ESG Greenwashing: Here’s Why You Need an Ethical Investment Research Firm
We speak with Matthew Ayres, Director of Client Services at Ethical Screening - one of the original providers of research for responsible investment which was established back in 1998. Since then the company has grown steadily and expanded their research to offer ESG, providing both qualitative information and ratings and positive analysis based on UN Sustainable Development Goals (SDGs). With the growing interest in responsible investment, Matt tells us about the work they do at Ethical Screening and the danger of ‘greenwashing’.
How can investors benefit from the information and guidance that companies like Ethical Screening provide?
Investors have become increasingly interested in the non-financial performance of the companies they invest in and this trend is growing at a rapid rate.
Research companies specialising in responsible investment are critical due to the range and complexity of the issues a client may want to avoid or endorse. Understanding an organisation’s approach to environmental management, social issues such as human rights or governance, taxation and corruption can create an overwhelming array of subjects that need to be understood. Research companies are able to deliver accurate information on these issues to aid decision making. Our methodology is used to distill and analyse the wide range of non-financial information that is available and cut through any greenwashing. We have the ability to summarise this information effectively and fully arm investment managers/IFAs to have these complex conversations.
Responsible investment is no longer an area that can be ignored. It is critical investors find a method or provider they can trust.
Why should more investors consider working with Ethical Screening?
Ethical Screening is a well-established research business that has been enabling responsible investment for the past 23 years.
Our information is relevant, detailed and accurate - we provide the information you need to know before you invest in a company, both the positive and the negative. The methodology is vital. Ours is supported by detailed key indicators for each sector which focus the research and ensure companies are rated consistently. Our SDG research is made more robust than many (particularly company's own reporting), by focusing only on material issues linked to the underlying targets to the goals. Our data is complex but we are able to translate this into clear narrative that makes sense to our clients.
We are accessible. Ethical Screening provides tools and reports, via our Ethical Screening Portal (ESP) to enable investment managers and IFAs to engage with their clients on relevant issues. This empowers the investment manager or IFA to be able to confidently discuss issues with their clients, and communicate exactly how their requirements are being implemented.
We employ passionate, knowledgeable people. By working with Ethical Screening you are able to phone us to discuss points in detail with our experts. We often have conversations with clients acknowledging the subjectivity of some of the subject matter - ethical issues can have many grey areas. Similarly, the Sustainable Development Goals were not written for companies, so there is much interpretation needed - we are happy to engage with the users of the data to discuss such matters, which increases accuracy and understanding.
I think there is a real danger, as the popularity of ESG increases, that industry players will jump on the bandwagon and make claims that look good, but are not supported by meaningful change.
Have you seen an increase in the number of clients wishing to work with you with the rise of responsible investment from the past few years? What’s the impact this has had on the company?
There has been a steady rise in interest and regulation in this area over recent years, which has fueled an increase in the number of clients. The impact on the company is we need to provide much broader research, and on more companies. Long gone are the days of screening to only negative issues. Our database has over 2,500 companies across ethical, ESG and (positive) impact analysis. The principal challenge for us currently is keeping up with regulatory developments and the wealth of data that is being produced.
How do you deal with ‘greenwashing’?
I think there is a real danger, as the popularity of ESG increases, that industry players will jump on the bandwagon and make claims that look good, but are not supported by meaningful change. This is strongly related to problems in terminology, for example, the interchangeable nature of the terms responsible, ESG and sustainable. From a client perspective, it is therefore important to be completely clear on what is being discussed or proposed. Ask the client what they understand by 'sustainable' - are they comfortable with the best-managed companies in a particular sector, or do they want to exclude all companies with that activity. An oil & gas company with a very high ESG score is not likely to appeal to an investor who is looking for truly sustainable investments.
From a research perspective, we look at the information the company provides (typically more positive) and then a wide range of other sources to get the other side of the story (typically more negative). Putting these two together provides a full picture of activities. Our research team are very experienced and with this experience comes the ability to see through 'non-robust' claims - for example, if there is a target is there any evidence or reported progress towards the target? If the company self-reports it meets SDG 5, Gender Equality, is this reflected in its gender pay ratios?
What do you hope to achieve in the future with Ethical Screening?
In March this year, we refreshed and re-launched our core product, the Ethical Screening Portal (ESP). The portal is an online system that allows investment managers and IFAs to screen companies and funds based on clients ethical and sustainability criteria. The portal really is a game-changer in regards to its selection criteria and provision easily accessible reports for clients – I would like to see the Ethical Screening Portal becoming an essential part of the investment manager or IFA toolkit.
We have been working a lot on internal processes and strategy for the company, which has been more behind the scenes. 2021 has been a great year for us so far, we are lucky that the pandemic has not slowed us down and we hope to continue to move the company forwards.
Responsible Investment is so dynamic at the moment, it is a very exciting place to be. Our core objective will remain the same - to provide accurate, useful information and useable tools that enable responsible investment, and thereby do our part in turning the financial system to a more sustainable future.