Concern over greenwashing is decreasing among ESG investors, according to the results of a study sponsored by Capital Group.
Of the 1,130 global investors surveyed, less than half (48%) said they believe greenwashing is widespread within the asset management industry, down from 57% last year. The perceived prevalence of greenwashing has dropped across all regions, but most markedly in Asia-Pacific (at 42%, down from 56% in 2021).
However, the percentage of investors who think greenwashing is a barrier to greater ESG adoption has grown to 30%, up from 22% in 2021.
The increasing ESG momentum is being fueled by client demand and external pressures. More global investors this year say their approach to ESG is driven by client expectations and reputational concerns (42% versus 37% in 2021).
“ESG adoption is on the rise, with over 50% of respondents identifying client demand and a desire to make an impact as the primary ESG adoption drivers,” said Jessica Ground, global head of ESG at Capital Group, in a video statement.
The study also found that data overload is a problem for investors. “Difficulties with the quality and accessibility of data and inconsistent ratings are hampering [investors’] ability to implement ESG,” said Ground. “At the same time, information overload is a real problem, as the type and sources of ESG data multiply.”
Capital Group said the war in Ukraine was “redrawing the ESG map.” While the economic and health toll of COVID-19 raised the profile of social issues, the war in Ukraine will likely see an “increased focus on political risk, compared to other ESG risks,” Capital Group said. Several investors said the heightened geopolitical risk will change ESG frameworks for investing in emerging market sovereign debt.
Equities (at 80%) and bonds (58%) remain the most popular asset classes to gain exposure to ESG among global investors. This year, investors have increased their usage of alternatives (47% versus 41% in 2021), real estate (27% versus 24%), and commodities (25% versus 8%), suggesting a growing appetite for inflation-linked assets.
Emerging markets are also a more popular way to gain exposure to ESG (36% versus 28% in 2021), a sign that perhaps some investors view developed markets ESG as overcrowded and are searching for untapped opportunities elsewhere.
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