A Reality Check on Sustainability Efforts

May 17 / ESG Matters
What is 'Greenwashing' and How Big of an Issue it is?
'Greenwashing' is a term that has gained popularity in recent years, referring to the misrepresentation of a business project that contributes to the environmental aspect of a company.

For example, a company that reduces its greenhouse gas emissions through tree planting may purchase trees that another company uses. This is one instance of greenwashing. However, it can also refer to companies that perform environmental activities that are beneficial to the company but negatively impact the environment in other ways.
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To What Extent is Data Crucial in Assessing an ESG Project or Green Financial Product?
Data is essential in ensuring that an ESG project or green financial product is what it claims to be. It provides hard evidence of the project's contributions to the environment.

Greenwashing can be avoided by taking a comprehensive view of the ESG product from all angles and understanding that it operates as a system. Every contribution may have negative impacts across the sections.

Good governance is also necessary to identify the positive and negative impacts of the project. By identifying the hotspots and assessing the positive and negative contributions, informed decisions can be made about investing in the project.
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How to Ensure Data is Transparent?
It is challenging for the average person to understand the complexity of analysing the entire system.
Additionally, the reporting standards in the market may be inadequate in tracking the footprint effectively. Incorporating technology is the most promising way to improve and make progress. However, the current technology level needs improvement, and we need disruptive innovation to make significant progress.
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What Disruptive Innovation Could Improve Progress?
Blockchain is a helpful tool to ensure that a project is as it claims to be. However, there are still ways to bypass it, and its incorporation is challenging due to the lack of development in this area.

In the long run, improving sustainability performance necessitates considering the system as a whole, rather than solely tracking individual aspects such as renewable energy and water. Hence, adopting a holistic approach is more crucial than merely having better water trackers. This approach requires a comprehensive understanding of all the related aspects of the project and the environment.
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What Would be the Whole Approach with the Combination of All Aspects Together? 
Consider a project that utilises artificial intelligence (AI) to enhance building efficiency by reducing water consumption or optimising operational processes. Although it appears to be a favourable solution, it results in high electricity consumption as training the AI requires a significant amount of energy.

Taking a step back and adopting a holistic approach reveals other impacts that may not have been considered initially. For instance, the push towards a hydrogen economy in some regions of the world involves using rare materials, leading to the depletion of finite natural resources.

Mining for these materials can be destructive to the environment, causing physical presence issues, disrupting local communities, and harming different ecosystems.

Moreover, creating hydrogen requires a vast amount of water, a scarce resource on the planet, and water stress is a pressing issue. Despite these concerns, governments and other parties prioritise achieving net-zero carbon emissions over these environmental issues, leading to a greenwashing scenario. A more thoughtful approach is necessary to determine a sensible way to attain the net-zero goal.
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Should Companies be More Responsible for Reporting or Regulators be Stepping Up to Improve Data Transparency?
There is a consensus that reporting needs improvement, but interpreting the report is equally important.

While producing a well-written ESG report is crucial, few people can read, understand, and compare it to others effectively. Several international frameworks like GRI, SASB, and TCFD exist, but they focus on reporting and differ slightly in their emphasis.

It is a common misconception that following a specific framework implies a company is doing well, but it merely indicates that the company aligns with the particular framework.

Only a few stock exchanges worldwide require ESG reporting. Not many regions make it mandatory for companies to report ESG data, making it challenging for average investors to compare firms.

Hence, a holistic and systems-oriented approach is necessary, and one such framework is the 'Future Fit Business Benchmark'. This framework adopts a systems approach and divides goals into breaking goals and positive pursuits.

A company's ability to progress towards a 'Future-Fit Society' or true sustainability determines its score.
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Final Words
In conclusion, achieving sustainability is a gradual process, and we are far from attaining it. Educating people on sustainability and developing the necessary talent is challenging, especially for those following the CSR or CSV approach.

With awareness for sustainability is spreading, and regions with more sustainability progression are helping others catch up to their pace. To drive further developments, changing one's perspective towards a systems-oriented approach and obtaining buy-in from the board, management, and employees is just as crucial. The different trade-offs between actions would require careful consideration. 

Although we are making good progress, sustainability is more of a mindset than anything, and we need to continue working towards it.


ESG Matters

Founded by one of the sustainability pioneers Dr Glenn Frommer, ESG Matters specialises in ESG data analytics, intelligent sensing technologies and sustainability advisory. Since 2014, ESG Matters has been a creator of digital platform solutions to meet the needs of sustainable impact investing and green financing. Working closely with listed companies, SMEs, and various growing organisations, ESG Matters aims to address the global market through providing business process outsourcing (BPO) services and solutions to achieve the relevant sustainable development goals (SDGs) and building resilience to climate change.

To learn more, visit http://www.esgmatters.asia