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Opalesque Exclusive: The biggest risk ESG and sustainability investors will encounter is confusion

Wednesday, July 21, 2021

B. G., Opalesque Geneva:

As far as sustainable and ESG finance is concerned, the biggest risk investors will encounter is confusion, according to Dr. Mathew Hampshire-Waugh, director of climate change at Enzo Advisors LLC, a New York-based ESG advisory firm that works with corporations and institutional investors.

It is not just confusion for corporates or investors and financiers but also NGOs and society in general. It is confusion around what is green, what is sustainable, and how that should be accounted for, and measured.

"I had a look through some of the alphabet soup of recommendations and organizations out there in terms of climate change and sustainability," he says during Opalesque's latest Clubhouse podcast. "You've got PRI, PRB, We mean Business, GHGP, EV100, SBTI, IIG, CC, SRI, EU taxonomy… the list goes on. There are about 40 names on that list and these are all organizations doing incredible work."

But he feels like the current style of environmental accounting and reporting is where financial accounting was 90 years ago following the Wall Street Crash. "We know it needs to be done but it is a mess," he adds.

Environmental accounting and reporting should become better standardized and streamlined. And that is happening. There are agreements coming in place and they are all starting to align along various frameworks. But it is still difficult, he says. A newcomer will look at that alphabet soup of abbreviations and will wonder where to start.

The confusion "facilitates greenwashing of course," he adds. "So, I would like to see a global consensus emerge on environmental accounting."

Greenwashing is the process of conveying a false impression or providing misleading information about how a company's products are more environmentally sound.

Furthermore, as in investor, it is difficult to know the carbon footprint of your investments. It does not help that companies that want to commit to reducing emissions do not have a proper universal way to calculate the effect of their actions and plans. For example companies can calculate greenhouse gas emissions by categories or 'scopes', used by the most widely-used international accounting tool, the Greenhouse Gas (GHG) Protocol. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company's value chain. The latter, while useful for companies wishing to assess the emission hotspots in their supply chain, is still not accurately defined.

You can listen to the whole Clubhouse podcast, Tipping points and the transition to net-zero, here:

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