Risk and financial crimes advisory firm K2 Integrity announced the launch of a new solution for independent certification of ESG strategies for funds and fund managers.
According to K2, the solution will help to address the risk of greenwashing, in which the sustainability credentials of a product or service are exaggerated or misrepresented.
The solution comes as greenwashing concerns are increasing in the investment industry, with regulators around the world beginning to crack down on misleading ESG claims. Investment manager DWS’ CEO resigned earlier this year, a day after police raided the firms’ Frankfurt offices as part of an investigation into greenwashing allegations at the firm. The SEC recently announced that it had charged BNY Mellon for making misstatements and omissions about the ESG considerations used for investment decisions in some of its mutual funds, and last month, Goldman Sachs confirmed media reports of an SEC investigation into certain of its ESG-themed funds.
Under the new certification program, K2 will conduct a review of qualitative and quantitative metrics, applying a proprietary framework, to verify that a fund and manager is compliant with ESG best practices. In addition to utilizing the fund’s voluntary self-disclosure, K2 will review the fund manager’s approach and process, and alignment with industry’s best practices, while also taking into consideration applicable regulations.
Andrew Rabinowitz, Co-CEO of K2 Integrity, said:
“The need to validate and quantify ESG initiatives has never been greater, as investors, regulators and other stakeholders pay closer scrutiny to funds’ activities. Funds and fund managers must make sure they are following through on their ESG commitments.”