Is sustainable investment the golden ticket it really seems?

Green

Image Description: A plant growing out of coins in a glass pot.

Increasing pressure is dictating that individuals, businesses and companies all must take accountability for their contribution to environmental damage, especially when in the public light. Most recently, it is investors who have been thrust into the spotlight and have responded with a number of ideas that excuse the activities they partake in that have a direct or indirect effect on the planet.

Divestment (the argument that investing in polluting companies is the only way to fund long-term goals associated with sustainability), ethical investing, impact investing and socially responsible investing are just a few of the terms thrown around to justify investment decisions in both green start-ups and oil giants. Nonetheless, the growing scrutiny on “sustainable investment” is beginning to highlight the cracks in these greenwashing techniques that fail to contribute to active change.

Sustainable investment is the practice of investors seeking only to invest in companies with a degree of social responsibility, which can be indicated by an ESG (environmental, social and corporate governance) rating. An ESG rating measures both the level of sustainability the company demonstrates, but also communicates how well protected the company is against non-financial risk factors relating to environmental and social factors.

Engaging in sustainable investment can include investors actively seeking out those companies with ambitious environmental targets external from their profitable business operations, however increasingly companies such as HSBC and BNO create a standard sustainable portfolio to save investors the trouble of researching the full extent of the external impact their investment creates.

The value of sustainable investing assets under management has increased to over $30 trillion just in developed countries, reportedly making up 33% of all US assets under management. Lucrative and environmentally friendly, it is already sounding fishy. Furthermore, on March 15th, CEO Emmanuel Faber of global foodstuffs conglomerate Danone was fired on grounds of underperformance, despite his refreshing perspective on prioritising long term, ESG goals. Both the profitability of sustainable investment and the fact that environmental impact continues to not be prioritised in the boardroom casts doubt on whether these are simply “greenwashing” terms that are not benefitting third parties more so than they are the investors themselves.

Lucrative and environmentally friendly, it is already sounding fishy.

The scepticism around sustainable investment is being addressed at both a local and international level. In the EU, measures such as formally defining “green investments” have to come into place, which will require formal disclosure of sustainability metrics to support the green claims so many companies seem to be making. Yet even this is a grey area to define; bioenergy may be labelled green, but nuclear energy and natural gas are not. This not only reflects the fine line that allows any company to label themselves as green or sustainable but even defining these concepts is a complex process due to the different ways different institutions may choose to interpret their practices.

Divestment, for example, is a label for a completely juxtaposing investment strategy that also claims to benefit the environment. Without significant capital, the largest polluters will be unable to implement long term, energy-efficient, planet-preserving solutions. This, in theory, makes sense, as many investment projects do require substantial funding to get off the ground. In addition, commitment to divestment, Climate Action 100+ (ca100+), a global investor-engagement group claim, will ensure integral long-term targets of companies like BP, which aim to completely overhaul their business from polluter to protector, are actually met.

Closer to home, Oxford University itself is at the centre of its own divestment programme controversy. Despite commitments to divestment in their own funding practices, Oxford Climate Justice Campaign recently revealed a conflict of interest remains through other political and financial practices outside of investment. This includes accepting donations from members of environmentally damaging organisations as well as putting individuals closely affiliated with such companies in senior positions (read here for more on their campaign and their recent report on Oxford University here.). Taking serious action to make a difference at a corporate level extends beyond choosing which companies to invest in.

Closer to home, Oxford University itself is at the centre of its own divestment programme controversy.

Much more meaningful action can be taken outside of investment practices, and the sooner companies realise this, the sooner more tangible change may come to fruition. The disproportionate effect sustainable investment has had on investors in comparison to the environment is evidence of laziness in greenwashing what may be just standard investment practices.

Although environmental impacts are difficult to quantify, active effort in promoting sustainability will both elevate the company to a higher level of social recognition, and will also ensure real change is occurring.  better than simply waiting for decades to see if current investment plans are held to account.

Image Credit: Micheile Henderson via Unsplash

 

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