Investing in ESG funds is like trying to navigate “the Wild West” as both regulations and enforcement fall short, according to Andrew Behar, the chief executive of As You Sow.
The shareholder advocacy group spearheaded a study that found 60 of 94 ESG funds failed to adhere closely to the principles of environmental, social and governance investing. The findings, which have been shared with the U.S. Securities and Exchange Commission, indicate that “one can’t tell the difference between a prospectus for true ESG offerings vs. greenwashing mutual funds and ETFs,” the nonprofit said Tuesday.
The researchers -- a group of graduate students from University of California, San Diego -- used data-analytic tools to establish that language in many funds’ prospectuses lacked clarity when disclosing why they held stakes in companies involved in areas such as fossil fuels, deforestation, firearms and weapons, prisons and tobacco.
“We see funds with ESG in their names getting F’s on our screening tools because they hold dozens of fossil-fuel extraction companies and coal-fired utilities,” Behar said.
The study underscores the need for a common glossary of terms and fund classifications that could help the SEC enforce “truth in labeling” and eliminate “confusion and misleading marketing, fund naming and prospectus language,” Behar said in an interview.
Representatives from As You Sow met with the SEC last week to share their analysis and make recommendations. The SEC has previously said it’s investigating potential misconduct related to flawed sustainability claims.
