When firms play the ESG card for greenwashing
This isn't surprising as there's a growing trend among companies to play the ESG card.They cherry-pick ESG efforts to mislead investors, use ESG as a marketing tool, or a flippant public relations exercise. These practices, called greenwashing, are unfortunate given that ESG is becoming mainstream for both start-up Davids and corporate Goliaths.
ESG practices must be embraced in their totality. Adoption of green technology is as critical to the ESG profile of a business as sound employment culture and positive social practices. Expectedly, investors are engaging with companies that demonstrate positive ESG behaviour. Ai's study revealed that from April 2020 to March 2022, top-rated ESG companies delivered 16 per cent higher returns than that of Nifty.
The top 50 ESG companies could hold their value after the market crashed in 2020. While the 'why' aspect of ESG is clear, the 'how' remains relatively uncharted territory. ESG principles provide guidelines for investors and companies to make investments safe and businesses more resilient to future shocks linked to environmental, social, or governance factors. ESG ratings establish whether a firm's sustainability claims are realistic.
ESG framework, along with tools such as ESG ratings, provides a safeguard for investors to assess risks. SEBI is implementing safeguards to ensure investors are protected from ESG risks. The recent initiatives include BRSR that ensures investors access standardised disclosures on ESG parameters. ESG assessment framework acts as a screening tool, risk mitigator, and performance driver.