Can I fund polluting industries and still claim carbon neutrality? The sad state of greenwashing in ESG reporting
So, the simple answer to the question – “Can I fund polluting industries and still claim carbon neutrality?” is yes. The long answer is yes you can, provided you position it in the right way. For example: you purchase things like carbon offsets that “neutralize” the pollution emissions, or claim you are working toward carbon neutrality at some future date, or you make ESG commitments that don’t include upstream and downstream measurements, or very narrowly define what’s included in neutrality in small print. The reality isn’t particularly inspiring for those who truly want a move to a more sustainable and equitable economy. It becomes very difficult for an individual interested in investing in companies with a committed ESG strategy to identify and compare those companies in a meaningful way. There is no standard for reporting, each index and rating system is different, collects different data points and weighs ESG strategies using varying methods. In other words – it’s impossible to compare rating systems because you don’t know how they are measuring the outcome, and they rank companies differently on their indices. It also allows an organisation to cherry pick the ratings that paint them in the best light.
The issues raised with the current state of ESG reporting have driven some coordinated moves by governments around the world. Following COP26, many governments have moved to try and close some of those loopholes with the development of an international standard, a new international sustainability standards board, mandatory reporting on ESG and implementing carbon reduction targets. The result should be more transparency and a system that allows for a more significant comparison of ESG rankings.
Obviously, this is a step in the right direction, but the truth is that greenwashing is abound in ESG, and it will take a while to sort that out. We need a strong movement toward transparency, education and clearly defined and reported targets. There needs to be readily available, easily understood materials on what the new international standard means and how to measure an organisation’s commitments toward ESG. The reality is that most people don’t understand what is meant by ESG or what it covers. It isn’t just a climate change commitment – it’s a much more holistic approach to looking at an organisation, and its operations. Until everyone is on the same page, looking at the entire picture, there will be a grey area that allows greenwashing.
The good news is that conversations about ESG are happening regularly and publicly. The relevance of ESG and how it affects not just shareholders, but also society, is suddenly becoming a mainstream topic. Companies are being watched more carefully, scrutinized for their claims and many are being called out for greenwashing. This is all very positive for those who have been working to make organisations more accountable for their business decisions, whether it is affecting the environment, the communities in which they operate or their employees and business operations. The more we talk about ESG, debate its pros and cons, and improve it, the better off we will all be. The past few months have shown that there is a definite move in the right direction and that the ability to effectively greenwash may be rapidly disappearing. As long as we keep on the path toward disclosure, international standards and reporting and transparency, ESG data will continue to improve and with it the legitimacy of ESG data and reporting itself.
Written by Allison Hawkins: CRM