We consider that ESG data and ratings services should be transparent, well-governed, independent, objective, and based on reliable and systematic methodologies and processes.’ – FCA
In a recent letter to CEOs, the UK’s Financial Conduct Authority (FCA) raised concerns about the lack of transparency and quality of disclosures within the ESG benchmarking sector. At Impact Cubed, we wholeheartedly agree with the FCA’s findings and are committed to providing transparent and reliable ESG data and analytics.
The recent sentiments from the FCA echo those from the ESMA and the SEC, surrounding the lack of detail and description of ESG factors in fund names. At Impact Cubed, we solve this issue through our outcome-based approach, which provides factual and transparent ESG data that can be tied back to the source. Our platform allows users to easily measure the ESG impact of any chosen benchmark against the fund they want to compare it to, including the percentage of disclosed versus estimated data. This level of transparency allows investors to make informed decisions and builds trust in the market for ESG-labelled products.
Another issue raised by the FCA was the potential for greenwashing, where benchmarks that purport to pursue ESG objectives apply ESG factors in a way that is not materially different from a similar non-ESG benchmark. We have already seen from our analysis of top US ESG ETFs, that this is the case, and in most cases does not even correlate with the bps investors are paying. This further builds on our longer analysis of passive ESG funds, which found that some even had a negative ESG impact.
Our findings from analysing the top US ESG ETFs, mapping their ESG impact to their tracking error.
At Impact Cubed, our portfolio engine enables investors to create their own benchmarks, indexes, or funds based on transparent and objective data. This approach ensures that the construction of these portfolios is fully rationalized and objective, eliminating the potential for greenwashing.
In conclusion, we agree with the FCA for raising these important issues within the ESG benchmarking sector. At Impact Cubed, we believe that transparency and reliability are paramount in promoting trust in the market for ESG-labelled products. Our outcome-based approach and portfolio engine provide transparent and objective data to enable investors to make informed decisions and create sustainable portfolios.
If you’d like to speak to us about our methodologies, or how we can help you build better benchmarks, get in touch.