Enhancing ESG scrutiny in the wake of greenwashing scandals

For asset managers, the recent deluge of greenwashing lawsuits internationally serves as a resounding call to exercise deeper diligence and evaluation of their portfolio companies’ ESG commitments.

The business world has witnessed a pattern of companies making exaggerated or spurious claims about their ESG credentials. Asset managers, in their capacity, need to understand the implications of such claims, as they not only affect the perception of investments but their tangible value.

The call for authenticity

As the global consciousness of sustainability grows, so does the scrutiny of regulatory bodies. A prime example of this is the UK Advertising Standards Authority’s (ASA) recent crackdown on corporate greenwashing. From airlines to energy giants, over 20 notable companies have come under the scanner for dubious sustainability assertions.

In the world of fashion, brands like ASOS, Boohoo and Asda have been under investigation by the UK’s Competition and Markets Authority (CMA) for potentially misleading claims about the recyclability and recycled content of their products. These investigations underscore the vital need for transparency and truth in corporate ESG communication.

Indeed, major global events aren’t immune to the repercussions of misleading ESG declarations, as demonstrated by the Qatar World Cup saga. In June, the Swiss Fairness Commission, overseeing standards in the advertising and communications sector, concluded that FIFA had disseminated inaccurate and deceptive information regarding the environmental footprint of the 2022 World Cup in Qatar. While FIFA had championed the event as the inaugural fully carbon-neutral championship, pledging to both reduce and counterbalance its carbon emissions, the Commission’s findings highlighted a gap between their claims and reality.

The proactive role of asset managers in minimising greenwashing risks

For asset managers, beyond just monitoring, there’s a proactive role to play. Engaging with portfolio companies can considerably reduce the risk of greenwashing. Here’s how:

  1. Regular dialogue: Regular engagement ensures that portfolio companies not only make accurate ESG commitments but also follow through on them.
  2. Sustainability strategy review: Asset managers can actively review and advise on the ESG strategies of their portfolio companies, ensuring they are genuine, actionable, and measurable.
  3. Education and training: Checking in on periodic training sessions and workshops can help portfolio companies understand the true essence of ESG and avoid inadvertent greenwashing.
  4. Data verification: Engaging in periodic data verification and audit processes ensures that all reported ESG metrics are accurate and not manipulated.

SI Engage: The tool for ESG assurance

Enter SI Engage – a comprehensive tool designed to assist asset managers and stewardship professionals in their engagement efforts. SI Engage facilitates meaningful dialogues between asset managers and portfolio companies, ensuring that ESG claims are not only genuine but also backed by actionable strategies and verifiable data. By streamlining engagement, SI Engage serves as a shield against greenwashing, ensuring portfolio companies stay on the right side of ESG commitments and regulatory scrutiny.

A new era of authentic ESG commitments

As the regulatory landscape becomes more stringent and the societal push for genuine sustainability efforts grows, asset managers must adopt tools like SI Engage and actively engage with their portfolio companies. This proactive approach not only minimises greenwashing risks but also positions asset managers as champions of authentic sustainability in the business world.