Over the past few years, investors and regulators have increased scrutiny of greenwashing. That is boasting about ESG credentials when there’s not meat on the bone or misrepresenting ESG in fund form.
That’s only fueled the fire of ESG critics. It appeared as though some of that criticism had recently waned. But some well-known fund issuers were recently tagged with financial penalties due to greenwashing allegations. Interestingly, those instances occurred in the U.S. and other countries. That indicates there’s a global regulatory movement to dampen greenwashing.
The other noteworthy point is that efforts are afoot to push back against inaccurate ESG claims – a worthy endeavor. It’s not an indictment of ESG investing itself. That could signal ETFs like the Invesco ESG Nasdaq 100 ETF (QQMG) still have merit.
Why QQMG Matters Today
Regarding performance, QQMG is higher by about 19% year to date, perhaps allaying concerns that embracing ESG assets results in leaving returns on the table. Alone, that should help the case for QQMG as long-term portfolio consideration.
However, the ETF’s relevance doesn’t end there. QQMG’s underlying index construction ensures greenwashing is mitigated, That’s meaningful, because regulators are increasingly scrutinizing passive ESG strategies.
“The anti-greenwashing efforts come at a time that net purchases of sustainable funds have slowed, except for passive funds,” noted Morningstar’s Leslie Norton. “Passive funds have taken the lion’s share of flows. Now, analysts say, some regulators are taking aim at passive sustainable funds, which typically use screens to exclude certain industries, controversial stocks, or companies that fail to pass certain ESG hurdles. Sometimes, these funds fail to police their own investments.”
QQMG’s ability to avoid greenwashing also implies it can avoid controversy. That’s also meaningful, because dating back to 2022, several U.S.-based asset managers, including some ETF issuers, have paid millions of dollars in greenwashing-induced fines.
QQMG living up to its billing as an ESG product is important for another reason: making sure investors are getting what they pay for. Said another way, false advertising with purported ESG products is an easy way to run afoul of regulators. And it’s something they’re increasingly paying attention to.
“Regulators will insist on more clarity. Last year, the SEC amended its Names Rule. The fund’s name is the first thing that investors encounter, and according to the Names Rule, which was originally adopted in 2001, funds must invest 80% of their assets in the investments the name suggests,” added Norton.
