“It’s very clear through the guidance that CSA is viewing greenwashing as a very important concern,” Tam says. “Through CSA’s own investigation, they found that ESG-related or permanent investment disclosures for investment funds were generally a bit vague and contained boilerplate language, which I agree with. Fund companies disclose their practices using common language. Providing guidance on how to do this will help the industry a lot.”
A notable part of the guidance, Tam says, has focused on reinvested money. Some funds may have already existed for some time, but were re-branded by the fund manager as green, sustainable, or other similar terms designed to appeal to ESG-conscious investors.
But according to CSA’s findings, which is consistent with Morningstar’s previous research, the language used to describe the investment strategy or objectives of such funds does not actually refer to the use of ESG factors. CSA’s new message clarifies that funds should only use ESGs or other related terms in their own name if those ESGs or sustainability aspects are also explicitly discussed in the objectives.
“The guidance also talks about cherry-picking scores and ratings from providers,” Tam says. It states that if a fund provider decides to include ESG scores in the disclosure material of an investment product, it must include scores from more than one provider.
This direction is absolutely critical, says Tam, because the ESG risk rating method used by one provider, such as Sustainlytics, may be different from that used by others. This means that the same fund may have different ratings from different providers, and choosing just one introduces the potential for a strong framing bias.
