The problem of 'greenwashing' and how we can work to normalise real change
In 2003, a meeting of the United Nations Environment Programme Finance Initiative created the concept of ‘ESG’, or ‘environmental, social and corporate governance’. For a long time it remained something of a buzz phrase, understood by few and cared about by even fewer, but in recent years ESG has morphed into a global phenomenon with ESG assets tipped to surpass US$41 trillion in 2022 and US$50 trillion by 2025 — one-third of the projected total assets under management globally.
The rise in profile for ESG in the investor world has undoubtedly coincided with a rise in momentum behind social causes worldwide as growth in natural disasters has fuelled the climate movement, and of course, corporations and funds have been quick to jump on the ESG bandwagon. But perception and reality of a company’s credentials can vary widely, and after years of media reports and widespread concern around ‘greenwashing’, the ASX recently announced a crackdown on ethical funds, joining ASIC to fight against those using the market disclosure system to fake green credentials.
That’s exactly what greenwashing is. What we see is certain companies pretending or promoting that they are doing the right things by ESG, but not really putting the right fundamentals in place. It’s important to note that there are myriad reasons why this practice has grown globally, not least of which is the fact that ESG doesn't have a global standard. It can be interpreted in a variety of ways, and the result is a variable outcome for companies, investors and, of course, the environment.
Tesla, the ‘clean energy electric car’ company, recently released its 2022 Impact Report, in which the company dismissed the way ESG assessments measure sustainability and the relationship between businesses and the environment. Elon Musk used the report to commit to measuring “real world impact” instead, and called for the baseline approach of ESG to be updated beyond measuring whether an environmental issue impacts the profitability of a company.
A short time later, Tesla was kicked out of the S&P 500 ESG Index. At the same time, ExxonMobil is rated top 10 best in the world for environment, social and governance by the S&P 500. Musk has since called ESG a scam, saying it's been weaponised by phoney social justice warriors.
But let’s take a step back and look at why people want ESG credentials to begin with. If you look at the results of the Australian Federal Election, the success of the Teal Independents running in traditionally safe Liberal seats on a platform of climate action, it’s pretty clear to see that people want to see change. Punters want to be contributing to a proactive stance on climate change and making a positive impact on the environment. As a result, an increasing number of funds want to be investing into companies that are seen to be doing the right thing.
In Australia we’ve seen quite a few companies come up and flout their ESG credentials without too much substance behind it. Up until now, there’s been very few that are really driving the change, but there’s definitely a shift happening. A younger generation wants to see change, and they are voting with their feet. So funds will have to start to provide a level of transparency and consistency around the companies they are investing in and what they are doing. We have seen recently ASX-listed mining company IGO release an entire ESG deck, including presentation materials for an upcoming ESG Roadshow. This could be seen as a watershed moment, particularly if they deliver on their promises.
The question remains around how we move towards a place where we have globally recognised ESG standards. At Envirosuite, our view is that before we get to that point, companies need to have a monitoring baseline so that investors and funds can understand and collect data around their operations, and be willing to share that in somewhat of a transparent way. We have certain customers around the world that proactively want to monitor their environmental impact, and make that available to the rest of their industry, as well as to their local communities and to government, and they are growing in number.
We believe in the importance of environmental intelligence to form this baseline. So, for example, our software platform will collect various environmental parameters like noise and vibration, air quality, water quality, dust impacts, etc. We will bring that into our platform and provide real-time monitoring for our customers, and that will then generate reports that our customers can then directly put into their ESG compliance statements. Furthermore, we’re actually helping a lot of customers around the world from airports, mining industrial facilities and waste facilities to actually provide compliance to regulatory bodies to make sure that they are not exceeding any of those parameters.
Adoption of baseline standards needs to grow, and the more people that come into this segment, the faster the industry will accelerate. Importantly, too, it’s not just about the monitoring. It’s actually now what you do with that data to drive change. It’s about getting insights from that data, and driving change, whether that’s a government body or private industry, to really drive an improvement in those ESG ratings.
If you are serious about ESG, it’s hard to argue with Elon Musk’s belief that real-world impact is the most important part. This core idea seems to have been lost as many companies have used ESG as a money-making exercise, but we feel it’s inevitable that eventually there will be global standards. The first step to getting there is to ensure that companies are collecting more and more data, and become more and more transparent. Envirosuite is not only well positioned to help with that, but we also believe that purpose is key to turning ESG into something with a more tangible impact for people and the planet.
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