The ESG backlash is here
Wall Street was always a somewhat unlikely flag bearer for the new wave of social and environmental justice standards. Now, regulators are increasingly interested in whether their rhetoric matches reality.
With inflows into ESG funds swelling from a trickle to a tsunami in just a few short years, it was only a matter of time before the backlash began. Fund managers, watching the dollars roll in, have become enthusiastic advocates of values-based investing. They’ve done a good sales job, too: 90% of fund inflows in the UK in July went into ESG funds, most of them actively managed.
But, in his now infamous ‘Secret Diary of a ‘Sustainable Investor,’ former BlackRock banker Tariq Fancy says the industry is a “dangerous placebo” distracting from the real environmental and social work to be done. Deutsche Bank’s asset management arm DWS Group has been accused of overstating its’ funds ESG credentials, in a potential bellwether of scrutiny to come.
Most of the backlash has so far centred on investors. Yet businesses will increasingly be under the looking glass, too, with a wave of new regulation coming faster than almost anyone expected. Financiers, driven by new directives such as the EU’s Sustainable Finance Disclosure Rules, will ask bosses increasingly probing questions to prove they have their own greenwashed houses in order.
What can companies do about it?
Start with some common-sense principles:
Don’t greenwash. Yes, it sounds obvious. But in organisations where CSR has long sat under corporate communications, the urge to polish the message is often just too great. Have the courage to be honest.
Treat your ESG targets like you would any other SMART KPI: make them Specific, Measurable, Attainable, Relevant, and Time-Bound. Short-term targets you achieve are more potent than a long-term aspiration that sits on a shelf.
Stick to ESG issues that are genuinely material to your business. Do good— but don’t pretend a plastic straw ban in the staff canteen will boost your stock price. Stakeholders are diverse: The issues your customers and staff care about are likely to be different to those your investors care about. Beware of conflating them.
Finally, maintain a healthy dose of scepticism. Apply the same scrutiny to your messaging that others increasingly will. Good intentions do not equal impact. If it looks and smells like BS, it’s probably safe to assume that it’s BS.
