Pathzero recently attended the Investor Group on Climate Change’s (IGCC) annual Climate Change and Investment Summit, a forum for leading investment experts working towards a decarbonised economy.
Pathzero Co-founder and CEO Carl Prins participated in a panel discussion, ‘Greenwash vs ambition: a dilemma for regulators and investors’, alongside Jodie Barns (Unisuper), Daisy Mallett (Mallett Services) and Claire Labouchardiere (Australian Securities & Investments Commission). The panel was moderated by Jessica Cairns, Head of ESG and Sustainability at Alphinity.
Jessica set the scene for the afternoon’s discussion by highlighting that 2022 was ‘the year of greenwashing’. It’s a key risk for investors and it’s becoming more and more of a material issue. There has been an ongoing push for – and progress towards – greater disclosure; the ISSB standards have now been published, climate reporting in Australia is soon to become mandatory, and the Australian Sustainable Finance Institute (ASFI) is currently working towards an Australian sustainable finance taxonomy.
So, amidst this evolving landscape, how can organisations continue to aim high, and how can they ensure they’re setting and delivering on genuine targets?
High-quality data will be key to reducing the chances of greenwashing
ESG Manager at UniSuper Jodie Barns highlighted that as one of Australia’s largest investors in ESG-themed investments, UniSuper has been integrating climate considerations into its investment decision making for some time. UniSuper’s goal is to get its members the biggest return possible, so integrating climate risk into decision making is in its members’ best financial interest.
UniSuper has committed to transition its portfolio to net zero carbon emissions by 2050. Jodie highlighted that one of the biggest challenges is that decarbonising portfolio emissions will be significantly dependent on the underlying companies, and unless you can measure, monitor, and report, it can be very difficult to implement change.
Jodie also highlighted that obtaining high-quality data is key. Though the quality of the data that asset owners are managing to obtain from their fund managers about their portfolio companies is improving, it’s still not entirely mature, and new solutions are needed to support this exercise. Additionally, when asset owners receive emissions information, they must be careful to understand what asset classes have been included, and how much coverage it represents.
Greenhushing is becoming an increasingly risky position
Claire Labouchardiere – Senior Executive Leader at ASIC – highlighted that sustainable financing and greenwashing are key priorities for ASIC, and it’s working to ensure that the realisation of ambition is accurate and transparent so that investors can make informed decisions about how they allocate capital. Like with any claim, the focus is on whether climate-related claims are true and accurate, and ensuring they can be substantiated.
ASIC recently released a report summarising its greenwashing enforcement activity from 1 July 2022 to 31 March 2023, which highlighted that 35 actions have been taken. And with ASIC ramping up its enforcement action on organisations making unsubstantiated climate-related claims, ‘greenhushing’ – where organisations remain silent due to fear of regulatory action – is becoming a popular topic.
However, Claire pointed out that opting to stay silent is an increasingly risky position to take, because investors are calling for information, and mandatory disclosure is just around the corner. Daisy Mallett – Principal at Mallett Services – added to this by pointing out that asset owners and managers who retreat are going to miss out on big opportunities globally, especially in regions such as Asia.
The panel encouraged investors to embrace available tools and approaches to reduce chances of greenwashing or overstating their ‘green’ credentials. This includes guidance such as ASIC’s 2022 information sheet on ‘How to avoid greenwashing when offering or promoting sustainability-related products’, as well as being clear about what is and isn’t covered in climate claims, being transparent about the methodologies underpinning claims, and stating where data has been sourced from.
Daisy also emphasised the importance of paying attention to the details of sustainable finance taxonomies in different countries as ignoring the subtleties can lead to greenwashing. She highlighted that there are guides available to help with this, including one she recently published in collaboration with the Asia Investor Group on Climate Change titled ‘Greenwashing and how to avoid it: An introductory guide for Asia’s finance industry.’
Technology will help to support the substantiation of climate-related claims by enabling access to ‘actual’ emissions information
Building on Jessica’s earlier points on data quality, Carl Prins highlighted the difficulty that asset owners face when it comes to pulling information together from their various fund managers, where a lack of data, collaboration and expertise pose significant challenges.
He pointed out that although ‘estimates’ – calculated based on sectoral averages – are useful in the first couple of years of reporting, when it comes to disclosures and risk-management, this ‘estimate-based’ information simply isn’t enough. Using this information leads to inaccurate baseline measurements and doesn’t support engagement through the ability to ask informed questions to fund managers. And when it comes to advocacy, estimates don’t drive the data-driven assurance required to be truly confident about the claims being made.
Carl emphasised that amidst a landscape of increasing climate risk, opportunity and mandatory disclosures, the importance of obtaining ‘actual’ emissions data is critical. However, this is a challenging exercise as it requires fund managers to retrieve accurate data from their portfolio companies, and in turn, provide the information to the asset owner. And historically, the market hasn’t had the means to effectively enable this level of collaboration between parties. Technology has recently provided asset owners, fund managers, and portfolio companies with a way to seamlessly communicate, making it more efficient to obtain actual emissions information, and helping them to substantiate their climate claims.
He also raised an important consideration, which is there aren’t enough sustainability specialists in the world to support the scale required to meet our various climate-reporting needs, and this is where technology has an additional role to play. Technologies which come with built-in calculations aligned with global standards – such as PCAF and the GHG Protocol – allow non-specialists to run their own calculations, alleviating the need for heavy support from specialists.
Carl wrapped up by pointing out that although technology will allow us to scale our efforts, we’ll still need specialists to check the quality of the information, and help organisations ensure they’re working with the right data, so that they can set the right policies and targets, etc.
We would like to thank the team at the IGCC and the panellists for an insightful discussion and look forward to supporting the industry’s progress in advance of next year’s summit.
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