The ESG Review: The gold rush comes with green risks

Defining precisely when a proverbial gold rush begins - or when it hits its peak - is practically impossible until after the event.

Looking at the headlines around ESG investing over the past week though, you could be forgiven for stating that we are right in the middle of one.

Given all the hype, scrutiny, scepticism and bumps that have come with major fund announcements over the past few years, it’s not surprising that the big business media use the words “gold rush” sparingly.

"Anybody who uses ESG, sustainability or green purely as a marketing device is really heading for trouble.”

But that was exactly how the Financial Times summarised the current fund boom in a piece on mispricing dangers earlier this week. It was admittedly written with a US market lens and primarily called out climate change issues as a catalyst. But it underlined the point that has been made time and time again by critics and defenders of ESG in the past year - the danger that attempts to ride the wave by hyping the potential, exacerbated by lack of cohesive standards, is going to see a wild west investing environment, and even a lack of logic in how some companies are painted or assessed.

And as this Bloomberg article on the prospect of a shakehout for funds “hyped by fairy dust” pointed out, “Anybody who uses ESG, sustainability or green purely as a marketing device is really heading for trouble.” The point being that there’s a need to avoid the temptation to tap into a gold rush by greenwashing a business.

As another Bloomberg piece put it in encapsulating the current heat around funds, “everyone wants to do ESG now.”

Yet read further back in similar media over recent weeks and ESG appears to have been turned on its head by the war in Ukraine, with the defence sector marked up for its positive societal impact, for example.

What’s really happening then, and has the war accelerated a gold rush or done more to lay bare the holes in ESG as it stands? Time will tell, but the sense of it given the investment boom is that, tragically, armed conflict seems to have helped to spotlight the virtues of ethical business, and ultimately stakeholder capitalism. It has also thrown up a multitude of nonsense contradictory moments that illustrate how far ESG has to go before it has the rigour, objectivity and rational basis required to be an underlying fabric for capital markets.

In the midst of all of this, communicators have to try to make sense of how best to continue to share progress towards corporate goals with stakeholders, prioritise campaigns and topics, and advise senior colleagues on what’s best for reputation. It can be easy to feel like you’re being pulled in different directions, and insights can be contradictory. And it can feel like it’s all going on at once.

To a degree, it probably is. Some matters may be being brought to a head, accelerated by a scramble. Like any gold rush moment, there can be pressure to take opportunities while they’re there, which in a communications sense can mean over-hype and hyperbole. With the eyes of the world on business behaviour as well as a geopolitical crisis though, now is likely to be a time for holding the nerve and continuing to communicate with commonsense.

The ESG News Review is written by Steve Earl, a Partner at BOLDT

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