ESG doublespeak: The authenticity gap

A beautiful dense fern forest with a someone peaking over a tree truck

My last post, ‘Knowing the score’, highlighted how companies might assess CSR-bang for ESG-buck and how third-party ratings can play a role in the trouble with ESG. We’ll now hone in on how the ‘feel-good’ acronym is marketed, why, and the unintended consequences.

Register to join us on Wednesday 30th November from 2-3 PM (GMT) to explore the role of communications in disentangling ESG at a time when sustainability has never been higher on the world’s agenda.

It was time to blow the whistle. In February 2021, Desiree Fixler, group sustainability officer at Germany’s top asset manager DWS, claimed the firm made misleading statements about its ESG credentials. She got fired. The authorities’ subsequent investigation into greenwashing forced the firm’s CEO, Asoka Woehrmann, to resign in June 2022.

ESG is in high demand. According to Bloomberg Intelligence, the global ESG market currently adds to about $40 trillion. The acronym generates hundreds of millions in fees, with the label now being slapped on everything from loan products to investment bonds. The fees for managing ESG funds are typically higher, making them a timely answer to tightening margins. Sometimes the premium is unwarranted. In February 2022, investment advisory firm Morningstar removed the ESG tag from more than 1,200 funds because they did not “integrate [ESG factors] in a determinative way.”

In April 2022, billionaire activist-investor Carl Icahn said Wall Street’s ESG efforts might be the “biggest hypocrisy of our time”, with firms cashing in on the ‘feel-good’ acronym without concern for actual impact. If ESG is more than a marketing ploy to raise money, investors must “back up their words with actions,” he said.

It’s hard to blame the casual observer for believing that ESG investment funds are helping to save the planet. Annual reports and marketing materials make lofty statements about corporate aspirations.

But the authenticity gap has profound consequences. The impression that the money needed to tackle global issues is upcoming undermines the necessary regulatory reforms and public-private partnerships that would make a difference.

Richard Costa, director and head of corporate reporting at Ensemble Studio.

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