Justified or not, scepticism of ESG-related claims is not going away.
Accusations of greenwashing were rife this week, with corporates and asset managers accused of overstating their green credentials.
The Australasian Centre for Corporate Responsibility filed a claim with Australia’s Federal Court, contending natural gas supplier Santos’s annual report breaks consumer law due to misleading statements about environmental impact.
As well as failing to disclose the CO2 and methane emissions released in gas extraction, production and use, the shareholder advocacy NGO accused Santos of overstating the credibility of its 2040 net-zero pathway, which relies on carbon capture and storage technology and blue hydrogen.
Climate lobbying NGO InfluenceMap questioned the credibility of funds claiming to achieve positive climate outcomes, noting that the majority do not currently align with the goals of the Paris Climate Agreement.
Meanwhile, German asset manager DWS came out fighting after media reports about US investigations into greenwashing accusations by a former head of sustainability. The Securities and Exchange Commission is reported to be looking into Wall Street Journal claims that Deutsche Bank’s asset management arm overstated its use of sustainable investing criteria.
DWS robustly defended its record and approach, saying it will remain a “steadfast proponent of ESG investing” as part of its fiduciary responsibilities. Robust could also be used to describe the exchange of views prompted this week by FT columnist Robert Armstrong’s critique of ESG investing.
Those looking for evidence supporting the positive claims for ESG investing could do worse than review the diverse initiatives shortlisted in this year’s Principles for Responsible Investing Awards, released this week, with greenwashing eliminated by independent judges.
The pushback against fossil fuels took diverse forms this week, too. In addition to Santos’s travails, Germany’s Uniper lost one stage in a legal battle with local residents over a coal plant in North Rhine Westphalia. In the US, a multidenominational group called on faith-led insurer GuideOne to end fossil fuel insurance, while the UK saw the Extinction Rebellion take to the streets of Westminster, ahead of further protests next week in an otherwise empty City of London.
Aegon Asset Management highlighted the impact of environmental concerns on cost of capital for oil and gas firms, noting their difficulties refinancing bonds, despite strong fundamentals and customer demand. ESG analysts predicted ‘debt-denying’ would further hike capital costs in hard-to-abate sectors, as both investors and lenders impose climate-related criteria. The fossil fuel sector’s challenges will not be eased by plans to launch an international coalition at COP26 to set a date to phase out oil and gas production.
But all industries will be affected by increasing scrutiny of their economic and social risks and impacts. Investor groups and sustainability standards-setters this week outlined expectations and guidelines for the food and beverage industry as well as for all firms’ water usage. Corporates can also look forward soon to more details on a European legal framework for corporate human rights and environmental due diligence, complementing existing regulatory initiatives due to be accelerated ahead of COP26.
All this is aimed at providing asset owners with more accurate, comparable and decision-useful inputs into their investment processes. With thoughts of greenwashing still lurking, greater transparency can only increase the trend toward DIY ESG solutions.