Why scrutiny is tightening and what fund managers can do in practice
As capital has flowed into energy transition and sustainable infrastructure strategies, scrutiny has tightened just as quickly. LPs are now testing whether “green” claims can be evidenced and governed over time, not simply asserted at launch. In this environment, greenwashing is less a debate about intent and more a practical risk across fundraising, disclosures and ongoing reporting.
Private markets, and infrastructure in particular, have responded through a rapid expansion in sustainable and ESG-focused strategies, alongside increased allocations to cleaner energy generation and more efficient energy use. Over the past decade, the mandate of infrastructure investing has expanded significantly, directing funds towards investment opportunities supporting these goals as a core investment thesis of long-term capital deployment.
Investing in the energy transition and decarbonisation is not a fleeting trend but a strategic shift that aligns long-term sustainability goals with alpha generation. Current estimates highlight that trillions of dollars of global investment is required to decarbonise energy systems and infrastructure by the mid-century, thus highlighting the indispensable nature of infrastructure funds in the short-long term horizon. For investors seeking stable and sustainable growth with significant downside protection risk, alongside measurable climate impact, these funds offer both a compelling investment opportunity and a pathway to supporting a more resilient low-carbon economy.
However, as investment allocations into sustainable infrastructure continue to increase, the scrutiny of funds positioning themselves as “green” has intensified. Whilst many infrastructure funds genuinely support the energy transition, others face the risk of greenwashing: the practice where sustainability related statements, declarations, actions, or communications do not clearly or fairly reflect the underlying sustainability profile of an entity, product, or financial service.
In practice, greenwashing risk often arises when marketing language moves faster than the data, controls and governance needed to substantiate sustainability claims consistently.
Where scrutiny is tightening most (what LPs test for)
- Consistency between marketing language, the strategy’s investment policy and portfolio reality
- Evidence trails for sustainability claims, including data sources, assumptions and governance
- Clarity on definitions: what is included, excluded and how edge cases are handled
- Reporting discipline: consistency across investor reporting, regulatory disclosures and external communications
Why greenwashing is dangerous for investors
Greenwashing exposes investors to multiple risks, including mispriced assets and capital misallocation, reputational damage, regulatory and fiduciary exposure as well as the broader erosion of trust in sustainable finance markets.
How managers can help prevent greenwashing
For fund managers, the risks include regulatory penalties, increased litigation risk and potential personal liability for senior management and company boards with weak oversight of sustainability claims.
Under the UK’s anti-greenwashing rules, all FCA authorised firms must ensure that any references to the sustainability characteristics of their financial products or services are:
- Consistent with the actual sustainability characteristics of the product or service; and
- Fair, clear and not misleading.
Additionally, sustainability references should be:
- Correct and capable of being substantiated;
- Clear and presented in a way that can be readily understood;
- Complete, without omitting or obscuring material information, and reflective of the full life cycle of the product or service; and
- Fair and meaningful, particularly when making comparisons with other products or services.
For many managers, this becomes most apparent during fundraising and in subsequent reporting. LPs will look for consistency between what is said in decks and DDQs, what is disclosed in formal documentation and what is evidenced through underlying data and governance processes.
Practical considerations for ESG oversight
Below are some practical considerations for overseeing ESG within your business to help mitigate the risk of greenwashing:
Governance
- Senior leadership should set a clear expectation that sustainability claims must be accurate, evidence based and subject to strong oversight.
- Effective management information flows that enable management to receive timely and reliable ESG information to monitor risks, performance and compliance within the context of sustainability objectives.
Frontline
- Targeted training and awareness for all staff with specific training on ESG requirements and greenwashing risks.
- Firms should be able to demonstrate sufficient internal expertise to assess, monitor and substantiate all sustainability claims.
Backend
- All ESG data should come from reliable sources and be supported by systems and controls that ensure accuracy and consistency.
- Well-supported and integrated processes and procedures embedded across the investment lifecycle through clear, documented processes.
Processes and procedures
- Automation, validation and reviews processes should be used to reduce manual errors in ESG data and reporting.
- Defined escalation processes to ensure ESG issues are promptly reviewed and addressed by senior management.
As capital allocations to sustainable infrastructure increase and regulatory scrutiny deepens, credibility becomes a differentiator. Clear definitions, robust governance and substantiated sustainability claims protect investor trust, reduce avoidable delay during diligence and help ensure capital is deployed on the basis of evidence, not aspiration.
