Marcoms Roundtable: It’s ESG, Not Greenwashing

Janeesa Hollingshead, Contributing Editor, Wealth Solutions Report

Experts From StreetCred, Impact And Edelman Smithfield Advise How Firms Can Demonstrate ESG Commitment And Steer Clear Of Greenwashing Accusations

“No good deed goes unpunished,” goes the old saw, describing the tendency for opposition to arise for those who endeavor to do good. In the modern setting of the wealth management industry, and especially for investment firms, those that attempt positive movement toward ESG goals often receive criticism. Frequently, that criticism comes in the form of greenwashing accusations.

Ironically, this leaves firms that wish to communicate their commitment to positive change in the position of having their actions potentially misinterpreted and ultimately misunderstood by the target audience of advisors, professionals and end clients.

To learn how a firm can ensure that its ESG activities are viewed in a positive light and not subject to accusations of greenwashing, we reached out to three marcoms executives with ESG expertise: Emma Smith, Partner at StreetCred PR; Marie Swift, President and CEO of Impact Communications; and Lane Jost, Head Of ESG Advisory, Edelman Smithfield.

We asked each of them: How should you position investment firms or other firms with significant focus on ESG in a way that prevents and guards against accusations or questions about greenwashing?

Their responses are below.

Lane Jost, Head Of ESG Advisory, Edelman Smithfield

Lane Jost, Head of ESG Advisory, Edelman Smithfield

Given the recent regulatory evolution, greenwashing has moved from a buzzy consumer brand protection topic to a more serious infraction. The recent SEC “Names Rule” updates are examples of this, in which regulators are tightening the belts on the relationship between labels like “ESG” or “sustainability” in financial services. For investment firms, the practice of relying on third parties like ESG ratings agencies or issuers themselves to validate ESG claims is over.

When speaking to clients interested in investment products with leading environmental performance, explain these market dynamics and that the devil is in the details: What environmental performance do they seek? Are they specifically interested in investing in the energy transition, such as renewables? Would they prefer more diversified investments that show high ESG performance where environment is just one of three factors?

Most recent investor surveys indicate an aggregate willingness to pay an ESG premium. Speak to your clients about this and explain that ESG good practice can be a proxy for higher returns, but only if ESG practices such as decarbonization can lead to better resilience or a lower cost of capital, for example. The business case is what matters – not the disclosure of ESG performance alone, but rather how ESG drives traditional financial results.

Your clients are increasingly sophisticated on a host of ESG topics such as environmental performance, but level with them on how marketing is not a sufficient basis for an investment decision if it cannot be substantiated.

Marie Swift, President And CEO, Impact Communications

Marie Swift, President & CEO, Impact Communications

Greenwashing undermines genuine ESG efforts, confuses consumers and investors, and erodes trust in a company’s claims. Investment firms and other ESG-focused companies can proactively position themselves to guard against accusations of greenwashing, build a solid reputation and drive positive impacts in the journey toward a sustainable future.

To position your firm as an authentic ESG advocate:

Be transparent. Disclose your ESG practices, policies and methodologies. Communicate your firm’s investment approach, metrics and progress regularly through reports, public statements and digital platforms. Seek third-party verification for your ESG claims, which adds credibility and can allay suspicions of greenwashing. Highlight how your ESG goals align with industry best practices and regulatory standards.

Align actions and words. Don’t set misleading or superficial goals that may raise suspicions of greenwashing. Avoid token gestures and green-sounding branding without substantial action. Ensure your ESG initiatives are consistent with your firm’s core values and business practices. Embed ESG considerations into decision-making processes, from investment strategies, to supply chain management, to travel and entertainment considerations.

Ensure that all employees and stakeholders understand the firm’s ESG objectives, commitments and actions. Conduct training sessions about the importance of ESG and its integration into the company culture. Monitor progress and adjust strategies to meet targets.

Be engaged. Contribute to positive change and promote sustainable practices by participating in industry forums, initiatives and advocacy groups. Foster meaningful dialogue with stakeholders. Actively listen to their concerns, feedback and expectations and respond to criticisms constructively, demonstrating a willingness to address shortcomings and improve.

Emma Smith, Partner, StreetCred PR

Emma Smith, Partner, StreetCred PR

Transparency plays a crucial role in this context. Investment firms should be ready to clearly express their ESG principles without ambiguity, going beyond surface-level or vague scores. This might involve sharing the data sources they rely on, the underlying assumptions guiding their assessments and how they seamlessly integrate these factors into their investment decisions.

Moreover, it’s essential for investment firms to acknowledge that sustainable investing is not a perfect process – it involves navigating complexities and trade-offs between environmental progress, social responsibility and governance practices. For instance, a company making great strides in environmental initiatives might still face challenges in areas related to worker treatment or ethical conduct.

Investment firms should be willing to engage in candid discussions about the difficulties they encounter during the portfolio construction process. By acknowledging these trade-offs and addressing them transparently, they can build trust and credibility, assuring stakeholders that their ESG commitments are genuine and practical.

Last but no means least, making materiality a central focus in ESG communications can serve to debunk myths and misconceptions surrounding sustainable investing. This approach helps stakeholders grasp that sustainable investing is firmly grounded in data-driven analysis rather than arbitrary or subjective judgments. To that end, it can foster a better understanding of ESG’s role in achieving long-term value creation and prudent risk management.

Janeesa Hollingshead, Contributing Editor at Wealth Solutions Report, can be reached at editor@wealthsolutionsreport.com.

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