A sustainability expert has warned against abandoning ESG as a tool for making smart and sustainable business decisions.
Following the news that ESG funds have suffered their worst month for withdrawals on record, sustainability and climate expert Chris Bennett says ESG is still a powerful tool for business, and in the fight against climate change.
In May, investors pulled £304m out of sustainable funds in the worst month of withdrawals on record for the ESG (environmental, social and governance) sector, with reports that greenwashing is undermining the credibility of so-called ESG investments.
But Bennett said that many fail to understand the meaning and importance of ESG and that this doesn't bode well for the future of our planet.
"ESG has for too long been a buzzword and a communication gap around the subject has emerged," he said.
"There's also the rising subject of greenwashing, a practice which is putting investors off ESG."
Chris Bennett, who founded sustainability services company Evora Global in 2011 to help make real estate more sustainable, said ESG is about helping companies to understand their future risks and taking steps to lower them.
"ESG is an increasingly important subject and we can all understand that climate change poses a risk to assets and that we need to take action.
“But most people still don’t know what ESG really means. This includes many politicians and senior business leaders, and this has to change,” said Bennett.
“Climate change is real, so getting some good data on the E of ESG is something any business with assets should be interested in.
"Meanwhile, the S and the G social and governance are vital indicators about how a company makes decisions and how it behaves.”
Bennett said when ESG data is used effectively it can safeguard companies and assets and futureproof decisions.
“A company with a strong understanding of its ESG risks can plan well for the future and also ensure it has a more positive impact on the world,” Bennett said.
However, Bennett added that misuse of ESG data can be used to justify unacceptable and unsustainable practices often known as ‘greenwashing’.
“Misunderstandings around ESG can cause problems. Greenwashing is bad for all industries and undermines trust and credibility. It’s a shame ESG has been associated with such things as it’s a great commercial opportunity,” Bennett added.
“Businesses are now recognising the importance of ESG skills more widely in their hiring and training. Also, more and more investors are collecting data on ESG indicators, and using these to make better investment decisions."
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