UK businesses are being taken for a ride by ineffective and expensive green advisors that may actually harm their reputation, a leading ethics advisory group has warned.
More than $650bn (£478bn) poured into climate-focused funds worldwide in 2021, with 2022 set to be another record-breaking year for green finance.
The issue hit the headlines this week when environmental, social, or governance (ESG) funds representing more than $1tn (£740bn) in assets were not found to be delivering on their stated goals.
Bloomberg reported a forensic analysis of the industry resulted in the ESG tag being removed from more than 1,200 funds – around one in five – according to financial services firm Morningstar’s classification system.
With firms of all sizes across the country paying advisors for reports on their sustainability, ethics, and carbon footprint to avoid backlash and boycotts from eco-conscious consumers, the need for rigorous data on climate and sustainability has become more important than ever, warned Dan Botterill, founder and chief executive of Rio ESG, a UK-based company that advises companies on sustainability practices.
But these advisors are taking cash from businesses for little lasting change, and even leaving them vulnerable to accusations of greenwashing, he said.
“As the environmental stakes increase and the vocal and natural warnings grow increasingly stark, pressure on the global investment industry to tackle climate change is higher than ever before,” Mr Botterill added.
“Firms across the UK, and the world, are, rightly, taking steps to tackle their ethical and environmental commitments. Yet many executives are throwing cash at advisory firms to assess their carbon footprint and social commitments only to get very little – often a useless and expensive report – in return.
“Businesses that fail to act or implement knee-jerk measures are vulnerable to accusations of greenwashing, such as those funds highlighted in Bloomberg’s report.
“Organisations must admit where they lack in expertise to verify their ESG calculations.
“It is not only the right thing to do, it makes business sense as consumers increasingly shun companies that refuse to take real steps to be greener and socially responsible.”
Mr Botterill added the rapidly shifting change in sentiment towards those that can assist in delivering a greener future is already widening the gap between “clean’ and dirty” organisations.
“We need to stop outpricing problems and offer real, attainable and affordable solutions,” he added.
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