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How Green is Green?

Sigma Investment Counselors

October 1, 2021

We have previously discussed the issue of definition for funds purporting to offer an emphasis on focused investment themes.  See our blog of April 14, 2021 titled How Many Raisins in a Box of Raisin Bran, in which we suggest that the fund manager decides what is a raisin and what isn’t.

Now the European Union (EU) is promulgating new rules intended to provide more clarity around green investments and to address the issue of green washing*.

Up to now, fund managers have universally been the final arbiters of how green, and for that matter, how compliant with other goals of focused investment strategies their portfolios are.

The EU’s new anti-greenwashing initiative appears to be a first step in making fund managers more accountable and to bring some order to the ESG investing space.

Investors don’t have to wait for the EU or other potential regulators.  Public fund’s portfolios are a matter of public record and are easily accessible.  A quick review of a fund’s 10 largest holdings can provide considerable insight as to the managers’ strategies.

Investors should also be aware of the potential for “crowding out” if regulators are successful in tightening ESG qualifications.

* Greenwashing is the process of conveying a false impression or providing misleading information about how green a company’s products or services are.

 

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

 

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