What Does ESG Mean And Why Does The Term Need Regulating?
Author Aventur • 30th April 21
It can be difficult to determine a genuinely responsible organisation from one that is simply claiming to be responsible. Thankfully, the friendly experts at Aventur are here to help you wash away the green paint and discover a business’s true levels of sustainability.
Investors, investment companies, and businesses seeking investment are jumping on the sustainability bandwagon by increasingly using Environmental, Social, and Governance (ESG) factors as marketing tools. Whilst an increase in their use might seem like a good thing, there is growing concern that the lack of specificity and regulation surrounding their criteria could lead to unsubstantiated claims: a.k.a ‘greenwashing’!
What Does ESG Mean?
Environmental, Social, and Governance (ESG) criteria are a set of standards that investors can use to determine the sustainability and social responsibility of a potential investment.
While they are unspecified and unregulated, these are the common factors generally considered during an ESG analysis:
- Energy use and type of energy used
- Water use
- Use of land/space
- Waste and waste disposal
- Pollution and emissions
- Natural resource conservation
- Treatment of animals
- Compliance with government regulations
- Ability to sustain operations at this level and with these practices for the foreseeable future
- Supply chain transparency
- Supplier/client/partner vetting and onboarding process
- Business relationships and account management practices
- Charity partnerships
- Working conditions
- Treatment of employees and employee engagement programmes
- Health and safety standards
- Stakeholder management practices
- Internal and external communication
- Consistency in messaging (internally and externally)
- Decision-making process and stakeholder involvement
- Accounting methods
- Management of stakeholder views/wants/needs
- Conflict of interest avoidance
- Political standing/involvement
- Legal standards upheld
- Policies on bribery and other illegal or untrustworthy practices
Why Should ESG Be Regulated?
The problem is, the factors associated with ESGs are entirely unmeasurable. When a set of standards is so broad and so vague, it is easy for a business to claim that they meet them (regardless of whether they actually do or not). Also, the lack of formal and/or impartial regulation means that these claims can be upheld without scrutiny. This needs to change.
How Can ESG Be Regulated?
A not-for-profit organisation (potentially funded by the industry) could control the use of ESG criteria and eliminate ‘greenwashing’.
At Aventur, we imagine this organisation would independently determine a measurable set of standards for each factor. Then, businesses wishing to list themselves as ECG compliant would be required to undergo a vetting process that would test them against these standards. If successful, they could promote their compliance to their heart’s content! The organisation could also regulate the promotion of their criteria, bring unsubstantiated claims to light, and fine unvetted businesses who claim association with them.
Want to see greater accountability for ESG claims? Sign the petition here to help us make it happen.
How Can I Tell If An Investment Is Genuinely Sustainable?
Without access to the ins and outs of a business’s supply chain, process, finances, etc. it can be really difficult to determine if their claims of sustainability (or anything else, for that matter!) are genuine.
Thankfully, at Aventur, we’ve got you covered. Each of our recommended investments must meet a set of standards that encompass strict ESG criteria (amongst other factors). We are also committed to achieving B Corp status, a new kind of business certification that highlights a business’s dedication to balancing purpose and profit. B Corps are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This means no huge exit charges for investors, no unethical practices, and no greenwashing. So, by investing with us, you can be confident that you are investing in genuinely responsible, sustainable, and legitimate ventures.
So, the solution? Invest with Aventur. Get in touch with one of our friendly experts:
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