The encouragement of sincere investments at COP26.
“Green growth is real,” said Alok Sharma, COP26 President. Environmental, Social and Governance investing can indeed be extremely rewarding; 71% of ESG studies found a positive or neutral relationship between ESG investing and corporate performance. In fact, ESG-oriented companies with real and strong stakeholders’ relations are more likely to perform well in times of crisis, which in turn reduces their bond volatility. Thus, investing in these companies is a growing source of opportunities and returns for its investors.
Despite this opportunity, COP26 has shed light upon the risks of green investments of which investors should be aware of, in particular ESG metrics. In some instances investors have been led to believe that certain companies had strong ESG metrics, only to later discover that this was not the case. This greenwashing is a great risk in terms of investment, as it alters the volatility of the so-called ‘green’ bonds. “You can’t base your estimate of the relationship with the workforce, for example, on a self-reported employee satisfaction score,” said Vitaly Nesis, the Group Chief Executive Officer of Polymetal. Indeed, in many cases, companies’ ESG scorings are indeed inaccurate and unclear, used for misleading marketing campaigns.
With much gain to achieve in net-zero objectives from sustainable investments, COP26 is a vital summit to lay down the next steps to effectively tackle greenwashing and encourage sincere ESG investing. Without proper and consistent ESG regulations, with a common set of rules, greenwashing will persist. A universal standard, on the other hand, would allow investors to compare ESG metrics of across companies and thus allow for greater clarity in impactful investments. Indeed, if this is achieved the implications for ‘green growth’ may be significant.
Written by Camille Queulvée
References
Friede, Gunnar, Timo Busch, and Alexander Bassen. 2015. "ESG And Financial Performance: Aggregated Evidence From More Than 2000 Empirical Studies." Journal Of Sustainable Finance & Investment 5 (4): 210-233. doi:10.1080/20430795.2015.1118917
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