nvestors are acute moral hazard detectors committed to uncovering the spectrum of risk a company embarks on, oftentimes without being held accountable for the consequences. Detaching from human attributes of intrinsic intuition, investors themselves can also serve as fact checkers, watchdogs, or internal auditors of their own investments, and hold firm pressure on the economic pulse of corporate social responsibility. The dynamic and interdisciplinary role that corporations play in the human mind, our decision-making, how we spend money, or what we find valuable, inherently creates a force to be reckoned with. As such, the reputational war on corporate greenwashing has finally taken stage, spotlighted by the maturing and ever-evolving landscape that is Environmental, Social, and Governance (ESG) investing.
Stakeholders, investors, activists, namely, any group vocalizing a commonly shared idea, are the thought leaders and self-expressionists of this fast-paced, evolving ESG landscape. Amidst the disruptive events that encapsulated 2020, increasingly, the global arena for greenwashing tolerance has been scathed. The shift in temperament, in large part, stems from the dissipating sentiment that companies, which merely embrace a sustainability policy, or disclose the bare minimum, can no longer relate to the emotions of ESG stewards that demand transparent, measurable, and actionable change.
Stepping to the forefront of the stage, ESG investing, also dubbed ethical investing, is not entirely new. Shapeshifting from traditional investing to account for broader types of risk in financial materiality, for example climate risk, ESG investing allows for a more comprehensive outlook in how portfolios are managed for sustainability-related risks and adjusted opportunities. This intensifying support for ESG investing is due to the overly primal, yet scarily underrated characteristic of human empathy. What drives humans to connect, to invest, or to care, is delightfully different amongst our species. However obvious, and in its simplest form, empathy enables a common good to be achieved. In short, to borrow from Thomas Friedman’s image of a hot, flat, and crowded world, ignoring ESG and climate-related risks is no longer an option.
Investors, dictating what they find important in the sustainability disclosure conversation, paired with increasing regulatory efforts to standardize these disclosures, create a powerful motive for united action. Despite the seemingly infinite definitions and frameworks for sustainability disclosure, the International Financial Reporting Standards Foundation (IFRS Foundation), a nonprofit organization that has pioneered transparency around traditional accounting standards, aims to establish the International Sustainability Standards Board (ISSB). The goal in creating the ISSB is to foster a harmonized and rules-based framework that cohesively spells out transparent and ethical ESG reporting, relevant to investor’s financial statements. If you do not measure something, you cannot manage it and the lack of standardized ESG reporting has hindered early efforts to increase accountability.
From a macro view, the framework developed by the IFRS Foundation sets the tone for how, and what, companies should disclose in traditional financial materiality. Shifting to a micro level for sustainability materiality, the lack of congruence in ESG metrics, albeit confusing, can be mitigated through the observance of key performance indicators (KPIs). Through the eyes of an investor, KPIs are one trustworthy source of anti-greenwashing. KPIs can look very differently across companies, yet the growing cadre of impact investors demanding meaningful action on how their capital is allocated are accelerating the demise of greenwashing.
Additionally, companies and their fledgling, ambitious policies need to match, if not, overdeliver investors’ expectations—after all, a strong ESG and climate resilience scorecard spell competitive advantage. Another tool investors can employ, to keep an eagle’s eye on greenwashing, is to utilize credible and accessible resources that are often freely available. An example would be monitoring the Climate Action 100+ initiative, which is led by both asset managers and owners targeting the world’s largest corporate carbon emitters and urging aggressive climate action towards reaching net-zero. The information distilled through Climate Action 100+ allows for a deeper insight into the metrics, benchmarks, and policies a company has, and whether they fall in line or fall far from the goal of net-zero.
The compounding impacts of delayed action are risks we can no longer afford. However, with global leaders strategizing at the United Nations Climate Change Conference (COP26) towards comprehensive climate action, the roadmap to reliable market-wide metrics looks more refined and promising than ever before. To achieve these goals, no one entity can accomplish them alone. Multilateral collaboration across corporations, governments, and stakeholders is requisite. Harnessing the influence investors have on market forces and creating a harmonized disclosure framework are just a few tasks at the top of the urgent global to-do list. On an individual level, our task is to stay diligent and vocal about corporate social responsibility, and continue to demand unequivocal transparency. With assiduous investors standing firmly behind ESG investing, the spotlight on corporate greenwashing illuminates the emerging reality of a forward-looking, and climate ready economy.
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The Human Behind the Portfolio
Photo via Adobe Stock.
November 6, 2021
The shift in temperament by investors and stakeholders stems from the dissipating sentiment that companies, which merely embrace a sustainability policy, or disclose the bare minimum, can no longer relate to the emotions of ESG stewards that demand transparent, measurable, and actionable change.
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nvestors are acute moral hazard detectors committed to uncovering the spectrum of risk a company embarks on, oftentimes without being held accountable for the consequences. Detaching from human attributes of intrinsic intuition, investors themselves can also serve as fact checkers, watchdogs, or internal auditors of their own investments, and hold firm pressure on the economic pulse of corporate social responsibility. The dynamic and interdisciplinary role that corporations play in the human mind, our decision-making, how we spend money, or what we find valuable, inherently creates a force to be reckoned with. As such, the reputational war on corporate greenwashing has finally taken stage, spotlighted by the maturing and ever-evolving landscape that is Environmental, Social, and Governance (ESG) investing.
Stakeholders, investors, activists, namely, any group vocalizing a commonly shared idea, are the thought leaders and self-expressionists of this fast-paced, evolving ESG landscape. Amidst the disruptive events that encapsulated 2020, increasingly, the global arena for greenwashing tolerance has been scathed. The shift in temperament, in large part, stems from the dissipating sentiment that companies, which merely embrace a sustainability policy, or disclose the bare minimum, can no longer relate to the emotions of ESG stewards that demand transparent, measurable, and actionable change.
Stepping to the forefront of the stage, ESG investing, also dubbed ethical investing, is not entirely new. Shapeshifting from traditional investing to account for broader types of risk in financial materiality, for example climate risk, ESG investing allows for a more comprehensive outlook in how portfolios are managed for sustainability-related risks and adjusted opportunities. This intensifying support for ESG investing is due to the overly primal, yet scarily underrated characteristic of human empathy. What drives humans to connect, to invest, or to care, is delightfully different amongst our species. However obvious, and in its simplest form, empathy enables a common good to be achieved. In short, to borrow from Thomas Friedman’s image of a hot, flat, and crowded world, ignoring ESG and climate-related risks is no longer an option.
Investors, dictating what they find important in the sustainability disclosure conversation, paired with increasing regulatory efforts to standardize these disclosures, create a powerful motive for united action. Despite the seemingly infinite definitions and frameworks for sustainability disclosure, the International Financial Reporting Standards Foundation (IFRS Foundation), a nonprofit organization that has pioneered transparency around traditional accounting standards, aims to establish the International Sustainability Standards Board (ISSB). The goal in creating the ISSB is to foster a harmonized and rules-based framework that cohesively spells out transparent and ethical ESG reporting, relevant to investor’s financial statements. If you do not measure something, you cannot manage it and the lack of standardized ESG reporting has hindered early efforts to increase accountability.
From a macro view, the framework developed by the IFRS Foundation sets the tone for how, and what, companies should disclose in traditional financial materiality. Shifting to a micro level for sustainability materiality, the lack of congruence in ESG metrics, albeit confusing, can be mitigated through the observance of key performance indicators (KPIs). Through the eyes of an investor, KPIs are one trustworthy source of anti-greenwashing. KPIs can look very differently across companies, yet the growing cadre of impact investors demanding meaningful action on how their capital is allocated are accelerating the demise of greenwashing.
Additionally, companies and their fledgling, ambitious policies need to match, if not, overdeliver investors’ expectations—after all, a strong ESG and climate resilience scorecard spell competitive advantage. Another tool investors can employ, to keep an eagle’s eye on greenwashing, is to utilize credible and accessible resources that are often freely available. An example would be monitoring the Climate Action 100+ initiative, which is led by both asset managers and owners targeting the world’s largest corporate carbon emitters and urging aggressive climate action towards reaching net-zero. The information distilled through Climate Action 100+ allows for a deeper insight into the metrics, benchmarks, and policies a company has, and whether they fall in line or fall far from the goal of net-zero.
The compounding impacts of delayed action are risks we can no longer afford. However, with global leaders strategizing at the United Nations Climate Change Conference (COP26) towards comprehensive climate action, the roadmap to reliable market-wide metrics looks more refined and promising than ever before. To achieve these goals, no one entity can accomplish them alone. Multilateral collaboration across corporations, governments, and stakeholders is requisite. Harnessing the influence investors have on market forces and creating a harmonized disclosure framework are just a few tasks at the top of the urgent global to-do list. On an individual level, our task is to stay diligent and vocal about corporate social responsibility, and continue to demand unequivocal transparency. With assiduous investors standing firmly behind ESG investing, the spotlight on corporate greenwashing illuminates the emerging reality of a forward-looking, and climate ready economy.
