As sustainable investment has moved from fringe to mainstream, Al Gore warns of a new “inconvenient truth.”
“We must be vigilant about the rising threat of greenwashing or risk derailing hard-won progress.”
Bloomberg Green, July 13, 2021
Gore, the former U.S. Vice President and Nobel Peace Prize recipient along with the IPCC, now serves as chairman of Generation Investment Management, a firm “guided by the simple belief that long-term investing is best practice and sustainability factors can materially affect long-term business profitability.” Generation Investment just published its fifth annual assessment of transitioning to a sustainable economy, the Sustainability Trends Report 2021 (STR2021). Amidst all the data-based reasons for celebrating progress on greening the economy, several data points flag the mismatch between rhetoric and action.
- National consumer protection authorities estimate that 42% of environmental claims have been “exaggerated, false or deceptive,” and might even violate fair practice rules established by the European Union.
- Carbon offset markets still present quality concerns, even those perceived to have stringent governing rules. One study concludes that California’s forest carbon offset program has overstated its climate benefits by some 29%, to the tune of $410 million.
- Data from Climate Action 100+ indicates that 53% of the 159 companies analyzed lack appropriate short-term targets to meet net-zero emissions long-term goals. (Climate Action 100+ tracks 167 companies that account for over 80% of corporate industrial greenhouse gas emissions.)
- This mismatch plays out in natural solutions investments too. Half of the Fortune 100 companies cite biodiversity in their reports. Yet only five made “specific, measurable and time-bound commitments on biodiversity.”
- Consumers often face confusing and misleading claims about the benefits of sustainability.
In sum, STR2021 concludes that:
“The need for safeguards around sustainable investing is a key finding in this year’s report. There are several different types of challenges. Consumers face misleading claims online. Many companies are setting long-dated commitments with limited short-term plans. Studies continue to find major flaws in carbon-offset markets. Combining two of these concerns in one, some companies are even using offsets to claim that fossil fuels are green.”
Thus when looking ahead to COP26 and beyond, Generation settles on “quality” and “safeguards” as the watch words for sustainable investment management and highlights that safeguards are most needed to ensure that:
- Companies place more emphasis on near-term cuts in emissions than carbon removals/offsets in their net-zero scenarios.
- Long-term governance over carbon removals, and monitoring and reporting programs, is effective.
- Financial innovation does not run ahead of safeguards and governance, by establishing accepted “guardrails” for nature-based solution.