Have you invested into a green fund on the basis of misleading “greenwashing” marketing? Hundreds of ESG funds could have been set up using deceptive advertising. If you have invested into a green fund, you could be owed mis-selling compensation.

Sustainable investments funds have grown rapidly in the past couple of years, with more investors seemingly becoming more concerned about where their money goes and how it used. Environment, Social and Governance (ESG) funds attracted around $113.1bn of new money in the final few months of last year.

While on the surface this increase in green funds seems positive, many financial experts are concerned that the influx of new investment could be a sign of a huge mis-selling scandal. As more investors become environmentally aware, more investment funds will start to cash in using “greenwashing” terms and misleading their clients in relation to the actual green credentials of the fund.

Experts have warned that there is a risk of mis-selling due to a combination of greenwashing by asset managers, a poor understanding of ESG funds by investors, and the lack of a proper framework for assessing products by the various regulators.

Our panel of mis-selling solicitors expect ESG mis-selling claims to rise in the coming months and years, with greenwashing mis-selling becoming a new scandal. If you have invested into a “green” product or fund which has subsequently been found out to not represent exactly what you thought it did, you could be owed mis-sold ESG fund compensation. You can speak to our panel of ESG solicitors to find out if you can claim.

What is an ESG fund?

There is an increasing awareness amongst investors of environmental issues, and the places in which their money is invested in. “Green” financial products, from green bonds, ethical savings accounts, green home mortgages and other ESG funds, are growing exponentially.

ESG funds contain a portfolio of investments in which environmental, social, and governance aspects have been integrated into the investment thought process. They are also known as green funds and sustainable investments.

The fund should only include investment products with a high sustainability score and should exclude companies with poor records on pollution, poor employment practices, and general poor CSR procedures. Some research suggests that this sort of investment can perform better than non-sustainable ones due to risk management over contentious issues - the fund may face less regulatory backlash and may also be less volatile over time.

How Could I Have Been Mis-sold?

Exactly what an ESG fund is defined as could raise some potential mis-selling problems for financial institutions, asset managers and regulators. Because these funds are relatively new, there is uncertainty in relation to the criteria by which products qualify as socially responsible or ethical.

Many financial institutions may not be taking their company’s ESG credentials and statements seriously and may be simply using green funds for marketing purposes to attract the new wave of socially responsible investors.

There is expected to be an increase in potential mis-selling greenwashing fund claims due to financial firms not carrying out their due diligence when promoting these ESF investment vehicles.

The ESG litigation can be carried out by the investor in a number of ways. If you have been sold on the basis of a green fund being environmentally friendly, and it turns out it is not what was advertised, you may have been mis-sold and the fund misrepresented. This could mean you can bring forward a mis-selling claim, and could receive compensation.

In addition to this, many investor funds may start taking legal action against the companies they are investing in, such as ClientEarth taking action against Shell for failing to adopt and implement a climate strategy that fails to align with the goals of the Paris Agreement.

Many legal experts are already arguing that ambiguous language of ESG funds such as “sustainable” and “green” may actually have legal basis. Experts suggest that the 2015 Paris Agreement has to provide the ultimate definition of “sustainable”, and if the fund does not match that definition, then there could be a mis-selling.

What is the FCA stance on mis-sold ESG funds?

The FCA has recently written a strongly worded report to financial firm CEOs urging them to only promote “genuine” ESG funds, and avoid “greenwashing”. They also included a new classification and labelling system for sustainable investments.

A spokesperson for the FCA said:

“We recognise the risk of investors being persuaded by misleadingly marketed funds and set out our expectations on this in a letter to fund chairs last year. Our ESG strategy published last year puts front and centre the standards necessary to support the development of ESG investment that has investor trust, and our willingness to use our supervision and enforcement tools where firms fail to meet them.

“We challenge managers where we see activity that falls short of our expectations regarding labelling, management or disclosure in their ESG funds.”

More recently, the European Securities and Markets Authority have stated that there is “now a real need to address greenwashing without delay”. They have warned of a possible “green bubble”, as green assets are being overvalued by asset managers.

The DWS Probe

Fears among the financial industry worsened after German asset manager, DWS, was investigated by German and US regulators. These probes were triggered after allegations were made by DWS’s former global head of sustainability, and put greenwashing claims in the headline news across Europe.

The probe revealed poor data and conflicting standards on ESG funds, which could potentially open up asset managers to potential mis-selling claims. Asset managers at DWS are now fearing that exaggerated claims over sustainability-focused investments could become a new mis-selling scandal across the industry.

Other rival fund managers now fear they could come under the same scrutiny.

How Can I Begin My Claim?

While this claim is in its infancy, our panel of expert ESG mis-selling solicitors are investigating various asset managers and their claims about green funds. If you would like to check your eligibility to begin a claim, please fill out our enquiry form on this page.

Important Information

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