As environmental, social, and governance (ESG) investing exponentially increases, so does the level of inconsistent ESG disclosures, adding to investor confusion. Without any mandates for standardization, companies will continue disclosing their sustainability efforts without concrete facts behind their subjective claims in hopes that they will appear “greener” to investors. This practice—known as greenwashing—could become prevalent, resulting in capital intended for sustainable investments flowing toward harmful businesses investors sought to avoid. Regulators should develop a mandatory ESG disclosure framework to create accurate, reliable data and to prevent capital from being misallocated against investors’ genuine sustainable efforts. Some existing rules could hold those misstating their ESG efforts responsible, but the potential for asset managers of ESG funds to greenwash their financial disclosures needs to be addressed by mandating a standard ESG disclosure framework.
An ESG fund disclosure framework, like those developing in other countries, is necessary for asset managers when drafting disclosures and labeling ESG products as part of an overarching guide with similar frameworks for all market participants pursuing sustainability. By creating consistent ESG data among portfolio companies, asset managers, and third-party raters, investors can properly inform themselves, better evaluate greenwashing claims, and ultimately mitigate greenwashing.
Musciano, Cara Beth
"Is Your Socially Responsible Investment Fund Green or Greedy? How a Standard ESG Disclosure Framework Can Inform Investors and Prevent Greenwashing,"
Georgia Law Review: Vol. 57:
1, Article 9.
Available at: https://digitalcommons.law.uga.edu/glr/vol57/iss1/9