While the UK funds industry has demonstrated strong progress in ESG risk management in 2021, greenwashing remains a risk, research has suggested.

Some 26% of equity funds – and 11% of all funds – are unable to provide any examples of ESG being incorporated into ESG decision-making, the study by XPS Pensions Group found.

However, progress is being made. XPS awarded 23% of UK investment funds with a green rating for ESG, up from 10% last year.

In the private markets space, last year 60% of funds referenced ESG in their investment policy, while this year all of them did. 

Simeon Willis, chief investment officer at XPS, said: “While the findings clearly show that there is a lot more work to do, it is promising to see that fundamental parts of a good ESG strategy are being put in place across the board. 

“Effective ESG risk management must be underpinned by a clear ESG philosophy, and most firms now have this essential foundation in place. But managers must move beyond words to actions for this to matter, and this needs to be consistent across all their funds and be well communicated to clients.” 

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