No one likes greenwashing — here’s why we love it
In the last two weeks, two pieces of news made the headlines. On May 31st, the Wall Street Journey published that Deutsche Bank was under investigation by the SEC and German authorities for greenwashing. On June 10th, the WSJ published that Goldman Sachs is being investigated by the SEC over their ESG funds.
Three dynamics are at play here.
First - there is a growing sentiment by consumers & organizations to place their investment funds in the hands of managers who deploy them while ensuring a new standard of environment, social, and governance (ESG) in their portfolios. ESG funds account today for $37 Trillion (!), which is 5 times bigger than the US Federal budget for 2021. This is a major force that could reshape capitalism to drive real change (to quote Sir Ronald Cohen).
Second - human greed remains a reliable source for people and companies making promises they don’t really plan to keep. The massive growth in ESG investments has caught the eye of all major investment firms who gladly marketed such products, reaping millions in fees in the process. This is the essence of greenwashing — making a false claim that their funds invest in companies that do well for the environment, where in reality, this is not the case.
The truth is that it is not easy to measure ESG, but it’s not impossible. It requires intentionality and putting real resources to understand what’s the company real net impact on the environment or society. There’s a lot at stake here. As an example, Elon Musk recently called ESG a scam after Tesla was taken out of the S&P500 ESG index due to a low rating on ESG.
Third - regulators are not willing to let greenwashers get away with it. This is a shift towards ensuring that claims of ESG will be backed by data. This is a pivotal moment for ESG since its inception 16 years ago.
Why do we love Greenwashing?
We love the term Greenwashing — it’s the culmination of the realization that there’s a big flow of capital to drive real change and an understanding that just putting up lipstick on companies that do harm won’t cut it.
This is why, when we evaluate companies, we look not only at how they conduct themselves but also on what is the impact of their product and/or services on the world.
We are fortunate that there is global work today to standardize, measure, and bring transparency into ESG and impact investments. This is the missing link between good intentions, actual execution, and real impact.
Technology has a big role to play here. In the last 12 months, we’ve been seeing a growing number of companies that create tools to collect data, monitor, account, and analyze ESG of companies. The top accounting and audit first are also gearing up to attest to the ESG rating of their clients.
A new industry is being created to ensure that the capitalist system is being wired to drive change. We are in for an exciting decade!
