How Corporate Boards Can Avoid ESG Investing Pitfalls

George L. Strobel II is Partner, Co-Founder & Co-CEO of Monarch Private Capital.

Corporate boards are under intense pressure from shareholders and other constituents to invest in ways they can tout their environmental, social and governance (ESG) achievements. Inaction is not an option for most companies. Yet many boards are paralyzed in taking positive steps, fearing public scrutiny of those investments from both the political left and right could harm their company’s reputation and credibility. Is there a path through these political minefields for ESG-conscious boards?

Heightened Regulatory Scrutiny Facing ESG Investing

As more companies seek to brandish their ESG credentials by investing in funds that promote their ESG focus, many face increased scrutiny, becoming the target of criticism and even allegations of greenwashing and fraud. Regulators are moving to penalize firms engaging in “greenwashing” and related offenses that make false or exaggerated claims about their ESG investing practices.

In May, German authorities raided the offices of Deutsche Bank and its subsidiary DWS under allegations that it exaggerated the ESG profiles of some of its investment products. The S&P 500 recently removed Tesla from its ESG index partly due to claims of racial discrimination.

However, companies like Exxon Mobil and JPMorgan Chase made the list, prompting a public outcry from Tesla CEO Elon Musk, calling ESG a “scam.” BNY Mellon Investment Advisor Inc. paid a $1.5 million penalty to settle charges brought by the U.S. Securities and Exchange Commission (SEC) for their ESG claims. Goldman Sachs Group Inc. is the newest subject of SEC investigation.

Concurrently, the SEC is exploring the possibility of requiring more detailed disclosures from companies regarding climate-related risks and ESG claims. A proposed rule would require companies to significantly increase their reporting on climate risks, including disclosure of their greenhouse gas emissions,…

Read complete post here:
Source link