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Sustainable investment has experienced an enormous upswing in recent years. Sometimes, however, financial products are also advertised as environmentally friendly, green or sustainable, even though they do not meet the mandatory standards.
The topic of sustainable investment has become widely accepted in society. More and more investors are investing in ESG-certified financial products. But there are also dubious providers: not every offer advertised as “green” and “sustainable” fulfills the requirements to be rated as such.
The Austrian Financial Market Authority FMA has also registered an increase in inquiries relating to the topic of sustainable financial products and warns against greenwashing of financial products, i.e. against offers from dubious providers that are advertised as environmentally friendly but are not at all. The FMA has therefore chosen the issue of sustainability to be one of its supervisory and audit priorities in 2021.
Green deception
The basic problem is that investors are misled to invest under false pretenses that they would not have made or would only have made at a different price with knowledge of the actual effects of the financial product. In the case of greenwashing, with an eco-paint. “Companies want to create a competitive advantage for themselves and their product and give themselves a better image in order to be able to charge a higher price,” warns the FMA in its information brochure on the subject.
According to the FMA, “greenwashing” is carried out through misleading or false information in advertising, advisory meetings and product documentation. Often it is associated with a corresponding visual design, for example through the use of the color green and through representations of untouched nature. In addition, terms such as “ecological” or “green” are often used, or a certification is advertised that does not even exist. "Don't be fooled - not every financial product is as green as it is supposed to be," warns the FMA.
No guarantee
Sustainable financial products developed comparatively stable during the Corona crisis and were able to achieve above-average returns in the crisis year 2020. “But they are not per se more secure than comparable conventional investments. Always ask questions and be critical,”warns the FMA board of directors, Helmut Ettl and Eduard Müller.
The ESG criteria for sustainable investment were defined by the UN. In order to be ecologically sustainable, an investment must also make a contribution to the environmental goals set out in European law. Companies, banks and insurance companies must disclose information on sustainability in their annual reports.
Rely on reputable providers
The FMA urges caution, particularly when it comes to investments in the “gray”, ie unregulated, capital market. The products offered there are outside the supervisory spectrum, but may still be offered. "Investments in green real estate, wind and solar parks or hydropower plants are often offered here," notes the FMA and warns: "If such projects are designed as qualified subordinated loans, company investments, bonds or profit participation rights, one should be aware that in the event of the bankruptcy of the Company all invested money may be lost”.
In order to counteract greenwashing, the statutory provisions for products that can be described as “green” or sustainable are constantly being improved and tightened at national and European level. With reputable fund providers, you can be sure that funds advertised as sustainable actually meet the relevant requirements. A good indicator, if not the only one, is the Austrian eco-label for financial products.
