ESG has become very popular with investors and fund promoters in 2019 and one can also expect that it will be a hot topic for the European investment industry in 2020. Therefore, we can expect to witness a lot of talk around initiatives from asset managers to integrate sustainable investment criteria into their portfolio management processes. Like in 2019, some of these initiatives will make sense, as they may lead to a rethinking of the portfolio management and asset selection process of the respective asset manager. Other initiatives may sound good, but won't lead to a general change in the portfolio management practices of the respective managers at all. This becomes particularly clear when an asset management company states that it will integrate ESG criteria across all its funds and strategies, and one of its star managers claims that he will not make selection decisions for his portfolios based on ESG criteria.
As media and investors are becoming more aware of good ESG investing practices, such as a permanent increase of transparency, every asset manager should be quite careful about their ESG strategy. Greenwashing has already become a "no-go" and I am sure that investors will react accordingly—such as by pulling money out of the respective funds—if a fund or an asset management company gets caught by such an attempt to fool them regarding the integration and usage of ESG criteria within fund management processes.
That said, a misleading communication with regard to the ESG strategy of a specific fund or an asset management company could prove not only a reputational risk for the respective company, it could become a reputational risk for the entire asset management industry. Disappointed investors may pull their money out of actively managed funds and invest in passive products that have clear rules on the usage of ESG criteria. In addition, any scandal based on misleading communication may raise a regulatory review on the common practices, which can lead to new regulations.
Detlef Glow is head of Lipper EMEA Research