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The ESG Review: ‘Sustainable’ may now also be a dirty word

Greenhushing, as the word implies, is about doing something quietly and discretely.

So it’s perhaps no surprise that the mass removal of the word ‘sustainable’ from the labels attached to many investment funds has been accelerating across the course of this year but has been done with no noise, in a move that the Financial Times this week attributed to regulatory and reputational concerns.

Again unsurprisingly, this piece in the FT put that concern down to lack of sufficient legislation for governing what it means by the term sustainable.

Badging corporate initiatives and services as sustainable, and the labelling of investment funds is - or at least, was - certainly undertaken with much greater fanfare.

But the number of words that have become ‘dirty’ over concerns with what they really mean, and how they can be deliberately misused, is forcing the business and investment worlds to think long and hard before using them, or drop them altogether. The level of scrutiny may be welcome given the desire to clamp down on greenwashing claims and other cynical practices, but it does put companies in something of a corner when it comes to choosing the right language to explain their positive initiatives and efforts to achieve central change goals, such as decarbonisation.

The European Union is also to ban the use of the phrase ‘climate neutral’ by 2026 to avoid the risk of greenwashing.

As has been covered before here, regulation is on the near horizon, which should bring not just rules but clarity around wording. An EU proposal to overhaul the ESG ratings sector would result in a broad overhaul of that sector and impose huge fines on transgressors.

A KPMG survey this week pointed to three quarters of businesses that would be affected by new global, US and EU rules which will force ESG data to be audited from next year not being ready to do so. The regulation will amount to auditing of sustainability-related information that, according to Reuters, “is crucial for giving investors information free of misleading environmental claims.”

The early examples of companies falling foul of rules that bring clarity and tighten the boundaries are already emerging. Deutsche Bank was this week fined $19 million by the Securities and Exchange Commission over its ESG claims and practices that misled investors. A relatively small bill to settle for a large financial institution, but as momentum builds expect the figures to increase and the reputational fallout to build.

As a piece in Forbes put it, “Greenwashing for marketing purposes, while misleading, rarely met the standard of a regulatory violation”. So for the moment, SEC fines may concentrate on investment claims, but as the EU rules take hold the focus will expand to marketing and communication, assuming relevant content falls under the scope of audits.

Companies may then become more confident about using the word sustainable again, in instances when they know that they won’t fall foul of anything. But where the evidence doesn’t stack up, it’s likely a thesaurus won’t be much help.

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

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