The ESG Green Washing Phenomenon

Updated: May 3

There are increasing number of reports of companies greenwashing their ESG.




David Carlin writes in an opinion article in Forbes titled “Separating Green from Greenwash: Key Questions for Evaluating Net-Zero Commitments” . David Carlin leads the UN program for global financial institutions to identify, measure, and manage their climate risks and opportunities.


In this Article (1), he highlights “Many large companies have announced apparently bold commitments to reach net zero operational emissions, some as soon as 2025. However, those commitments are often less impressive than they sound.


A firm’s emissions are divided into three “scopes.” Scope 1 emissions are direct emissions. Scope 2 emissions are indirect emissions from purchased energy (e.g., electricity). Scope 3 emissions are all indirect emissions that occur in the value chain. Operational emissions typically only cover scopes 1 and 2. Yet, scope 3 emissions are often far larger than operational emissions. For fossil fuel companies, scope 3 emissions are created when their products are burned, typically 90 to 95% of the company’s total emissions footprint. For financial institutions, scope 3 emissions are the “financed emissions” of their clients, which can be hundreds of times the size of their direct emissions.


Ignoring scope 3 can mean ignoring most of a firm’s climate impact. That is why the Race to Zero requires targets that cover all three emissions scopes.”


Scope 3 deals with the companies supply chain or Invested Companies. Scope 3 represents a challenge to companies as these are indirect, out of sight and control and rely on third parties who lack resources or incentive to measure or report their ESG.


Scope 4 Emissions


In addition , there are now increasing calls for Scope 4 measurement. Scope 4 in simple terms looks at the effect of a company’s product. A good example is a car manufacturer as there is the end product of a car.


Reporting on this is governed by European legislation under the label of The Sustainable Finance Disclosure Regulation (SFDR). The SDFR seeks to improve transparency in the market for sustainable investment products, to prevent greenwashing and to increase transparency around sustainability claims made by financial market participants. Essentially, companies need to:


· Account for every stage of the product’s life cycle

· Consider changes in consumer behaviour

· Do not confuse market size with impact


Not only Environment , But Social – this impacts both consumer and supplier


Not all Companies (and Countries) are equal


The Climate Disclosure Standards Board (CDSB) highlights “In Just 100 companies are responsible for 71% of global emissions. Think about that for a minute; not countries, not States, not regions – individual companies we buy goods and services from and often invest our pensions in.” (2)

Here I want to highlight the focus on goods and services (Scope 4). The impact of this is going to be a major. Indeed, this was highlighted by the Climate Disclosure Standards Board (CDSB) whose activity was consolidated into the IFRS Foundation to support the work of the newly established International Sustainability Standards Board (ISSB).


Not all ESG advisors and ESG Measurement Software are equal


There are an increasing number of ESG “experts, Carbon or ESG Measurement Software , automated ratings. This sarcastic quote highlights the current situation:

“Everyone and their cousins claim they are ESG experts. ESG today is, to paraphrase Dan Ariely, like Teenage Sex: everyone talks about it, few really know how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it. Greenwashing is everywhere, it takes a discerning eye to recognize it.” (3)


So, what we need to do about this - call to action .


In this blog, I have highlighted both Greenwashing and the emerging trends of Scope 4 Emissions. ESG is not a one stop fit all solution. It requires people with authentic experience, and ESG Reporting or Accounting Software. While most all the focus on Focus on E – Environment, S- Social and G- Governance is equally Important – Scope 4 adds corporate responsibility of ones Products, and this leads to increasing Governance and Director skills , responsibilities, and risks.


ESG3.0 is a Platform addressing these concerns.


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ESG3.0 provides an opportunity for your company to upgrade your ESG story.


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1. ESG support for CFOs and Directors

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3. ESG3.0 - Digital ESG Tool Kit


ESG3.0 is a breakthrough approach to ESG that incorporates a digital data driven approach of data collection, management and reporting and Energy Reduction. The approach is both a Digital and Consultancy offering for companies providing a holistic next generation, strategy , data driven, tech based ESG solution, with a Lower cost and more practical than the larger consulting firms. It is provided together with GCX have decades of subject matter experience – resulting in ESG Accounting, ESG Measurement, ESG reporting and improved accuracy and transparency of your companies ESG rating.


We invite you to find out how we can help you in your sustainability journey.


Please feel free to reach out to me by email: jeffrey@persofi.com or browse my blogs on https://www.persofi.com where we cover topics with a focus on:


ESG Accounting | Carbon Accounting | ESG Measurement | ESG Rating | Net Zero | CO2 Reduction | ESG Reporting Emission I Supply Chain/ Investment Portfolio




Sources


1. https://www.forbes.com/sites/davidcarlin/2022/04/28/separating-green-from-greenwash-key-questions-for-evaluating-net-zero-commitments-part-1/?sh=4398b1a173f7


2. https://www.cdsb.net/blog/corporate-reporting/1005/scope-4-do-we-need-new-category-emissions-better-address-corporate#:~:text=While%20not%20a%20perfect%20solution,companies%20to%20reduce%20CO2%20emissions.


3. https://www.bloomberg.com/opinion/articles/2022-03-21/everyone-wants-to-do-esg-now




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