"Doing Good or Feeling Good? Detecting Greenwashing in Climate Investing" by EDHEC Business School
- Sep 23, 2021 8:48 am GMT
In this study, EDHEC Business School identifies greenwashing risks in the construction of portfolios that represent popular climate strategies, especially those that correspond to net-zero alignment strategies.
To carry out this analysis, authors define key requirements in order for strategies to be consistent with influencing firms to reduce greenhouse gas emissions. Based on stylised equity strategies constructed using firm-level emissions data, they show that commonly-used ESG portfolio construction mechanisms fail to deliver consistency with impact objectives.
As a result, the vast majority of institutional funds and mandates that claim to have a positive impact on the climate are exposed to large and obvious greenwashing risks, largely because they exhibit attractive climate metrics at portfolio level through implementation of these flawed strategies.
De facto, the investment industry, in spite of its promises, does little to reallocate capital in a direction and in a manner that could incentivise companies to contribute to the climate transition
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