Will hypocrisy and cynicism be the exception or the rule for ESG?

Last month Deutsche Bank in Germany was raided by law enforcement on a suspicion of fraudulent advertising for sustainable investment funds by its DWS unit. The allegation is that the retail money management business engaged in ‘greenwashing’ in which its environmental, social and governance (ESG) funds were sold under false claims.

Such allegations are becoming an everyday occurrence as the temptation to cut corners or exaggerate ESG claims can be very strong when the difference between substance and spin can be paper thin.

In relation to reputation, good intentions can be twisted into appearing as overt cynicism and hypocrisy simply because corners were cut, and claims were pushed too far. There are also the cynical and hypocritical businesses which will get away with as much as they can, as long as they don’t get caught.

Last week ASIC released guidelines on how to avoid greenwashing when promoting sustainable products and aside from often necessary legal advice, it is a great starting point.

However, marketers will almost always push the boundaries, lawyers will usually push back and staff want to be proud to work in an organization that is doing ‘the right thing’. How do you know you’ve stepped from substance to spin and good intentions to hypocrisy and cynicism?

You lack evidence

It’s no longer enough to be aspirational when it comes to ESG claims. Achievements, rather than targets are increasingly needed in areas such as environment and diversity if you are to avoid reputational risk.

Your evidence doesn’t stand up to scrutiny

Claims of carbon neutrality are often based on carbon offsets, but understanding what those purchases are can be important. For example, an Australian bank was recently embarrassed when its carbon offset investment was exposed as being in an Indian tobacco processing plant.

You use wording that generalizes a specific example

A single ESG compliant product doesn’t make for an ESG compliant brand, but the temptation to make it sound like that is great. The regulators are on the lookout for this and the fine and public exposure will easily negate the advantage.

You don’t really care about any of it, but you recognize a marketing opportunity

There are many cynics when it comes to ESG and some are thriving by exploiting poor regulation. Firstly regulation is catching up throughout the world quickly and secondly this area is a central concern for a new generation of consumers. Spin over substance is a long term risk that many will be hurt by.

The lawyers are wavering

The reputational risk in ESG matters is significant, but the legal and regulatory risk is growing and changing by the day. Legal advice should sit with PR advice in an area that simply can’t be ignored.

ESG carries risk and opportunity for business and the community and it would be tragic if such a fundamental change fails because we are too scared to see it through and overcome the challenges to make it business-as-usual.

What are your views about this much hyped acronym? Will it be the playground of the cynics, or help business make the world a better place?




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