A scarcity of standardization, regulation and customary function dangers opening the door to “greenwashing” within the monetary sector that would undermine the burgeoning environmental, social and governance (ESG) funding motion, a brand new report from EY and Oxford Analytica has warned.
The influential consultancy and analyst corporations teamed up on new analysis which seeks to offer insights into the challenges dealing with the ESG motion, which they warn are being compounded by rising inflation and the struggle in Ukraine.
The report, revealed final month, warns that allegations of greenwashing have turn out to be a significant barrier to the continued success of the ESG sector, which has seen a growth in funding in recent times however has been dogged by allegations that too many nominally inexperienced ESG funds proceed to spend money on excessive carbon or environmentally damaging companies.
With a purpose to construct belief and acquire credibility, the report recommends ESG scores ought to handled on an equal footing alongside different issues within the extra established ecosystem of monetary reporting.
The report additionally contends that the sector continues to be hampered by a scarcity of settlement on what ESG funds ought to embody, how agreed metrics needs to be utilized, and the way obtainable information needs to be used.
Sustainable finance taxonomies needs to be developed to assist keep away from confusion over what is taken into account ‘sustainable.’
The report argues there’s an pressing want for elevated transparency over how ESG rankings are calculated, elevated understanding of the various makes use of of sustainability info, and extra impartial assurance round ESG scores, alongside enhanced reporting requirements. It additionally advises that sustainable finance taxonomies needs to be developed to assist keep away from confusion over what is taken into account “sustainable”, whereas guaranteeing decrease obstacles to entry for these corporations from rising economies.
“The extraordinary development of the ESG motion is threatened by a scarcity of alignment and settlement on foundational ideas and, in worst circumstances, rising claims of greenwashing,” mentioned Steve Varley, EY’s world vice chair of sustainability. “Proper now, ESG is dealing with a make-or-break second and requires an entire system method to addressing these points. Sustainability is everyone’s enterprise and extra work should be completed to encourage open collaboration and trust-building amongst those that form the business.”
The report notes that whereas there are rising connections between ESG and monetary reporting, there’s a want for higher engagement with civil society and different events to develop reporting and disclosure requirements, sustainable finance taxonomies, and ESG rankings.
“Most of the present challenges dealing with ESG are [because it is] a product of its infancy,” added Katie Kummer, EY’s world deputy vice chair of public coverage. “The sustainability ecosystem is simply greater than 20 years outdated, and so nonetheless in its maturing stage in comparison with the monetary reporting ecosystem. It’s important that we work collectively to construct a system that’s globally constant, trusted, responsive and the place everybody has a voice.”
