JEFF PRESTRIGE: How is Legal & General’s Chinese fund ethical?

JEFF PRESTRIGE: Greenwash! What is so ethical about Legal & General’s Chinese fund that deserves its socially responsible investment label?

Ecological and socially responsible investing is all the rage. It’s a welcome trend in a world where evidence of frightening climate change is everywhere.

It gave birth to a wave of investment funds labeled “ESG” – ESG stands for environmental, social and (corporate) governance – and it has aroused the interest of many young people to invest for the very first time.

Recent research from Boring Money suggests that more than six in ten adults between the ages of 18 and 34 would choose a new fund manager based on ESG factors.

Flying the Flag: Ultimately, L&G’s fund invests primarily in government bonds issued by the Ministry of Finance of the People’s Republic of China

So everything’s OK ? Well not really. In a rush to capitalize on this boom in socially responsible investing, some investment firms (not all) are taking shortcuts. They qualify investment funds as ESG friendly when they are clearly not based on the content of their underlying portfolios.

This deceptive art is called greenwashing and it is completely irrelevant. It’s like buying a chicken for Sunday lunch that’s labeled as a farmer, only to find out later that it’s from a battery farm.

Over the past year, we have questioned the authenticity of some ESG portfolio management services. We also raised concerns about favorable sustainability ratings given to publicly traded companies that operate in sectors normally closed to ethical investors – for example, gambling and alcohol. Yet evidence of greenwashing is resurfacing like sewage in a river.

The last example is that of an ESG-labeled exchange-traded fund that is promoted by Legal & General, a company that does everything possible to report its ESG credentials. As stated on its website: “Environmental, social and governance factors and impact investing in the real economy are at the heart of our investment approach.

I do not doubt for a moment its commitment to “act decisively on ESG issues”, but I do not see how the L&G ESG China CNY Bond fund – listed on the UK stock exchange – deserves its socially responsible investment label. Although L & G’s literature indicates that the fund’s performance is tied to an index that leans toward ‘top ESG-rated’ bond investments, this is just brilliant marketing talk – in other words. , greenwashing.

Ultimately, the fund invests primarily in government bonds issued by the Ministry of Finance of the People’s Republic of China. Indeed, its top ten holdings are all Chinese government bonds with maturities ranging from 2023 to 2030.

Perhaps some of these bonds are being used to finance China’s push towards green energy, but L&G’s latest fact sheet on the fund makes no mention of it.

But then, maybe the bonds are being used to fund the country’s continued investment in new fossil-fueled coal-fired power stations – or worse yet, to help suppress human rights in parts of the republic. and to finance its aggressive militarization of the South China Sea.

We just don’t know because L&G doesn’t tell investors. But what we do know is that the fund’s portfolio is little different from that of other Chinese bond funds – for example, iShares China CNY Bond ETF – which do not use an ESG label.

Alan Miller, co-founder of wealth manager SCM Direct, says the ESG label of this L&G fund “is the most egregious example of greenwashing” he has seen to date in the UK. Quite damning remarks given that Miller has spent much of the past 18 months examining the robustness of investment products bearing the ESG badge.

He believes L&G should remove ESG from the fund’s name due to misrepresentation and possible abuse. I agree. And if not, the regulator – quite hot on ESG issues – should order it (again, I agree).

Some of the country’s powerful wealth platforms are also expected to do their part by removing the fund or putting a warning on it. Hargreaves Lansdown and AJ Bell both sell the fund. L&G did not comment on the case on Friday as to why it uses an ESG label on this fund. But he pointed out that due to continued investment demand in China, he has sought to apply ESG criteria to the exclusively Chinese products he sells.

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