ESG, Greenwashing and Other Four-Letter Words

Source: Troutman Sanders, 8 May 2017

Sustainability reporting is a dry topic, so try to hang in there for at least the first three paragraphs, even if your business is primarily a service business and you cannot conceive that sustainability reporting has any relevance. (Note to file: You probably are mistaken.)

We always have been skeptical about most of the sustainability and other Environmental, Sustainability and Governance reporting initiatives. While well-meaning, virtually all ESG initiatives are run by groups that have an agenda other than the protection of the financial interests of investors, and some, such as the Sustainability Accounting Standards Board, produce rules that do not have the appropriate technical or procedural underpinnings. Without belaboring this issue too much, but just as an example, SASB’s rules largely are the product of Google searches to determine what “sustainability” issues are of the most interest, with a ranking of importance by groups of volunteers, many of whom have little or no discernible expertise in the applicable industry or underlying science. It was particularly troubling that last month SASB announced that it no longer was seeking to follow ANSI rule-making standards, which we view as an admission that its standards, at least with respect to the procedures followed in their development, fall too far short of the mark in order for them to easily repair their shortcomings.

Against this backdrop, two recent reports caught our eye. First was McKinsey & Company’s March 2017 Interview entitled “When sustainability becomes a factor in valuation.” Then just last week Goldman Sachs released “The Portfolio Manager’s Guide to the ESG Revolution.” These build on some prior work, such as “Corporate Sustainability: First Evidence of Materiality,” a study published by the Harvard Business School in 2015. There are a number of other, similar analyses as well.

Read the full article by W. Brinkley Dickerson, Jr. and David I. Meyers (Troutman Sanders)