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Skepticism about ESG labels is on the rise, but we see enduring support for it

A record $649 billion was poured into ESG-focused funds around the world by November 30 last year, according to Refinitiv Ripper data. This shows that $542 billion and his $285 billion flowed into these funds in 2020 and 2019 respectively.
Global sustainable investments are currently estimated to be in the $35-40 trillion range, and ESG funds currently account for 10% of global fund assets.
With more frequent extreme weather events and events focused on social justice issues, ESG has risen to the top of the agenda for investors, companies and policy makers.
However, bond issuers now appear to be reconsidering the benefits of leveraging the ESG bond market. This is based on an assessment that the low funding costs that labels typically bring are not worth the risk of exposure to greenwash accusations.
Amid growing concerns that only a small percentage of such assets are bona fide “environmental, social and governance” (ESG) investments, there is a call for stricter regulation to root out false claims by fund managers. increase.
Matt Putsky, who introduced the world’s first “green chip” index of socially responsible companies in 1994, said 1 out of the $35 trillion the Global Sustainable Investment Alliance claims remains a sustainable investment. We estimate that less than a trillion dollars is “true” ESG. .
Such warnings are becoming more frequent as the mood around ESG shifts.
Goldman Sachs Group Inc.’s NN Investment Partners said last month that it has become more picky among asset managers and is increasingly rejecting ESG bond pitches.
Issuers are increasingly forced to contend with the reputational risks of marketing ESG debt that may not yet be fit for purpose.
Last September, Bloomberg News published an analysis of more than 70 sustainability-related revolving credit lines and term loans arranged in the US since 2018. met.
In Europe, the evolution of the language used by asset managers for a product called Article 8 is a good example.
Although the EU’s Sustainable Finance Disclosure Regulation defines products as those that “promote” sustainability, many investment managers choose not to carry an ESG label.
Some companies have expressed reservations about issuance of particularly long-term green debt due to the rapidly changing regulatory environment and reputational risks.
BloombergNEF associate Maia Godemer says green bond issuers may choose to shorten the tenor to avoid putting their green credentials at risk as market thresholds tighten. there is.
For proponents of ESG data-driven investment strategies, it’s been a bumpy road.
But McKinsey & Co consultants, in a new paper titled “Does ESG Really Matter and Why?”, explain many of the reasons why ESG has drawn so much criticism lately.
They ultimately conclude that ESG foundations and compliance with their “social licence” will remain important for companies well into the future, regardless of the current turmoil surrounding certain components.
For best results, companies should focus on ESG improvements that inform and support their evolving business models, even if those improvements do not directly lead to a higher rating. There is, writes the McKinsey author.
According to Bloomberg Intelligence, global ESG assets will exceed $53 trillion by 2025.
Without a doubt, ESG is clearly the money machine of the financial industry. However, real-world effects are not always easily discernible.

http://www.gulf-times.com/story/722791/ESG-label-scepticism-rising-but-underpinnings-are- Skepticism about ESG labels is on the rise, but we see enduring support for it

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