Hope you are doing well. Welcome back to our brief thoughts on ESG.
This week, following our review of the recently published RepRisk’s report on greenwashing and social washing, we want to focus our weekly thoughts on how you can steer away from these malpractices.
Sustainability continues to grow in significance as part of corporate strategies and investment criteria. Thus, the market will continue to search for data that signals that companies are making empty ESG claims and measure potential risks that come from this. And given the vast amount of information available today, this means that everyone is under the microscope. Even actions not specifically intended for washing can escalate into big issues.
Since so much is at stake then, here are some potentially “washing” malpractices you should steer away from:
- Lobbying: Whenever companies fund or support initiatives that contradict their ESG values or initiatives, and especially if they’re getting something in return, a conflict of interest is evident. A good example is when banks with supposedly robust sustainability frameworks offer attractive loans to Oil and Gas companies instead of integrating that into their projects’ financing. You need to walk the talk.
- Meager carbon offsetting: Offsetting is when a company’s emissions are compensated by either purchasing “clean” energy certificates and/or funding reforestation and carbon capture projects. Companies sometimes think of this as a “license to pollute” and cease making genuine efforts to reduce emissions. For obvious reasons, this is not considered best practice. Your environmental strategy must be trustworthy and substantiated.
- Misleading communication: Whether it involves mismarketing or deceptive labeling, such as calling a product “carbon neutral” or “fair trade”, you must be able to substantiate your claim’s authenticity. Exaggerating or overstating your initiatives can result in a loss of trust in them. Conveying partial truths by selectively disclosing favorable data only is something you should refrain from. Honesty should always be your guiding principle.
- Corporate complicity: Instances like privacy violations, underpaid migrant labor, and supply chain issues are some examples of human rights abuses companies are sometimes complicit in. Even if you are not the primary actor, you can be implicated through association.
There are many other things that can put you in the middle of a controversy, potentially with significant financial implications. Be careful of what you promise, and what you do to deliver. Transparency should always take precedence.
I hope you found this interesting. As usual, if there is anything we can help you with, or if there is an ESG topic you would like to know more about, please let us know.
CEO, Miranda ESG
Contacts at Miranda Partners