ESG and Offshore Fund Governance

Climate activist, Greta Thunberg, has on various occasions lashed out at global leaders for “empty” and “beautiful” words that she considers do not translate to meaningful action on climate change. Most recently at COP-26, Ms Thunberg sought to paraphrase the pronouncements of certain politicians as “blah blah blah”, and spoke of the failure of governments to implement climate change strategy.

Whether or not you agree with Ms Thunberg’s political views on government actions regarding emission reductions, there can be little disagreement in respect of the pace of growth in private sector interest and investment in ESG funds. The data is irrefutable: US sustainable funds saw $15.7 billion in net inflows during the third quarter of 2021, according to Morning Star with assets in these funds totaling more than $330 billion as of September. According to Bloomberg, Global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management. Further, more than half of the environmental, social and governance-linked funds in the market outperformed the S&P 500 in the first several months of 2021.

Although the reasons for the growth and performance of ESG products are the subject of vigorous debate, the data is conclusive in relation to the surge of interest in funds being raised with an environmental or social purpose.

This begs a question: How do statements of intention around the environmental purpose and social objectives of a fund translate into action? When an offering document states that the purpose of a fund is to advance environmental and social goals, how can investors be certain that the fund will, in fact, deliver on its promise?


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