Is climate responsibility good for business? Signs show the corporate environment may be changing, but is it still just ‘greenwashing’?
- Mounting pressure – including within the corporate world – suggests attitudes towards global warming are at a tipping point. But we must still be vigilant against firms ‘greenwashing’ for publicity rather than carrying out serious change
Back in the innocent 1990s, it was called “corporate philanthropy”. By the early 2000s, marketing departments had recrafted the concept into “corporate social responsibility” or CSR. As of today, corporate reports are awash with “environmental, social and governance” performance, or ESG.
It was mostly “greenwashing” then, and the cynic in me says that it is mostly greenwashing today – marketing departments’ eloquent efforts to sell their corporate virtue. You can see it all around you at corporate events, where speakers and audience alike are sporting those multicoloured circular lapel pins that signal efforts to comply with the UN’s 17 Sustainable Development Goals. Greenwashing has become rainbow-washing.
But this time, is ESG different? Has Greta Thunberg and the mounting global angst about global warming, fuelled by David Attenborough, superstorms, plagues of locusts across Africa and of plastic everywhere else, and furious fires consuming much of southeast Australia and California, brought a sober realism to boardrooms across the world?
A part of me says, this time, it really might be different. The Financial Times, that conservative champion of capitalism, would not be calling for a fundamental “reset” if the challenges facing current business and banking practices were not grave and unprecedented.
Asset managers across the world are pressing companies as never before on the sustainability of their current practices, in particular in terms of their climate impacts.
Protesting Hongkongers should save some fury for a bigger crisis
Christopher Hohn, founder of the long-only fund the Children's Investment Fund Management, has made waves across the US and Britain, rattling the boardroom cages of those companies failing to disclose accurately and comprehensively their climate impacts.
“Investors can use their voting power to force change on companies who refuse to take their environmental emissions seriously,” he noted earlier this month. More than 10 multinationals – including Airbus and Moody’s – have received sharp letters reprimanding them for their poor climate records.
David Solomon, chief executive of Goldman Sachs, entered the fray with an FT column last Monday, insisting there was “not only an urgent need to act, but also a powerful business and investing case to do so”. He said Goldman Sachs was targeting US$750 billion of financing, investing and advisory activity over the coming decade, in nine sectors ranging from clean energy and transport to sustainable food and agriculture and financial inclusion.
On the same day, Bank of America analysis of 24 controversies over ESG practices over the past five years showed that these controversies had knocked US$534 billion off the share prices of companies involved.
To better understand climate change, we need more Greta Thunbergs, not data
At the end of November, Moody’s said it was considering stripping ExxonMobil of its triple-A credit rating, and last year flagged 11 sectors with a combined US$2.2 trillion in rated debt as “in danger of a downgrade” owing to concerns over carbon. Their message was clear: going forward, debt issuers ignore ESG at their peril.
The serious attention being to ESG is at the very least enabling the development of some serious metrics. One of the key reasons so many companies have, in the past, been able to play fast and loose marketing games with claims about environmental virtue has been the absence of any commonly agreed methods of measuring environmental performance.
But this is now changing, led primarily by the European Union, which last week unveiled its taxonomy of green standards. It has been joined by the Financial Stability Board in the US, and by the World Economic Forum. The EU initiative, intended to stamp out “greenwashing” and “create a new grammar for financial markets to know what is green or not”, is by far the most ambitious, and at the same time complex and provocative.
US should shoulder climate responsibility
As an FT editorial noted: “If Donald Trump dislikes France’s digital taxes, he will hate this.” We can expect more tariff wars ahead.
It is noteworthy that the big unresolved issue from last week’s Madrid Climate Summit was a deal on carbon trading or taxes. And it is worth remembering that the carbon trading arrangements created by the 1997 Kyoto Protocol crashed and burned in 2009 after peaking at US$790 billion in 2008, discredited more than anything else by the fact that while they were a terrific, innovative new financial product, they did very little to lower carbon emissions.
Surely the one and only measure of carbon trading, offsets or taxes must be whether they actually reduce carbon emissions and ultimately constrain global warming.
And this is an imperative that even the most ESG-focused companies seem seriously to underestimate. We need to be reminded that we have to halve current global carbon emissions by 2030 to keep global warming under control. And while we slash those emissions, we have to feed and fuel more people, many of whom are getting richer and have barely tasted the addictive pleasures of hyper-consumption.
Amid all of the breast-beating about ESG compliance, Greta Thunberg’s Madrid warning provides an important splash of iced water: “The real danger is when politicians and chief executives make it look like action, when in fact almost nothing is happening, apart from clever accounting and clever PR.”
ESG or no ESG, can we really be confident that it is different this time?
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view
