In the lead-up to the COP26, Charles Sincock heeds a warning for ESG products being mis-sold.
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COP26
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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 鈥榥et-zero鈥� 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鈥檚 greatest concerns is the danger of ESG product 鈥榞old rush鈥�.
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The Dangers of Mis-selling ESG Products
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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:
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鈥淥n the eve of COP26,听financial institutions听should place renewed听focus on听the dangers of mis-selling听new green products as the clamour for听environmental, social and governance听(ESG)听compliant investments听promises to generate听a 鈥榞reen听gold听rush鈥櫶齣n the market.
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鈥淎sset managers face immense pressure from investors and activists to divest from fossil fuel industries. More听than half the money, a total of 鈧�1.4 trillion,听which flowed into European funds听in 2020听went into sustainable products, a trend that has intensified in 2021.听Amid听a commodity price boom 鈥撎齠uelled by听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.
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鈥淭he dangers听of mis-selling green products听and听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.听To听navigate听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听over-egg their 鈥榞reen pudding鈥�.
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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�
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