Marketers love talking about ESG, but with regulators starting to examine investment managers’ policies, it’s more crucial than ever that claims align with reality.
ESG (an acronym for environmental, social and governance) investing is reshaping the investment industry, if not the entire world. And now, the U.S. Securities and Exchange Commission (SEC) is looking to reshape ESG.
Marketers are often called on to shape the messages that articulate ESG. What does it mean? Why does it matter? What do we do differently? Given the scope of the SEC’s approach, marketers’ work will be affected.
What’s happening – All eyes on ESG marketing messages
ESG issues such as climate change and diversity are driving everything from political agendas to corporate policies to your neighbours’ investment decisions. As such, many ESG investment products are coming to market.
Following in the footsteps of European regulators, the SEC is scrutinizing investment managers’ ESG claims. The SEC wants to know the standards that managers use to classify their ESG funds. The SEC is focused on the hype – and it wants to know if what marketers are saying is accurate.
Third parties are also reviewing managers’ claims. One recent study found that a number of climate-themed solutions are not living up to Paris Agreement goals for reducing greenhouse gas emissions. While this study was limited and may have had gaps in its analysis, for marketers the point is clear: the messages you take to market will be viewed by many different parties.
What this means for you – Accuracy and authenticity rule
Marketers should be aware of the potential perils when their messages do not align with the investment policy and process. ESG is a broad label. It’s important that regulators do not think marketers are using vagueness to mislead investors.
Disclosures: Must reflect what’s actually occurring within the strategy. If not, financial and reputational risks may develop.
ESG issues: Make them crystal clear. If your fund is aligned with the Paris Agreement, explain how. If it focuses on governance issues such as diversity on boards, provide details.
The good news is that marketers, and the firms they work for, are staying ahead of change. In fact, they are taking leadership roles. In Canada, a recent Canadian Securities Administrators (CSA) ESG-related roundtable discussed emerging issues in the ESG space. Enhancing ESG-related disclosure was at the top of the panel’s priorities.
In Europe, the Sustainable Finance Disclosure Regulation requires ESG funds to classify themselves according to a specific framework. While this type of requirement may be further down the road for North American funds, it’s time for marketers here to prepare for the future.
Marketers need to work closely with product specialists to build a deep familiarity with ESG investment processes. This collaboration will help identify the data needed to back up their marketing messages.
With those relationships in place and the data in hand, marketers can ensure their messages are accurate and authentic, which will further help their messages resonate in the market.
- SEC Response to Climate and ESG Risks and Opportunities (U.S. SEC)
- Intro to Responsible Investing (RIA Canada)
- New ESG Regulation Out of Europe Redefines Investment Risk (TriplePundit)