More granular disclosures and better ESG data help improve business and finance, but greenwashing efforts may be greater still, writes Silvia Pavoni.
A friend of mine joined a dubious company, one that was aware of the sensitivities around its main product – the type that would sit squarely outside the EU social taxonomy – and had devised a programme to transform it into a more sustainable business.
At least, that’s what my friend (who has years of experience in finance) genuinely thought. She was ready to take on the challenge, help steer the monster and make a difference. Her enthusiasm quickly turned into despair.
It emerged that she had been hired as part of a box-ticking exercise. A series of bureaucratic obstacles were put in front of her; she was confronted with a hostile environment; and she was powerless, as well as surrounded by like-minded colleagues also lured in by the persuasive narrative and now desperately looking for a way out.
Interest is intense
Doubtless they will all find new employers and quickly: environmental, social and governance (ESG) executives are in high demand. A quick search on LinkedIn reveals about 8000 ESG-related vacancies in the UK and the EU over the past month. In 2021, PwC alone announced it would hire 100,000 staff as part of its new sustainability efforts over the following five years. Anecdotally, headhunter Egon Zehnder is finding its clients are expressing greater interest in sustainability, to the degree that the firm partnered with Sustainable Views to gauge the level of maturity and understanding of sustainability-related concerns through a cross-industry survey.
But what about my friend’s current employer? If the company managed to convince a group of ESG professionals of its commitment to change, is its stated strategy – which includes diligent sustainability reporting – also persuading investors? Judging by its inclusion in a global sustainability index and its pretty stable share price, it looks as if it is.
I’m sure anyone looking at sustainability with open eyes and a healthy dose of cynicism won’t be shocked by tales of greenwashing. Yet it’s still worth asking the question: what is it going to take to change companies like this or, at least, to ensure no one is fooled by their clever communication efforts? Is it a change of leadership (who would call it?), consumer pressure; or regulation-induced higher cost of capital?
Muddying the waters
Undeniably, policy-makers wield great power. The taxonomies that the EU and other jurisdictions are devising will ultimately guide investors and lenders that seek to comply with sustainable finance requirements – both from a marketing and from a risk management perspective. But if measuring the environmental part of ESG feels hard enough, then tackling the social component spans from the philosophical to the nonsensical.
The Russian invasion of Ukraine seems to be used by defence groups’ lobbying efforts to classify their activities as wielding a positive social impact. Since we don’t live in a utopia, it’s hard to conceive a world with no weapons. So, yes, they have a place. Harder to justify is the view that their production should be encouraged. Though in practice, such an exclusion could weaken certain jurisdictions’ defence capabilities compared with those of others. To muddle things further, some of those companies are simultaneously coming up with interesting technological solutions to climate change and even specific ESG investor days.
All of which returns us to the issue of labelling: are we getting those ESG definitions wrong? Is ESG, as we begin to regulate it now, a useful guidance to ‘good’ business and finance, or will it continue to be easily exploited to place products and attract capital?
At Sustainable Views, we set out to monitor how new policy and regulation aimed at solving those conflicting instincts pan out. Given the ESG abuses (and the underestimated risks) that continue to exist within organisations, joining efforts to improve the way in which we define sustainability is worthwhile. Even if, as in the case of my friend, it means sometimes dealing with disheartening but, hopefully, temporary setbacks.
Silvia Pavoni is the founding editor of Sustainable Views, a platform by the Financial Times group that gives readers insight into how environmental, social and governance principles are reshaping capital, and into the emerging sets of policy and regulations driving this change. This article first appeared in Sustainable Views.
