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The ESG Review: UN greenwashing clampdown a COP standout

Amongst the many ills cited as global threats this week at COP27 in Egypt, one of them was information-based: greenwashing.

A United Nations plan, unveiled by a panel it set up to tackle the problem, outlined that many corporate and civic decarbonisaton pledges may be rife with greenwashing.

The report recommends that “red lines” be created to prevent companies supporting new fossil fuel exploration or deforestation to make viable net zero claims, and also overuse of carbon offsets as a pathway by instead focusing on outright emissions.

The zero tolerance approach, as the UN is billing it, will also intend to “zoom in on the quality and implementation of plans,” according to Bloomberg.

Indirectly, there is of course criticism here of the way in which companies have chosen to communicate their target and actions. The inference is that while the pledges themselves may not be fit-for-purpose in the UN’s eyes, the way in which they have been conveyed can seek to tell a different story.

“We’ve seen a lot of companies are only doing a percentage of their emissions, in particular they’re not doing emissions across their supply chain,” said the panel’s chairwoman in The Times, while The Independent led within Secretary General António Guterres’ view that greenwashing amounted to “rank deception” both over genuine action and carbon reporting for investment purposes.

The report, titled Integrity Matters, certainly pulls no punches. Above all, it outlines how net zero targets and plans to achieve them should be far more definitive, and rooted in absolute emissions across the entire value chain set against short, medium and long term science-based targets. These “transition plans” should also be transparent in outlining how immediate emissions reductions will be achieved, and how business investments and operating costs will be aligned with decarbonisation targets.

Money will, of course, be absolutely central to a transition of this scale. But a detailed Euromoney article this week covered the split that remains amongst investors over ESG’s value and impact, framed as ‘woke versus anti-woke’ battle lines.

If calls for companies to be dead-pan accurate and gloss-free in reporting on net zero progress are to be answered, ESG - and investment in it - will need far greater clarity and robust standards quickly. There is simply far too much wriggle room for application, reporting and communication as things currently stand.

With the Securities and Exchange Commission’s new rules about to be published, the UK’s Financial Conduct Authority having already set out its intentions and the European Union’s Corporate Sustainability Reporting Directive already in place - the “big three” as this Harvard Law School article calls them - there will surely also be growing calls for global regulation and its application to be more closely aligned.

As the Financial Times pointed out, there is one body working on a harmonised approach. The International Financial Reporting Standards Foundation is compiling ESG reporting standards that will include a global baseline for sustainability disclosures. The foundation may not have anything like the heft of the United Nations, but equally no single institution is going to be able bring the rigour required, on declared climate action or greenwashing.

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

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