The International Monetary Fund (IMF) is calling on regulators to act on greenwashing and have a standardised responsible investment (RI) rating system as misleading environmental claims plague the industry.
According to the IMF’s ‘Global Financial Stability Report’, as much as $20 trillion ($27.5 trillion) in additional government and business investment would be needed over the next two decades to tackle the challenge of bringing greenhouse emissions to net zero by 2050.
At the end of 2020, funds with a sustainability label totalled about $3.6 trillion in funds under management (FUM), representing only 7% of the overall investment fund sector while funds with a specific climate focus accounted for only $130 billion.
The IMF report said policymakers needed to employ better classification systems for funds where fund labels and classifications would be uniformly used and understood.
“…Proper regulatory oversight needs to be in place to prevent ‘greenwashing,’ that is, ensure that labels fairly represent funds’ investment objectives,” the IMF said.
“This, in turn, increases market confidence and further boosts flows into sustainable funds.”
The IMF said it would engage with the World Bank and the OECD to develop principles for a classification system that worked with existing sustainable investing approaches.
Once these elements were in place, the IMF said it would be important for targeted net-zero tools to develop in the industry, such as enhanced eligibility of climate-themed funds for favourable tax treatment in products such as retirement plans and life insurance products.
Michael Ohlsson, Evergreen Consultants director, said: “It is significant that the IMF drew attention to the need to ensure proper regulatory oversight of the funds management industry to prevent greenwashing”.
He said funds needed to take an “active position” on avoiding harm and targeting sustainability while adhering to two simple factors, to truly break free of greenwashing.
“First, fund managers must be honest and open about their sustainability intentions,” he said.
“Second, they must follow through on those intentions in their investment processes.”