While big banks and asset managers build teams around ESG investing and appeal to investors’ preferences, regulators are scrutinizing the industry.
- While firms continue investing in ESG strategies, critics have taken some wind out of the sails.
- Regulators are cracking down on greenwashing and the market downturn has hit ESG funds.
- Insider is tracking our latest coverage of ESG investing and sustainable finance here.
“The topic of sustainable investing has sparked a lot of debate in recent months,” Larry Fink, the chief executive of BlackRock, the world’s largest asset manager, said on the firm’s second-quarter earnings call last week.
Fink, an early trader of mortgage-backed securities, said recent dialogue around sustainable investing echoed those days when he started his career in the 1970s and Wall Street was first turning mortgage loans into bonds. Investors, regulators, and policymakers all had lots of questions about the practice and the mortgage market.
“While the mortgage market has since had many ups and downs, it is today a $10 trillion market. And with the appropriate underwriting standards, it has played a vital role in delivering attractive returns to investors and making homeownership affordable for millions,” Fink said, according to a transcript from the research provider Sentieo.
Fink said investing while using environmental, social, and governance (ESG) factors is similarly in its early days as a fast-growing, evolving segment. And investors will require uniform disclosures to make better decisions. (It is unclear, however, if ESG will also contribute to a crippling financial crisis.)
Fink captured a core debate raging across the financial services industry this year.
The Securities and Exchange Commission, which has stated it is taking a harder look at the sustainable investing boom enriching banks and asset managers, has started probing firms’ products labeled as sustainable. HSBC quickly distanced itself from a now-former executive who spoke against the risk that climate change poses to investments. The severe market downturn this year has hit ESG funds’ performance and inflows. All the while, firms continue building out teams focused on developing ESG investing strategies, managing sustainable investments, and assessing investments’ climate risks.
Insider is tracking our latest coverage of ESG investing and sustainable finance here.
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