“Greenwashing” — or making misleading claims about the environmental benefits of a product, usually bonds — has garnered much attention of late, but managers IA spoke to say it can be avoided by doing the necessary homework.
Steve Liberatore, portfolio manager of TIAA Investments’ multibillion-dollar fixed income team, notes that the firm has been in SRI for decades.
“We’ve been buying green bonds before they were labeled as ‘green bonds,’” Liberatore says.
He adds that his group “doesn’t care if a security is labeled a ‘green bond,’ we focus on the underlying use of the security. We get impact metrics.” And they dig down to see how the environment is benefiting from these bonds.
“The concept of greenwashing is negative, not only for issuers but for investors,” he says, adding that “green” is not an SEC-trigger word, so anyone could issue a so-called green bond without really being one.
Therefore, bonds bought by TIAA don’t need to be green bonds, per se. He notes that with the nature of fixed income, the firm has the ability to control how assets are utilized and what outcomes are derived. Its size also allows TIAA to have input into the issuer product.
“It’s a unique characteristic of the fixed income market,” Liberatore says.
“Firms need to focus on how dollars are being used,” he says, adding investments must have a disciplined approach to reporting. “We’ve looked at plenty of transactions but when we were unable to get the impact reporting,” they walked away.
Catherine Banat, RBC Global Asset Management’s director of U.S. responsible investing, says there’s two ways to looking at impact investing: There’s a “value” component as well as a “values” aspect, and they are easy to confuse in the marketplace.