Your correspondent was listening to this week’s edition of the Economist on his morning walk (there is an audio version on their app) and the topic of greenwashing came up. This brief article is based on that story in the Economist.

We were already writing a related article about the startup Sylvera who is building a business to verify carbon credits, and I think we know which way the wind is blowing, but that is not to say that everyone in the industry is happy about it.

ESG (Environment, Social, Governance) is now the watchword among companies wanting to impress investors with their socially conscious outlook. Companies involved in the environmental space are seeing huge demand for their shares as investors pile in, based to some degree, on signals from governments that they’re ready to get serious about tackling climate change.

But it’s not just the companies that want to boast about their green credentials, there is a proliferation of funds that purport to invest only in ‘green’ companies, allowing investors a simple way to get exposure to a wider group of green investment opportunities.

The Economist investigated the world’s 20 largest ESG funds and you may find the results surprising:

  • All of them are invested with 17 fossil-fuel producers
  • Six of them invested in ExxonMobil, the US’ biggest oil firm and not quite the paragon of virtuous corporate policy
  • Two of them own shares with Saudi Aramco – the worlds biggest oil producer that floated recently.
  • One even owned shares in a Chinese coal miner!

The EU is building a taxonomy to define what is and what is not and ESG activity. It has around 70 defined so far, and it’s no doubt tricker than it sounds. For example, while electric cars are considered green, the production of lithium batteries is far from environmentally friendly, requiring devastating strip mining to provide the necessary elements for a product that has a limited life span, and is not currently recyclable.

According to a BBC report, resource experts claim the switch to electric vehicles, just for Britain, will require 207,900 tons of cobalt, 264,600 tons of lithium carbonate, 7,200 tons of the rare earth neodymium and dysprosium, and 2,362,500 tons of copper.

To make it more difficult, the politicians are being heavily lobbied by companies and governments who want to ensure their initiatives are grouped in the green camp. Poland and Romania have been planning for years to replace their dirty coal-based power systems with natural gas. Gas, however, is not currently on the green list, and in some countries, such as the UK, gas as a power source is already being planned to get phased out.

This is not the only pressure politicians are being subjected to, but as new EU laws on sustainability come into effect, a number of MNC’s to their shame, including Cargill, are lobbying hard to get them watered down. Using their trademark flamboyant language designed to impress their colleagues and confuse the rest of us, Cargill is quoted in the Guardian newspaper as writing.

There is a risk due diligence will not sufficiently overcome [issues with traceability of goods] without harming supply chain resilience and efficiency, with associated cost impacts. – letter from Cargill highlighted from an FOI request

Not satisfied that they had got their point across clearly, a spokesperson for Cargill went on to say in response to the UK’s planned law on restricting imports where the supply chain cannot show they are the product from deforestation:

Cargill is firmly committed to transforming its agricultural supply chains to be deforestation and conversion-free through prioritised supply chain policies and time-bound action plans. We welcome and support the UK’s attention and commitment to due diligence for forest risk commodities. We believe the complexity of the challenge warrants careful consideration as to the most appropriate ‘smart mix’ of tools that would contribute to solving the root causes of the challenge. For that, engagement and dialogue with producing countries, where this challenge and the need for capacity-building is most acute, is of utmost importance. – Cargill spokesperson

Now, contrast this to Nestlé who calmly endorsed the proposed laws. Nestlé appears to be working on the basis that taking action is the solution, while Cargill is continuing a campaign to delay and confuse while promising jam tomorrow. That may have worked in the past, but Nestlé, Olam and others have seen the writing on the wall and are adapting.

It will be interesting to see which companies will fully engage with the new programmes and what happens to those who do not. I believe that companies which fail to adapt will face an uphill battle against governments, investors, and ultimately, their own customers.

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