The landmark case of a police raid on a German bank for allegedly falsely labelling green investments in May could be “a sign of things to come” in how Asian legislators tackle greenwashing in the finance sector, according to a Hong Kong-based lawyer who advises banks on ESG strategy.
Vivien Teu, head of asset management and ESG at law firm Dentons Hong Kong, said that Asian investors faced heightened scrutiny over the validity of ESG investments, and needed to be “whiter than white” when trading sustainable funds in anticipation of policies that target misleading or fake “green” investments.
On 31 May, German law enforcement officials raided the headquarters of Deustche Bank on suspicion that its investment arm DWS had been erroneously advertising sustainable investment funds. It was the latest blow to the credility of the sustainable finance sector, which labels $2.7 trillion in assets as green.
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Speaking to Eco-Business on the sidelines of AVPN Global Conference in Bali, Teu said that a lack of clarity and transparency over the definition of ESG risked “tripping up” finance executives, many of whom lack a deep understanding of sustainability issues in a nascent sector.
“We are still in the process of getting companies to really understand what E, S and G mean. There are salespeople with ESG in their job titles who do not fully understand it. They want to meet their targets [for ESG investments], but may have not had sufficient training [to understand sustainability issues],” said Teu.
Over the past few years, a wave of jobs has been created by Asia’s leading finance firms to head up new ESG functions, but most hires have lacked sustainability experience. Deutche Bank was one of the first and only banks to hire an Asia Pacific head of ESG with a sustainability background, in 2020.
We are still in the process of getting companies to really understand what E, S and G mean.
Vivien Teu, head, asset management and ESG, Dentons Hong Kong
Greenwash: the bane of finance
Other executives are concerned about greenwash in Asia’s financial system. Samuel Rhee, chairman of financial advisory firm Endowus, said recently that most Asian fund managers lack a robust framework or a proper taxonomy for ESG investing, which can lead to greenwashing.
Funds are being renamed “sustainable” without justification, which misleads investors and hurts the credibility of the sector, he noted.
Asia’s response to the ESG investing boom has been “faddish”, Rhee said, adding that the region is five years behind Europe and the US in raising the bar for credible sustainable investing.
The European Union has taken the lead, introducing the Sustainable Finance Disclosure Regulation (SFDR) in March, which aims to make the sustainability profile of funds more comparable.
Asian regulators have yet to close in on the sector, but policymakers have highlighted greenwash as a problem.
Last week, Singapore’s deputy prime minister said greenwashing “is becoming the bane of global financial systems”, and the country’s finance regulator hatched a plan to use artificial intelligence to weed out greenwashing from corporate disclosures.
In April, Japan mandated listed firms to disclose climate risk in line with the Task Force on Climate-related Financial Disclosures, a framework for companies to declare how climate change affects their business. Singapore and Hong Kong plan to introduce similar rules.
Teu said that Asian regulators are catching up, and the criticism the sector had received for greenwashing has been “unfortunate”.
“Concerns around greenwashing have prompted some to say that ESG investing is nonsense — that it’s a waste of time. I don’t agree. That’s the wrong approach,” she said.
“The fact is that the requirements for labeling [ESG] have come before the technical screening criteria and rules around disclosure.”
ESG investing is forecast to triple globally — and quintuple in Asia — by 2025, when they will represent more than a third of the $140.5 trillion assets under management.