The trustworthiness of companies that claim to follow environmental, social and governance practices was questioned at the lecture “Sustainable and Social Responsibility in our Purchases and Investments” sponsored by the Freeport Sustainability Advisory Board Dec. 6.
Residents questioned the legitimacy of “green” claims made by oil companies and others.
“They spend billions on oil extraction and exploration, and just a few million on renewables, and they want us to believe they are sustainable?” resident Susana Hancock asked.
Speaker Anthony Eames acknowledged the difficulty involved in corroborating assertions of sustainability in the corporate world.
“Greenwashing is real,” Eames said, “but hydrocarbons are a finite resource and sooner rather than later they’ll run out, so companies have to invest in renewable energy to be profitable long term.”
Sustainability expert David Bennell told the audience that he’s decided to pivot his career towards finding a technological solution to ensure transparency in environmental, social and governance practices reporting. He now spends his time designing systems that eliminate human involvement in the reporting structure.
“Eighty to 90% of green bonds lack data that supports claims made around ‘green’ attributes and outcomes,” according to Bennell.
The regulatory structure for reporting environmental, social and governance, or ESG, practices in the U.S. is definitely improving, said Eames, who is the director of The Forum for Sustainable and Responsible Investment. While European firms have stricter reporting requirements, under President Biden, new regulations are being written to hold U.S. companies to a similar standard, although the U.S. is about two years behind, Eames said.
He said many U.S. companies hold themselves to a higher reporting standard than they are required to, and there are independent organizations reporting on the ESG practices of companies and funds that are undoubtedly trustworthy. The investment research firm Morningstar is a good example: In addition to its traditional “star” rating for yields, the independent organization uses a “globe” rating for assessing ESG claims.
As for the popularity of responsible investing, responsibly managed fund assets have grown from $25 billion in 2009 to over $50 billion in 2020, according to Morningstar. The number of mutual funds and Exchange Traded Funds incorporating ESG factors has experienced a similar boom, increasing from 99 to 392 in the last decade alone.
“Most companies offer several ESG funds to choose from,” Eames said. “Today, it is easy to switch from traditional investing to ESG investing.”
The reasons for the exponential growth in responsible investing are ideological as well as financial: Morgan Stanley published a report in 2019 detailing an analysis of ESG-focused fund performance. Their findings? 1. There is no consistent or statistically significant difference in total returns between traditional funds and ESG funds, and 2. Responsibly managed funds offer lower market risk.
“The pandemic has proven that well-managed companies manage risk more effectively,” Bennell said.
Almost 80% of Americans agree with the statement “I want to see the world change significantly to become more sustainable and equitable rather than returning to how it was before the COVID-19 crisis,” according to a 2020 Ipsos Survey for the World Economic Forum, based on 21,104 respondents ages 16-74 across 28 countries. According to Bennell, the six corporate practices that U.S. consumers say they value the most are eliminating toxic materials and waste in production; reducing the carbon footprint; providing sustainable packaging; committing to responsible sourcing practices; respecting human rights and adopting diversity, equity and inclusion policies.
To the question “What can I do to improve corporate responsibility?,” Bennell responded: “Reduce the amount of products and goods you buy; when you do buy, read the label and look for certifications. Contact a brand to express a concern about the sustainability of lobbying practices and invest in companies and funds with an ESG focus.”
Making sustainable choices is neither a quick nor an easy proposition. Quite the opposite; it requires time and resources that most people don’t have. The good news is that many organizations are doing the research for us. When in doubt, check out their findings: For ESG, try Morningstar, MSCI index, greenbiz.com or bis.org. For purchasing decisions terrapass.com, howgood.com and choosefinch.com are especially helpful. Also, check out un.org for anything related to sustainable development.
Valy Steverlynck is the co-chairperson of the Freeport Sustainability Advisory Board and a member of the RSU 5 Sustainability Committee and Board of Directors. She holds a B.A. from Brown University and an M.F.A. from the University of Wisconsin – Madison.
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