ESG – A Saviour or Sales Tactic?
Environmental, Social, and corporate Governance (ESG) has its own rules and people make them up to try and get as much money as possible.
Additionally, customers think they are doing right by choosing ESG projects/companies and feel like they’re ‘saving the world’, but it isn’t always everything that it’s cracked up to be.
The Rise In ESG
Wealth of The Environmentally Focused Generation
Research shows that younger people like to express their environmental and social preferences through investments. The younger generation are more likely to feel the implications of climate change, so it makes sense that they are more focused on investing in projects that will help the environment. Therefore, those projects that shout about ESG, are capitalising on these investors.
Stretching the Concept
With the focus on green transition and business opportunities (grants), some companies may stretch the concept of sustainability – purely to boost cash flow. These grants and benefits entice companies in, meaning they are doing ESG for the wrong reasons.
Is It Greenwashing?
For the reasons above, it could be argued that companies who comply with ESG purely for selfish reasons are greenwashing – with ESG companies using the scheme simply to attract customers, rather than wanting to help the environment, which goes against everything that the scheme should stand for.
What’s more, there are fears that companies are using false advertising – with companies actually having higher carbon emissions than those in non-ESG.
How do we tackle this? Better regulations.
There has recently been a disclosure regulation that requires funds that claim to use ESG, to categorise themselves, based on their sustainability goals. The criteria judges funds and projects on a scale – the highest category being those that have ESG as their main target.
This has encouraged managers to repurpose projects to ensure they meet the criteria to meet the highest category.
One thing is certain – companies should embrace ESG because of the benefits to the environment. If they do this, it leaves little room for greenwashing and will attract the customers that they want and need. If not, it may be time to revise the definition of ESG, with sustainability returning to the heart of the strategy.