Global ESG initiatives are approaching record levels as investors place a renewed focus on sustainability measures—but some experts say quality control and greenwashing are major concerns as volumes soar.
A new report on the sector from Generation Investment Management notes an ongoing proliferation in sustainability-related commitments like net zero, nature positive, and regenerative agriculture, as well as more obvious social issues like diversity and inclusion. Financial institutions in particular are elevating their net zero game, led by the Net Zero Asset Managers Initiative launched in 2020 with 87 signatories and $37 trillion in assets under management.
But there’s a catch, Generation analysts say.
“These offer big opportunities for sustainable investing,” the report notes. “But they will do more harm than good if we fail to set a high bar. There is growing unease at the low quality of some net-zero commitments, the absence of guardrails for natural solutions and the sustainability performance of ‘offset’ markets. Misleading sustainability claims are also spreading online at an alarming rate.”
In the EU, consumer protection authorities believe that website claims in potentially 42% of cases were exaggerated, false or deceptive and could potentially qualify as unfair commercial practices under EU rules. And in the US, the quality of carbon offset markets is a concern, even in highly regulated areas. A recent study cited by Generation claims that California’s forest carbon offsets program “falls far short of its claimed climate benefits,” with 29.4% over credited at a value of $410 million.
For CRE, some experts claim ESG-linked financing deals are just good PR. Sustainability-linked financing deals have been increasing in number, but the main motivation, according to some industry insiders, may be more public perception-based.
“Honestly, the rate reductions you’re seeing are miniscule, but it generates a lot of good public relations for these companies and that they’re practicing what they preach,” Glenn Brill, a managing director in the real estate solutions practice at business advisory firm FTI Consulting, told GlobeSt.com in an earlier interview. Although some firms have claimed a reduction in borrowing costs of 10 basis points, “usually it’s like five basis points or less,” Brill said.