In the lead-up to the COP26, Charles Sincock heeds a warning for ESG products being mis-sold.
COP26
The 2021 United Nations Climate Change Conference (COP26) commences this Sunday (31st October). This will be the 26th UN Climate Change Conference and this year it will be hosted in Glasgow.
These conferences have become increasingly critical as the ongoing climate crisis worsens. Representatives meet from all over the world to discuss what action can be taken to combat climate change including limiting global warming to 1.5 degrees, halving global emissions within the next decade and reaching ‘net-zero’ by 2050.
Aptly, the event begins on Halloween, as it seems there are many scary topics on the table. In particular, one of this year’s greatest concerns is the danger of ESG product ‘gold rush’.
The Dangers of Mis-selling ESG Products
Charles Sincock, ESG Delivery Lead at global technology and management consultancy Capco, warns of the impending dangers for firms mis-selling ESG products amid escalating investor appetite for more sustainable, climate-friendly opportunities:
鈥淥n the eve of COP26,聽financial institutions聽should place renewed聽focus on聽the dangers of mis-selling聽new green products as the clamour for聽environmental, social and governance聽(ESG)聽compliant investments聽promises to generate聽a 鈥榞reen聽gold聽rush鈥櫬爄n the market.
鈥淎sset managers face immense pressure from investors and activists to divest from fossil fuel industries. More聽than half the money, a total of 鈧�1.4 trillion,聽which flowed into European funds聽in 2020聽went into sustainable products, a trend that has intensified in 2021.聽Amid聽a commodity price boom 鈥撀爁uelled by聽demand from post-pandemic recovery programmes for energy and resources 鈥� asset managers will be conflicted as they seek to balance green credentials with a mean performance.
鈥淭he dangers聽of mis-selling green products聽and聽misrepresenting the positive ESG or climate credentials of a product may deliver short-term gains, but could also lead to significant value destruction in the longer run.聽To聽navigate聽this potential minefield, caution and process must become the focus at all levels of the firm when delivering robust and defendable frameworks to manage ESG products and services. Without this approach, it will be all too easy for firms to聽over-egg their 鈥榞reen pudding鈥�.
鈥淚f the lessons of previous mis-selling mishaps are learned, then this could be the defining opportunity for the next generation of financial services鈥� customers, firms, employees and executives. If not, it has the potential to damage not only individual firms鈥� balance sheets and reputations, but also broader efforts to make sustainable finance a reality 鈥� and ultimately the very future of our planet.鈥�
