We review some of the key ESG developments, trends and Private Sector Investment reaching the headlines in the last few weeks.
ESG investments – measuring biodiversity loss
The fight against climate change is becoming increasingly focussed on biodiversity and how it is conserved. Biodiversity includes both the planet’s renewable and non-renewable resources, in addition to species and ecosystems. However, one of the main causes of environmental harm we are becoming increasingly more aware of is biodiversity loss.
What is now critical to the fight for the environment, is how governments and businesses can combat such loss. One of the most sensible and impactful ways is to include biodiversity loss into ESG investments in global capital markets. To do this, investors must either raise capital that supports nature-focussed economic activities or reevaluate how their portfolios or business activities contribute to biodiversity loss.
However, according to ShareAction, a responsible-investment group, 75 of the major asset managers across the globe do not currently have policies in place to conserve or recognise biodiversity. This situation must change in order to maintain endangered species and natural resources around the world.
ESG initiatives as marketing tactics
Businesses and multinational enterprises have been touting their sustainability credentials and how they are addressing climate change for the past 10 years. These assertions and qualifications now extend to covering ESG credentials.
With ‘green’ business activity becoming more prominent, companies have an incentive to publicise and promote their ESG and sustainability activities to attract investors and clients. This has the drawback that some companies are using ESG initiatives more as a commercial marketing proposition than as a reflection of their transformed business activity.
These sustainability claims made by businesses that fall short of bettering the planet either simply do not understand the purpose of ESG measurements or are using such initiatives as marketing tools. Retail fashion brands, like Shein which appeared recently in the headlines, are a prime example, since they use narrative without making any significant changes to their business methods. This emphasises how crucial it is for businesses to regularly assess their ESG credentials, something that a Prospect Law ESG audit can assist with. An audit into a company’s ESG credentials not only will increase attractiveness of a company by improving the sustainability of its business activity but will have the data, analysed by ESG experts to back up its claims.
Because there is no one piece of legislation or regulation in the UK that controls ESG compliance, it can be challenging to enforce or impose ESG standards and recommendations. The US Securities and Exchange Commission, on the other hand, announced the formation of a Climate and ESG Task Force to uncover activities that appear to be for marketing and greenwashing purposes only. This shows that the US is taking a great step towards keeping companies accountable for their ESG policies; something that the UK government would do well to adopt.
An article by Prospect Law’s William Wilson about the importance of avoiding greenwashing financial products furthers this argument.
Importance of private sector ESG investment to meet future global climate targets
Public investments in renewable energy and other environmental programmes to mitigate the consequences of climate change are well recognised, as I highlighted in my previous article. Yet there must be a worldwide effort to combat climate change from both sectors – public and private. So how can we encourage greater investment from the private sector particularly during a time of increased inflation and financial uncertainty?
Governments must make investments appealing to ESG investors in order to increase private investment and strengthen ESG support. Scott Livermore, an economist in the Middle East, has indicated that this can be done by regulatory support, setting targets and incentivising businesses to support raising capital.
Whether the UK will be a desirable location for ESG investments is a matter of debate. The new Truss administration has made it plain that it is committed to encouraging investment and growing the economy, but it appears to be abandoning earlier environmental promises in order to further her conservative economic agenda.
Article by George Martin
George is currently undertaking a masters degree in Public International Law at the University of Nottingham. He provides paralegal and research assistance to the legal team at Prospect Law.
Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.
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