The issue was the main takeaway from a debate entitled ‘The future beyond 2020’ at the International Corporate Governance Network’s (ICGN) annual conference in Tokyo. The plenary was chaired by Carola van Lamoen, Robeco’s Head of Active Ownership.
The need to avoid greenwashing – the practice of only paying lip service to environmental, social and governance (ESG) factors with token gestures – has become more important as more investors start embracing sustainable investing, speakers at the debate said.
“We can’t avoid greenwashing – we’ve got to try and climb through and work out what’s going on and ask the right questions,” said Sacha Sadan, Director of Corporate Governance at Legal & General Investment Management in the UK. “We need to look at the ownership of some of the asset owners and see what they’re doing.”
“We’ve seen it here in Japan with companies that have said they’re going to take mandates away from people based on ESG considerations. That’s proper leadership – not just talking about it, but actually moving the money out. As an asset manager, I can assure you that you jump when you’re under threat, otherwise you will just carry on doing what you’re doing.”
Clients will increasingly refuse to put up with greenwashing, as they want to see the fruits of ESG factors actually being integrated into an investment process, warned Emily Woodland, Co-Head of Sustainable Investment at AMP Capital in Hong Kong.
“Clients are increasingly demanding evidence of the non-financial outcomes of their investments across their existing portfolios,” she said. “This isn’t just about measuring a carbon footprint, which is reasonably straightforward to do, and is becoming a lot more common. There’s also a range of other potential key performance indicators to demonstrate and differentiate your portfolio’s ESG performance against your peers or your benchmarks.”
However, a common framework is needed, said Charles T. Canfield, Principal Corporate Governance Officer at IFC Corporate Governance Group in the US. “The sustainability standards need to converge,” he said. “I feel like I’m in the 1990s, when the International Accounting Standards were being pushed as the global standard, and a lot had to happen for the convergence. They transformed themselves and now we have the IFRS, which are more globally accepted.”
“The same is going to have to happen with sustainability reporting. All these frameworks out there are going to have to either be consolidated or maybe another player is going to have to take up the charge. The International Accounting Standards Board itself has made ESG reporting an agenda item. Investors looking at financial information need to be looking at the same thing whether they’re in Japan, or Brazil, or the UK.”
Greenwashing also affects another hot topic – that of investing in the UN”s Sustainable Development Goals (SDGs) – when misuse of the goals turns into “impact washing”, said Woodland. “A lot of people are using the SDGs as the language to measure and report non-financial impacts,” she said. “The problem with the SDGs is that they weren’t really devised with the investment community in mind, so they don’t fit that neatly into this reporting box.”
“They’ve been subject to a little bit of misuse as a result. There genuinely are some credible efforts out there, no doubt about that, but some people are using it as a marketing tool to rebadge traditional funds that were never really constructed as any kind of ESG, sustainability or impact fund.”
Taking engagement to the next level by ‘naming and shaming’ energy companies that are either denying climate change, or lobbying against it, is another hot topic for active owners, the plenary heard. “We rank the biggest companies in the world on their climate disclosure, their policies, their statements, their targets, and their reputation,” Sadan told delegates.
“Are they paying political lobbyists? Are they paying people USD 14 million to say it doesn’t exist, it’s not manmade? Some companies are, and now we’re naming them.”
“We named 11 of the largest companies, including a few oil and gas companies and two Japanese companies. All of them have now come to us to ask how they get back on our better list. We want those companies to do better. It’s not about divesting, it’s not about just going away. If we want to deal with climate change, we have to get the largest companies in the world to do something.”