Investors warn over impact fund ‘greenwashing’

As impact strategies grow in popularity, pressure is growing on fund managers to talk up their social benefits, LPs say.

Pension funds need to push impact funds harder on whether they are exaggerating their social or environmental benefits, a leading investor said Wednesday.

Tim Macready, the chief investment officer of Christian Super, an Australian pension fund that puts more than 10 percent of its assets into impact investments, said that the sharp growth in the impact market had heightened the likelihood of ‘greenwashing’ – where funds make unsubstantiated or misleading claims.

“As impact becomes an opportunity to sell, the risks around greenwashing increase,” Macready told the Global Impact Investing Network Investor Forum in Paris. “As investors, our diligence on the impact case needs to move from a situation where we trust intentions and focus on peoples’ passions to documented diligence.”

Christian Super, which has assets of more than A$1.3 billion ($930 million; €820 million), was one of the first pension funds worldwide to invest in impact strategies, which pledge to generate social or environmental impact alongside a financial return.

Macready said diligence over impact funds has improved markedly since Christian Super’s first investments more than a decade ago, when “if they seemed like really nice people who were trying to do something good that was good enough”.

More still needs to be done though, he said. “We need as an industry to get strong about the expectations we create.”

Firms including Partners Group and KKR have launched impact funds in the last 18 months, with investment firm Hamilton Lane being the latest with an offering focused on the strategy, as Private Equity International reported on Tuesday.

Greg Shell, managing director of Bain Capital’s first specialist impact vehicle – the $390 million Double Impact Fund – said that increased pressure from investors left no scope for misleading investors. “We promise rigour to our investors. I think they insist on it,” he said.

“I think there will be absolutely next to no tolerance for greenwashing or impact-washing. The diligence being done on funds by institutional investors is simply too detailed and rigorous.”

One strategy that Bain is pursuing is to put incentives in its compensation packages linked to impact metrics, Shell said.

Investors on the panel also questioned whether the UN Sustainable Development Goals are being used as a promotional tool by funds rather than as an agent of change.

“When the SDGs were launched, many people started to label their portfolios based on the SDGs and were very proud to communicate to the outside world how much they were already contributing,” said Yvonne Bakkum, a managing director with Dutch development bank FMO.

Real impact investing requires not just labelling your investing as impact, but changing the way you invest, Bakkum added.

“It requires a real allocation of capital so that impact is created that would not have been there without your investment,” she said.