False ESG - (In)authentic corporate narratives?
Milan, March 6, 2024: cwho can define with absolute certainty what defines the acronym ESG, raise your hand!
Environmental, Social, Governance are not only the three basic dimensions for verifying, measuring, and monitoring a company’s or organization’s sustainability efforts. They represent the compass through which investors and consumers increasingly guide their portfolio choices.
To the “E” letter of Environmental belong the criteria that assess a company’s behavior on environmental issues, such as policies on natural resource management and pollutant emissions, attention paid to recycling, energy consumption, and waste avoidance.
The parameters related to the letter “S” Are related to social impact and examine The relationship between the enterprise and its employees (with focus on working conditions, equal pay, policies to combat all forms of discrimination), suppliers, customers and in general with the community within which the organization operates.
Finally, the “G” in Governance is representative of the company’s very identity: the focus is on the ‘best practices’ related to its management, from the transparency of decision-making mechanisms to compliance with ethical principles
The new EU regulation on ESG ratings
Returning to the initial statement, it is apparent that it is not at all obvious to be able to get a clear view of the different parameters involved: an even more complex issue is to go on to evaluate them. It was precisely ESG ratings that were discussed in depth during the conference “FALSE ESG: (In)authentic corporate narratives.
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. A meeting – held at IULM University in Milan – which we at Green Growth Generation also attended, on authenticity in business narratives in view of the approval of the new EU regulation on ESG ratings.
What does the new regulation provide for? The goal is, first and foremost, to protect savers and investors. In fact, in order to operate, ESG rating agencies will have to obtain authorization from theESMA (the European Securities and Markets Authority): this process aims to regulate potential conflicts of interest and strengthen transparency requirements, both for the agencies themselves and for beneficiary companies.
The new regulation, however, does not speak at all about minimum requirements that ESG ratings should meet in order to be validated. Little clarity also regarding the principle of ‘Dual Materiality‘, according to which companies should report not only on how the application of ESG criteria affects their performance (Financial Materiality), but also on how their activities impact the environment and society (External Materiality).
Aware consumers
Of course, of countering greenwashing much progress has been made in recent years, but there is still a long way to go. European regulations, before finding effective enactment, face an obstacle course that means being able to reconcile the requirements of the 27 member states, and this often goes so far as to dampen the very effectiveness of the legislation.
Consumers are beginning to show increasing awareness of sustainability issues-economic, social and environmental. The ability to critically analyze a piece of information and carefully evaluate its sources is an increasingly common prerogative among young people, who are inclined to more easily unmask any instances of greenwashing.
For companies, this means having to invest very carefully in their “brand reputation” closely related to the ability to maintain and improve positive perceptions among consumers and stakeholders themselves. Le ESG certifications then become increasingly crucial in this context, as long as they are concrete and externally verified certifications. The risk of greenwashing is always lurking.
