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There are ‘plenty of compelling reasons’ to misstate ESG efforts

November 23, 2021, 10:53 AM UTC

Good morning, 

As ESG-focused investing and the clamor from investors to track and achieve metrics mount, the potential for mayhem lurks in the background.

“People may actually be surprised to hear that between two of the top vendors of ESG data, there’s only 32% of correlation of their ESG scoring,” Michaela Edwards, partner at Capricorn Investment Group, said during Fortune Connect’s virtual summit in July. Raw data and information on ESG are “just so ignored and uncovered,” Edwards said. ESG reporting is a priority for multinational companies. But a recent global report by Deloitte and Workiva found only 16% of companies surveyed have fully automated statutory reporting processes end-to-end.

“The business world needs to move quickly to ensure trust and good governance by creating clear standards and universal practices for ESG reporting; we can’t afford to ignore this challenge.” That’s what Brad Preber, CEO of the accounting and advisory firm Grant Thornton LLP, argues in a new Fortune opinion piece, ESG investing needs standards to prevent fraud and greenwashing. Accountability should define ESG-focused investing, according to Preber. 

He writes: History has taught us that people don’t typically fudge numbers unless there are compelling reasons–and there are plenty of compelling reasons to misstate ESG efforts. ESG-driven investment is estimated at greater than $35 trillion in assets under management and is on track to exceed $53 trillion by 2025. Nearly nine out of 10 millennials report that they want their money in sustainable investments.

It’s not lost on regulators that there’s potential for fraud, according to Preber. He notes the existence of the Security and Exchange Commission’s Climate and ESG Task Force to assist in identifying misconduct, and a website to receive tips and whistleblower complaints.

So how can a company avoid fraudulent activity when it comes to ESG? 

Preber writes: Despite the temptation, ESG fraud is not inevitable. The key is to maintain guardrails, ask hard questions and invest in better reporting, controls, and approaches. Such tasks may prove a more powerful deterrent than regulatory action and litigation. Meanwhile, we need a greater understanding of what constitutes material information, standardized frameworks, and reporting definitions for issues like climate impact, human rights, and income inequality. 

Some leaders of major U.S. businesses, like Bank of America CEO Brian Moynihan, believe in standardization. Moynihan, also chair of the World Economic Forum’s International Business Council, has been working for over a year now to convince companies to adopt a standardized set of stakeholder metrics for ESG.

Want to learn more on the topic? You can read more about Preber’s suggestions for creating an ESG culture here.  


See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

Owl Labs, a videoconferencing company, in collaboration with Global Workplace Analytics, recently released its annual State of Remote Work report. It examines the benefits and complexities of remote and hybrid work. About 71% of respondents said they want to have a hybrid or remote working style post-pandemic. In virtual meetings, 71% of workers said it's easier to present in a group, and 70% said virtual meetings are less stressful than in-person ones. However, on hybrid video calls, with some attendees in the office and others joining remotely, 70% of respondents find it difficult to participate in conversations. The report findings are based on a survey of 2,050 full-time workers in the U.S. between the ages of 21 and 65. 

 

Going deeper

In November, Gallup's Economic Confidence Index, which gauges Americans' viewpoints of economic conditions in the U.S. and whether the economy is improving or getting worse, is at -29, a new report finds. Gallup's index has a "theoretical maximum of +100, if all Americans rated current economic conditions as excellent or good, and said the economy was getting better," according to the report. The index registered at -25 in October. In April 2020, it registered -33, "the worst so far during the pandemic," Gallup noted.

Leaderboard

Lisa Griffith was named EVP and CFO at Dollar Bank. Griffith originally joined Dollar Bank in March of 2013, as the VP of accounting and most recently served as SVP and controller. Prior to joining Dollar Bank, she served as SVP and CFO at Fidelity Bank for 12 years. Additionally, Griffith has held positions in accounting, audit, corporate finance, and compliance.

Steve Manning was named CFO at FORM, a mobile digital platform for frontline teams. Manning joins FORM with 25 years of experience in enterprise financial planning and analysis. He will spearhead a growth strategy for the company. Prior to FORM, Manning was CFO and VP of finance at NuView Systems, Inc., where he helped raise two rounds of capital (Series A and B). He then served Aliasware Inc. as the VP of finance before joining Burning Glass Technologies.

Overheard

“If the Fed suddenly gets tougher, I’m not sure that the market is going to be ready for a U-turn that [chair] Jerome Powell may take if we have one more bad inflation report. A correction will come.”

—Wharton finance professor Jeremy Siegel on the effects of an extreme change in Federal Reserve policy to deal with "hot inflation," as told to CNBC

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