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Large companies tout ESG credibility.examination is in progress

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As the 2020s progress, discussions about issues related to climate change, the environment, and equality and diversity are at the forefront of many people’s minds.

The corporate world is no exception, with banks, energy producers and many other major companies looking to prove their sustainability through advertising, pledges, social media campaigns and a variety of other initiatives.

Many of these claims are now viewed through the prism of ESG, or environmental, social and governance.

It has become a hot topic in recent years as various organizations seek to enhance their sustainability credentials and public image by developing business practices that claim to meet standards related to ESG.

But here’s the problem. Definitions of ESG vary and are difficult to pinpoint. This can be a headache for companies trying to comply with regulators and agency policies.

Consider the situation in England. Chris Ross, his commercial partner at London-based law firm RPC, told CNBC in an email:

“Rather, there is a patchwork of national and international regulations.”

These regulations are “administered by various bodies,” including the House of Companies, the Pensions Regulator, the Financial Conduct Authority, the Environment Agency, the Financial Reporting Council, and “as far as European law is concerned, the European Commission,” he said. said.

Ross refers to ESG as an “umbrella term.”

It “covers a very wide range of considerations, from bribery and corruption, anti-money laundering, diversity and inclusion, health and safety, to modern slavery, to issues related to climate and pollution.” he said.

“It is virtually impossible to formulate a universal definition.In the near future, companies will have to ensure that they comply with various relevant laws and regulations.”

scrutiny, bans and penalties

Companies today labeling their products and services as ESG, sustainable or similar have their business practices and claims discovered and scrutinized by lawyers, the public, environmental groups and regulators. It has been.

For example, at the end of August, advertising for consumer goods giant Unilever’s Persil brand of laundry products was banned by the UK Advertising Standards Authority.

In a detailed ruling, the ASA concluded that ads describing Unilever’s products as “more sustainable” were “highly misleading” and “must not be displayed again in their current form.” .

In a statement sent to CNBC, a Unilever spokesperson said it was “surprised” by the ASA’s decision and that the ad was “approved to air many times.”

“We recognize that this decision reflects a significant recent evolution in the ASA’s approach to substantiating environmental claims, and we welcome the new benchmarks the ASA is setting for advertisers,” the spokesperson said. The rep added.

“Persil will continue to lead bold green initiatives in the laundry category, providing ‘stain-resistant, earth-friendly’ evidence for future campaigns in line with evolving requirements. “

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Sustainability and ESG claims are also being scrutinized in the US.

In March 2021, the U.S. Securities and Exchange Commission announced the creation of a climate and ESG task force in its executive branch, which it said would “proactively identify ESG-related misconduct.”

Since its inception, many prominent figures have come into the Task Force’s sights, including BNY Mellon Investment Advisors.

In May, regulators announced they had charged BNYMIA with “misrepresentations and omissions regarding environmental, social and governance (ESG) considerations in making investment decisions for certain mutual funds managed by BNYMIA.” did.

In its order, the SEC stated, “From July 2018 through September 2021, BNY Mellon Investment Advisors has expressed or implied in various statements that all investments in its funds have undergone ESG quality reviews. But that wasn’t always the case,” he said.

“The order found that a number of investments held by certain funds did not have ESG quality review scores at the time of investment,” it added.

The SEC said BNYMIA neither acknowledged nor denied its findings, but agreed to the denunciation, a stay order and fines totaling $1.5 million.

In a statement sent to CNBC, a BNY Mellon spokesperson said BNYMIA was “satisfied with resolving this matter with respect to certain statements it made regarding the ESG review process of six U.S. mutual funds.” I was.

“While none of these funds fell within BNYMIA’s scope of ‘sustainable’ funds, we are committed to taking our regulatory and compliance responsibilities seriously and ensuring that our communications to investors are accurate and complete. As part of our commitment, we have updated our materials,” the spokesperson added. .

This image, taken in January 2019, shows rescue workers taking a break after a dam collapse at Vale’s mines in Brumadinho, Brazil.

Mauro Pimentel | AFP | Getty Images

The financial industry isn’t the only industry that has caught the SEC’s attention.

In April, it indicted Brazilian mining giant Vale for “making false and misleading claims about the dam’s safety prior to the January 2019 collapse of the Brumadinho dam.”

The SEC said “270 people died in this collapse” and “caused immeasurable environmental and social damage.”

Among other things, the SEC complaint alleges that Vale “regularly misled local authorities, communities and investors about the safety of the Brumadinho Dam through its environmental, social and governance disclosures.” .

When contacted by CNBC, Vale, which has an “ESG portal” on its website, referred to a statement issued on April 28.

“Vale denies the SEC’s allegations and vigorously defends this matter, including allegations that its disclosure violates U.S. law,” the company said.

“We reiterated the commitments we made immediately after the dam breach and have since guided toward repair and compensation for the damage caused by the event.”

Increase in greenwashing lawsuits

In June, the Grantham Institute on Climate Change and the Environment and the Center for Climate Change and Economic Policy published the latest edition of their report examining trends in climate change litigation. It highlighted some important developments.

“Globally, the cumulative number of litigation related to climate change has more than doubled since 2015,” says the report.

“More than 800 lawsuits were filed between 1986 and 2014, and more than 1,200 lawsuits were filed in the last eight years, bringing the total database to 2,002,” it added. “About a quarter of these were filed between 2020 and 2022.”

The report notes that the greenwashing front is also gaining momentum. “Climate-related greenwashing or ‘climate-washing’ lawsuits are picking up the pace,” he said, adding that “companies and states are forced to take various forms of climate misinformation before national courts and other bodies.” The purpose is to explain the

The debate over greenwashing is becoming more and more intense, and the blame is often directed at multinational corporations with vast resources and large carbon footprints.

It’s a term the environmental group Greenpeace UK calls a “PR tactic” used to “make a company or product appear greener without significantly reducing its environmental impact.”

Continuing trend?

In Europe, Reuters reported at the end of May that the offices of asset manager DWS and the headquarters of its main owner, Deutsche Bank, were raided by German prosecutors. Reuters, citing prosecutors, said the raids were related to “allegations of misleading investors about ‘green’ investments”.

Deutsche Bank did not respond to CNBC’s request for a statement on the matter. In August, the DWS said the allegations reported in the media were “unfounded,” adding that it “supported the disclosure of its annual report.” We categorically reject allegations made by former employees. Part of our role as fiduciary on behalf of our clients. “

A number of environmental groups filed lawsuits against aviation giant KLM this summer.

In a statement released on July 6, ClientEarth, one of the groups involved, said it would “stop advertising misleading claims that airlines are making flights sustainable.” After refusal,” he said, a lawsuit was filed.

KLM said on its website that it is “committed to creating a more sustainable future for aviation” but did not respond to a request for comment.

RPC’s Chris Ross said high-profile lawsuits like the one against KLM “have both the willingness and resources to make claims against leading companies to test and scrutinize their ESG claims.” said to indicate that

Ross further noted that in February 2022, individual shareholders and institutional investors submitted a resolution to HSBC.

“We can expect this trend of scrutiny and direct action to continue,” Ross added. “In that context, it is in the interest of organizations to ensure effective governance and strict adherence to ESG requirements to avoid, or at least mitigate, litigation risks.”