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Greenwish: wishful thinking in the ESG world

Every so often I come across a paper which I think is a ‘must read’ and Duncan Austin’s ‘Greenwish: the wishful thinking undermining the ambition of sustainable business’* is one.

Why? The hype in the environmental, social and corporate governance (ESG) world is on track for destroying the ESG ‘project’ and this essay might just help wake people up to this.

Partly it’s the credibility of the author. Austin has held senior positions in the NGO world (at the World Resources Institute) and in sustain-able investment (at Generation Investment Management). 

But also important is the understated, yet powerful framing that suggests what the author terms ‘greenwish’ is much more common and actually harder to address than so-called ‘greenwash’.

What is the difference between greenwash and greenwish? The former occurs when companies or investors cynically promote green tokenism to divert attention from unsustainable core businesses. Greenwish is the earnest hope that voluntary sustainability efforts are closer to achieving the necessary change than they really are. 

Greenwish is much more widespread than greenwash and because it arises principally from good intentions, it is possibly more harmful and certainly harder to challenge.

Austin argues that the two-decade-old sustainable business movement has reached a significant crossroads and that most of its participants have yet to recognise this. 

raj thamotheram

Raj Thamotheram

Few would question that ESG and related activities are significant today. ESG investment funds have outperformed their traditional peers; chief sustainability officers are common and ESG conferences are major events. But the project is increasingly diverting effort and resources away from policy change, which remains the only thing that can adequately address environmental challenges. 

Key environmental metrics continue to deteriorate. Global CO2 emissions are 55% higher than in 1997. After a brief hiatus between 2014 and 2016, emissions are again growing at a high pace. In May, the UN reported that ecosystem health is declining at rates unprecedented in human history and that the frequency of species extinctions is accelerating. 

The harsh reality is that while sustainable business is necessary for a sustainable culture, it is far from sufficient. Yes there are win-win opportunities, but the dominant reality is that the trade-off is overwhelmingly a win-lose phenomenon.

ESG does not scratch the itch
Austin’s view is that ESG integration is essentially peripheral while the commitment to shareholder value maximisation continues, with little regard to the real cost of externalities. Either these are totally absent or hugely underpriced. Even though the cost of carbon in the European Trading Scheme now exceeds €25 per tonne, independent specialists estimate it will need to reach €150 per tonne for there to be any chance of keeping warming to below 2°C. 

Austin’s view is that we should be forgiving of the market pricing system. But given the huge impact of the financial sector, the dysfunctional impact of core activities are not easy to forgive. 

At a recent ESG conference, a fund manager from a large US investment house explained how his firm’s sustainability methodology led it to buy Brazilian bonds after Jair Bolsonaro’s election as president because his pro-business agenda would help in the social sphere and that environmental risk was a longer-tail risk outside the terms of the bonds.

This is not an isolated case, as Austin shows. Energy and manufacturing companies have no line items reflecting the environmental damage caused by their greenhouse gas emissions, agricultural companies do not account for soil erosion, and chemical companies ignore pesticide resistance and toxic runoffs into our water systems. The food industry shows no financial accounting for the obesity crisis; the tech sector’s accounts do not consider the impact of adverse mental health from business models that promote screen time.

This is not a new critique: environmental economist Pavan Sukhdev describes corporate externalities as “the biggest free lunch in the history of the universe”. Austin joins the dots between externalities and the lack of positive real-world impact of the sustainable business community. 

He acknowledges that businesses contribute to society via tax, but rightly points out that a small florist and a large mining company face the same basic rate. To my mind, Austin could have gone furthe r: multinationals in powerful industries are particularly adept at avoiding what small businesses cannot escape. Reported corporate tax rates have fallen nearly a third since 2000, from 34% to 24% and since 2008, governments have cut headline corporate taxes by 5% while increasing personal taxes by 6%.

Flawed reporting models
Austin is unimpressed by the claim that disclosure and reporting will address these trends. But is this fair?

Some say integrated reporting with mandatory integrated profit and loss accounting has never been tried. Most advocates of fully integrated reporting do not actively back mandatory reporting but without this there is little hope it will ever work.

Austin is intentionally light on solutions. Why?

When faced with cognitive dissonance – having to hold contradictory thoughts in mind – it is a natural response either to jump to a ‘solution’ or to stave off the mental discomfort by distracting oneself with other projects. It it may be precisely this dissonance that now needs to be embraced, individually and collectively. 

If this summary resonates, please read the full essay. My invitation is to reflect on the greenwish endeavour.

But this is not about navel gazing. It’s an exercise to catalyse action, individually and together. To help the latter, if you have a good example of how greenwish effects you – and you are willing to share on a confidential basis (I will fully anonymise and check with you to be sure), please share it so we can start to get a clearer sense of the ties that may be preventing more productive action. 

Preventable Surprises is planning to host an online dialogue on the topic of greenwish in September for those who want to take the discussion further. 

But for now, don’t just do something. Sit there and reflect.

Raj Thamotheram is founder and chair of Preventable Surprises

*Available at http://www.preventablesurprises.com, or http://bit.ly/2yDXnvE

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