Why green labels and scores are only starters for sustainable investment decision making

Fund managers are being warned to scrutinise the green, social responsibility and corporate governance credentials of target companies before making asset allocation decisions, according to one of the world’s top sustainable investment experts.

Bertrand Gacon, head of impact investing and socially responsible investment at Lombard Odier, the Swiss private bank, said some fund managers are now running the risk of “green-washing” their portfolios, a term used to describe investments that achieve less sustainable goals than expected, and were made at the expense of more worthwhile investments.

The Swiss bank and asset manager helps wealthy clients develop their own “impact investment charters”, identify investment products and report on their portfolios’ financial performance, as well as environmental and social impact.

One of its most popular products is its “green” bond, which has witnessed explosive growth in recent years. But the fact that different markets have different regulations on what projects are qualified means the investment process can often be complicated.

One example is “clean” coal projects, which use technology to cut emissions. They are qualified for green bond issuance in China, but not in most Western nations.

“If we the financial community are not vigorous enough in carrying out the right impact verifications, and making sure ... that [our investors’] money is used to finance green infrastructure, then ... you will create some mistrust, which is something you really need to work hard to avoid at this early stage development of the green bond market,” he said in an interview with South China Morning Post.