Cookie cutter RI approach a risk for ‘rainbow-washing’
Responsible investors are at risk of ‘rainbow-washing’ by not following appropriate frameworks for their goals, according to Stewart Investors Sustainable Funds Group.
‘Rainbow-washing’ referred to the different colours applied to the 17 UN Sustainable Development Goals (SDGs) and was separate to the term used for businesses that pandered to LGBTQI+ social issues.
Nick Edgerton, Stewart Investors Sustainable Funds Group portfolio manager, said the firm avoided frameworks like net zero, UN Principles of Responsible Investment (PRI) or UN SDGs in its assessment process as they believed these were over-simplistic.
“They’re all useful to think about or use as a framework to think about sustainable development, but ultimately none of them have a purpose backing investment,” Edgerton said.
“The SDGs are incredibly important for the world, but they’re set up for the public sector and business – they’re not set up for investors and so we try and use a whole range of sustainability frameworks that validate our approach instead.
“We do look at our portfolio and how it can relate to things like the SDGs but we’re just really cautious about ‘rainbow washing’.
“The SDG has a rainbow of colours that applies to the different batches for the 17 goals, so the idea of rainbow-washing is perhaps embellishing how business or investment activities are contributing to them when the targets are very specific around certain social and environmental outcomes.”
The firm preferred frameworks like Project Drawdown which looked at how emissions could be drawn down from the economy by a range of business activities.
“What we have done instead is use rigorous frameworks like Project Drawdown which can illustrate how investing in everything from the electrification of the economy through to more sustainable and regenerative agriculture can contribute to a lower carbon future,” Edgerton said.
“Investing in line with what is needed is really important – and the net zero and Paris goals are important – but we really need to understand how to get there.
“You can put a flag in the ground for 2050 of where we need to get to, but then the recommendation is that translates to a pathway of quite reasonable decline in emissions.”
Edgerton said the firm was cautious about the frameworks they followed and what those meant for investors in the long-term.
AUTHOR
Chris Dastoor
Recommended for you
Australian Ethical has become the latest fund manager to flag an expansion of its private markets range while reporting a 50 per cent rise in statutory net profit after tax in the first half of FY25.
PM Capital’s Global Opportunities Fund has made a binding offer to acquire the two listed investment companies run by Platinum Asset Management.
Costs associated with the failed KKR deal have caused Perpetual’s statutory net profit after tax to more than halve to $12 million for the first half of FY25.
The exit of co-CIOs Andrew Clifford and Clay Smolinski from Platinum has highlighted key person risk, with Morningstar raising its outflow forecast to 33 per cent of FUM per annum in response.
