfortable making daring claims about sustainability because it’s hard for them to be criticised for it. Even if they should be caught out, they can always explain their way out of the problem.”

Image: (c) Maryna Pleshkun-shutterstock