The world of responsible investment is filled with jargon and acronyms, from company names to investment criteria, it’s an industry often criticised for its lack of clarity and precise terminology. However, one phrase that should not be so quickly dismissed is ‘greenwashing’. Coined in the 1980s, ‘greenwashing’ has been used to describe companies who make inflated or sweeping environmental claims. As the industry becomes more competitive and greater investment is channelled towards responsible strategies, companies need to be progressive and credible. Communicating your impact with authority requires both transparency and tough choices to ensure it stands up to scrutiny.
Saving the story and the spirit
Greenwashing discredits and undermines the significance of responsible investing. It detracts from the positive power responsible investing can have on our planet and society and instead invites scepticism. As investors read headlines questioning the authenticity of responsible investing, they begin to wonder if it’s a meaningful investment strategy and whether ESG factors are effectively considered during decision-making. By marketing and communicating products that don’t truly meet this objective, we run the risk of making a mockery of the industry.
By marketing and communicating products that don’t truly consider ESG factors, we run the risk of making a mockery of the industry
Disingenuous communications play a major role in greenwashing. By publicising products or initiatives that superficially promote responsible investment, such spinners are guilty of conspiring to prevent real and lasting change – helping companies paper over the cracks. Take PRIDE. Each year companies paint their brands, products and marketing in a rainbow of colours for one month to showcase their commitment to the wider LGBT+ community and to promote diversity and inclusion. However, businesses are now increasingly facing more scrutiny amid claims of ‘pinkwashing’. This year, Peter Tatchell recognised this phenomenon in an interview with The Guardian, stating that “corporates seem to see PRIDE as a marketing opportunity to target LGBT+ customers”. Consumers are more aware, and investors are more sceptical. Companies need to demonstrate their support all year around, not just for 30 days. Awareness days such as Earth Day or International Women’s Day also create a lot of noise, but are not always impact-oriented. Aside from undermining the worthwhile causes at the heart of these initiatives, it also can cause significant reputational risks for companies. Words are powerful when used wisely but are costly when used carelessly.
The long-term impact of irresponsible communications will have a negative effect on a company’s brand and reputation. Although companies have plenty of appetite to demonstrate their credentials as a responsible business, it’s not simply a case of ‘being responsible’ or ‘doing ESG’. The risks are far too great and recovering from the reputational damage will be difficult, especially as responsible investment is becoming mainstream. Over the last few years there has been a greater awareness and interest in the industry from policymakers, media and the public, making it more difficult to shrug off a negative image.
Ultimately, the short-term gains will quickly fade along with the credibility of your strategy and responsible investment team.h6. With great power comes great responsibility
Communication professionals have an important role to play in protecting and promoting the industry. This responsibility means that communications teams need to closely monitor the ever-changing responsible investing landscape. Keeping abreast of policy changes and regulatory developments is one way of professionals can spot potential reputational risks. Understanding environmental and social issues from a business and investment perspective is also extremely helpful. Academic institutions and industry bodies are now offering a growing number of qualifications or online courses that can help you build your knowledge and expertise, like the CFA’s new Certificate in ESG investing.
Mislabelling and mis-selling are words we don’t want associated with our industry.
Transparent, accurate and reliable communications, that stand up to scrutiny, is essential to encouraging competition and innovation within the industry. It’s also key to developing trust. All businesses can improve their sustainability credentials and further develop their responsible investing strategy.
Part of the responsibility of a communications team is to be alert to the dangers of greenwashing and to ensure measures are in place to prevent superficial communications. One way to help achieve this is to encourage cross-departmental collaboration and information-sharing within an organisation. Operating in silos prevents integration and increases the risk of miscommunication between teams. A more open approach with meetings between responsible investment teams and the communications team should help mitigate this risk. It will encourage alignment but also create a forum for debate and scrutiny – a crucial tool in the battle against greenwashing. It’s important to undertake due diligence, ask the tough questions and be willing to accept that sometimes it’s just not the right time to communicate. The communications team is often seen as the mouthpiece of an organisation so it’s important to understand what you want to communicate and then assess whether it’s truly worthwhile. Consider whether you’re helping the industry move forward or if your message will just be another drop in the vast responsible investment ocean. Mislabelling and mis-selling are words we don’t want associated with our industry.
The responsible investment industry is moving from unconventional to conventional. Terms are becoming more familiar and attempts are being made to establish clear, industry-recognised definitions. There are still challenges ahead, including how the industry presents itself as being more than a passing trend.
Being a responsible business goes beyond strategy and governance. Instead it lies at the very heart of organisational activities and behaviours. Telling a phoney story will not cut it and, when exposed, is likely to do even more reputational damage than doing nothing. Only by addressing these things and having a genuine story to tell will businesses have a sustainable future.
Zara de Belder is an Associate Partner dedicated to ESG at Maitland/AMO. She has an MSc in Social Investment from Cass Business School.