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    Sinners Be Damned?

    Sustainability is rapidly becoming a modern religion, and greenness seems as close to godliness as one can get nowadays. However, it would appear that there are plenty of sinners among us, forgetting one of the fundamental and universal commandments, “Thou shalt not take the name of the Lord thy God in vain!” We fail miserably at treating the name ‘sustainability’ with the due respect, misuse and abuse it repeatedly, thus robbing it of both meaning and magic.

    Behold the purging of almost biblical proportions that Morningstar has undertaken lately. Over the last few months, the influential data provider has stripped the sustainable investment label from more than 1.200 European-domiciled funds and claims that many more are likely to be dethroned in the coming weeks.

    According to Morningstar’s analysts, identifying the European sustainable funds’ universe has always been challenging. Still, it has become even trickier since the introduction of the EU’s lauded regulation, the Sustainable Finance Disclosure Regulation (SFDR), last year. They complain that the new regulation has led to more confusion and suspicion of greenwashing instead of providing the clarity and transparency it was supposed to. “Many funds that place themselves into Article 8, for example, are not funds we would independently classify as sustainable funds,” a recent Morningstar research paper states.

    Given the latest revisions, the assets under management of funds previously considered sustainable fell to USD 2.03 trillion from USD 3.4 trillion, according to the data provider. Now, more than two trillion dollars is still a respectable sum, you might argue. But the fact remains that a third of the self-proclaimed sustainability saints are indeed greenwashers.

    Perhaps being self-proclaimed is the issue, come to think of it. As all of us amateur psychologists know, illusory superiority[1], aka the above-average effect, is a powerful cognitive bias. Study after study confirms that almost 80% of drivers consider their driving skills above average. So, why should asset managers be an exception? Maybe they do believe they are scoring above average in their sustainability efforts.

    Well, Morningstar is treating them rather gently, at least. They abstain from publicly revealing the names of the sinners. And rather than calling the false sustainability claims outright blasphemy, they refer to the “ambiguous language” that fund companies have been using in their legal filings.

    So, how should we regard those bragging asset managers, taking the name of sustainability in vain? It is tempting to assume a Jesus-like attitude of patience and forgiveness, “let him who is without sin cast the first stone” and send them off with a benevolent “Neither do I condemn thee: go and sin no more.”

    Greenwashers are, however, just as damaging to the image of the new sustainability religion as those priests and clergy accused of sex abuse are to Catholicism. As we are about to enter the prolonged period of lent, perhaps some overdue sustainability soul-searching is in order.

    Credit: @mylove4art via Twenty20

    [1] In the field of social psychology, illusory superiority is a condition of cognitive bias wherein a person overestimates their own qualities and abilities, in relation to the same qualities and abilities of other people.

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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