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This article is part of a series that explains the differences between foundations and endowments, their power to advance the sustainable investing agenda, and investigates a variety of investment approaches.
Our planet has been pushed past its limits: floods, fires and extreme weather this past summer indicate that climate change is accelerating. A recent United Nations report found that the world risks soon hitting 1.5°C of global warming in the 2030s, a threshold that would ignite "extreme events unprecedented in the observational record."
The goal of the Paris Climate Agreement is to maintain that 1.5 threshold, however the U.N’s report explains that without "deep reductions in carbon dioxide and other greenhouse gas emissions," the world will surpass it within 80 years. As the 2030 deadline for the Paris Agreement and the Sustainable Development Goals agenda draws near, urgent action is required by consumers, regulators, governments, businesses and nonprofit organizations alike.
Foundations and endowments can support the shift towards a more sustainable future by integrating ESG factors into their portfolio, while also increasing an emphasis on impact investing and shareholder engagement. According to our latest whitepaper, in 2020, foundations and educational institutions together held 8% of the $6.2 trillion institutional investments in ESG assets. Besides employing negative and best-in-class positive screening strategies, many foundations and endowments are leveraging shares to engage in active ownership.
Negative screening refers to the exclusion of companies and certain sectors based on ethical, social, environment or religious factors. Most commonly, exclusionary strategies avoid investments in companies that are fully or partially involved in gambling, alcohol, child labor, human rights violations, tobacco and other related factors. Positive screening involves the inclusion of companies due to the social or environmental benefits of their products, brand value, leadership team or processes. Investors place a ‘premium’ on these ‘best in class’ businesses which ultimately increases their value.
Foundations and endowments have the unique opportunity to advance the norm of conscious investing and mitigate the effects of climate change. With our planet pushed past its limits, the urgency for sustainable investing has never been more important.
Aneuvia is an investment management firm that provides foundations and endowments with sustainable investing, integration of ESG and corporate strategies and impact investing consultation. View our latest whitepaper, Foundations & Endowments: Trends in Sustainable Investing, to learn more
It’s no surprise that the demand for corporate responsibility has increased as more people reflect on the long-term impacts of climate change. In fact, in a November 2020 Ipsos poll, roughly 63% of U.S. adults said they believed “purchasing sustainable brands or products makes a difference for our environment,” with 57% noting that they felt “better” when buying “sustainable brands or products.”
But unfortunately, the same increase can also be seen with greenwashing, a term used when a business presents itself as environmentally friendly to hide its past or present harmful environmental practices.
Oil behemoth Chevron is one example. Just recently, NGOs filed a complaint with the FTC, accusing the firm of “egregiously misleading consumers” after being unconvinced by the company’s clean-energy claims. The NGO compiled the results into what it calls ‘The Greenwashing Files’: a set of profiles of each firm, laying out their advertised climate-friendly claims alongside data points that illustrate the companies’ actual climate impacts.
The true cost of greenwashing is trust. Consumers who prefer sustainable brands and products lose trust in companies who claim they prioritize sustainability, but daily to integrate ESG into all aspects of their business strategy. It then drives consumers to fall back into non-sustainable practices, and question brands that truly live sustainable practices. We cannot reverse the positive intentions of consumers and companies and continue to fall victim to regressive policies or lack of policy.
At Aneuvia, we believe that the key to making progress is elevating ESG reporting to the same standards as financial reporting. When robust metrics and disclosures are established, we as a society are able to better assess the impact of business on key sustainability issues and ultimately, put our people and planet front and center.
Our latest whitepaper The US’s ESG Regulatory Environment: Past, Present, and Future provides a brief history of the stops and stars in ESG reporting over the past decade. Despite the lack of binding ESG disclosure regulations, the ESG reporting landscape in the US is growing. According to the Governance & Accountability Institute, over 90% of the S&P 500 companies published corporate sustainability reports in 2019. The proportion of companies reporting has steadily grown from 53% in 2012.
While it is positive that companies are relying on voluntary standards and frameworks in the absence of mandatory ESG reporting metrics and disclosures, we must be aware of greenwashers who speak proudly about sustainability without contributing to a better world.