• A ‘credibility gap’ is becoming a growing problem for ESG investors
  • This is slowly being addressed by regulations, but we need to do more
  • Stockhead reaches out to sustainability expert Meryl Sukumar to get her thoughts on this

A recent study conducted by market intelligence service provider Environmental Analyst shows there is growing chasm between companies’ commitments to ESG and their actions – giving rise to a ‘credibility gap’ for potential investors.

The problem is exacerbated by a lack of trust in ESG reporting, compounding the risks of potential greenwashing.

To some extent however, the gap is being addressed through moves towards mandatory ESG reporting and the streamlining of standards – something that we’ve seen done gradually in Europe recently.

For example starting this year, the European Commission’s Sustainable Finance Disclosure Regulation will introduce a range of legislative measures that could re-label ESG investment products.

The first legislative package will be aimed at asset managers and fundies, which will be in the form of mandatory criteria to determine whether some retail financial products could still be labelled as ESG.

Focus of the new law will be on finding a balance as well as putting a stop on ‘greenwashed’ investment products that are currently being advertised as green.

Areas of concern

Another area where credibility gap exists is in procurement.

According to a recent study by the CDP (Carbon Disclosure Project), only a third of companies that report on ESG actually encourage their suppliers to take action on climate change.

It’s a concerning stat given that a company’s supply chain emits on average 11 times more carbon than its own direct operations.

Advertising is another area where companies could be greenwashing their ESG claims.

Earlier this week, the UK Advertising Watchdog says that it’s investigating reports by activists on whether HSBC Bank was misleading the public in their advertising campaigns.

The bank’s campaigns are being accused of promoting gains made by the company on climate action, while conveniently omitting key data on emissions.

Of particular concern to activists is the fact that HSBC has publicly stated its intention to keep funding coal mining until at least 2040.

Interview with Subcinctus’ Meryl Sukumar

To get our heads more around this problem, Stockhead reached out to sustainability expert, Meryl Sukumar.

Sukumar is the founder of Subcinctus, a Melbourne-based ESG consultancy focused on bringing sustainable strategies and frameworks to Australian companies.

Leveraging on her previous experience as an energy consultant, Sukumar founded Subcinctus around two years ago to educate small and medium sized businesses on how to shift their culture and thought process around sustainability.

Meryl Sukumar, founder of Subcinctus

How do you ensure clients are doing what they claim they would?

On my end, what’s important is to ensure that all our clients get involved and engaged in the entire process.

They may not design the framework, but they will get involved in doing things such as interviews around materiality assessments.

We make sure they get involved in the entire process, from workshops and setting specific goals and SMART targets, to finally come up with the accountability metrics.

We need to be absolutely clear on who’s leading the project, who’s managing it and who’s actually implementing it.

The key person I will ultimately hold accountable is always going to be the leader, the person at the very top.

But we also encourage leaders to communicate their strategy to everybody within the business, and to bring these people along the journey.

How could investors be comfortable about the results?

It is a difficult one, and even I personally can’t be sure of what’s been done or not being done.

But I think the best thing for investors is to involve external consultants.

That will provide an external validation process and creates a buffer between what the client says has happened, and what may be actually happening.

Do you agree that regulations could minimise greenwashing? 

Yes and it should have happened 10 years ago.

When Australia took away the carbon taxes, it was probably one of the biggest mistakes we made around mandatory reporting on carbon.

We’ve now got this commitment to the Paris Agreement, and we’re nowhere near what we should be doing.

Our NDC (nationally determined contribution) promised under the Paris Agreement, which is essentially what we promised to do to meet our carbon target, is very much a skeleton of what we really need to do.

Yes there is a lot of grass root movements and a lot of action happening, but that’s not enough because we really need everyone to get  involved.

We need people at an individual level, changing the way they live their lives, how they shop, how they buy, and how they eat.

We need to change companies in the way they procure, the way they use operating processes, and the way they manage their people.

We need to change it at the corporate level and at the governmental level –  how the government is mandating this and how are they tracking it, and who’s being held accountable.

In Europe, they’re following through on their word. But in Australia, I think we’re holding back because we’re just afraid of changes.

How could we get everyone involved?

I think people need to really take the time to educate themselves, and that’s a part of what we do at Subcinctus.

We educate people and share a lot of valuable content, and basically just mentor people in this space.

Because people don’t always know the full truth, and they tell themselves these stories which they think are the truth or they hear from someone else.

So, taking the time to understand why this is a problem, or why we need to address this situation, is super important.

Other ESG news on the ASX this week

As reported by Stockhead’s green expert, Jessica Cummins:

Woodside (ASX:WPL)

Woodside is collaborating with the Eastern Regional Council (EMRC) on a carbon-to-products pilot project aiming to recycle greenhouse gases into useful products.

The two parties have agreed on the terms of a proposed option to lease land, which will be used for a pilot Carbon Capture and Utilisation (CCU) facility, and for the supply of landfill gas by ERMC to Woodside.

This CCU facility would convert greenhouse gases, such as methane and carbon dioxide, into value-added ethanol, using technologies developed by US-based companies ReCarbon and LanzaTech.

Mpower Group (ASX:MPR)

MPR, a leading renewable energy, battery storage and micro-grid specialist, said it made substantial progress during the quarter establishing its Build Own Operate portfolio of 20 5MW renewable energy projects with an estimated value of +$150mn.

The company focused on advancing green energy financing options for its BOO portfolio and expects more news to flow during the June quarter.