The International Monetary Fund (IMF) has highlighted the important role investment funds will play in the transition to a greener economy in a new report this week.
Among the key recommendations from the IMF is to “ensure that labels fairly represent funds’ investment objectives” with proper regulatory oversight in place to prevent ‘greenwashing’.
Michael Ohlsson, director at Evergreen Consultants and the Evergreen Responsible Investment Grading Index, said it was “significant” that the IMF had drawn attention to the issue.
“The report noted the pressure to be ‘greener’ introduces the temptation for funds to promote themselves as being more sustainable than they are,” Mr Ohlsson said.
According to Mr Ohlsson, fund managers are obligated to be “honest and open about their sustainability intentions” and need to “follow through on those intentions in their investment processes” when it comes to responsible investing.
“Those funds with a genuine Responsible Investment tilt are better positioned to make a difference because of the already active position they take on making a change, that is, avoiding harm and targeting sustainability,” said Mr Ohlsson.
The IMF also noted that policymakers needed to “strengthen the global climate information architecture”, including data, disclosures, and classifications, to help sustainable investment funds become more impactful.
“Better classification systems for funds, where fund labels and taxonomies are uniformly used and understood, helps to summarize a fund’s investment strategy and its overall approach to engagement and stewardship,” the IMF said.
Mr Ohlsson identified that understanding what responsible investment is and promoting transparency by fund managers in their approaches to responsible investment were two major challenges for the industry.
“We see an important role for investment consultants in ensuring that transparency occurs. We believe Responsible Investment is a journey and that a fund manager needs to be very clear about their intentions,” Mr Ohlsson said.
