Are ESG funds the next misselling scandal?

According to the Financial Times this weekend, funds that 'greenwash' are opening themselves up to potential litigation.  

While the ESG funds sector has rapidly grown in recent years, financial regulators have not kept pace. Despite this, the Paris climate agreement is being seen by the Courts as the standards by which companies - not just countries - are being held to account.  Last year, The Hague referred to the Agreement when ruling that Shell had to make greater cuts to its emissions targets than it had planned. 

Shareholders also have concerns and may be bringing ESG claims if there is a clear gap between some funds’ claims and the reality of their investments - and if they have lost money or suffered as a result.

ESG claims have already been touted as a growth area for the disputes sector and it looks like they may be coming sooner rather than later.  

“It’s a bit like history repeating itself,” says Fiona Huntriss, a partner at law firm Pallas Partners, who focuses on financial litigation and has worked on previous mis-selling cases. “Words are being used in a very vague way” by fund companies, she adds. “Inconsistency, omissions, lack of clarity — that’s prime territory for mis-selling claims.”