Despite climate commitments and progress in sustainability reporting, recent research suggests that up to 40% of sustainability claims could be misleading. In an expert panel on greenwashing, Ronald Wuijster, CEO of APG Asset Management, acknowledges the threat posed by greenwashing. At the same time, he does warn against paralyzing cynicism.
Ronald Wuijster participated in a panel called ‘Turning up the Heat on Greenwashing’ at the World Economic Forum in Davos. Chaired by Somini Sengupta of The New York Times, the panel also included former US vice-president Al Gore, Danish environment minister Lea Wermelin and Andrew Forrest, chairman and founder of Fortescue Metals Group.
“Greenwashing is a major obstacle to solving the climate crisis”
Vice-president Gore kicked off the discussions with a list of alarming statistics. “According to an S&P report on more than 5,000 companies, only 37% have any emissions target at all. Only 24% have net zero targets. Of the companies that have set emissions targets, less than half are aligned with the science-based approach to even 2 degrees, much less 1.5 degrees.”
“Greenwashing is a major obstacle to solving the climate crisis,” vice-president Gore stated. He argued that lobbying, campaign contributions, the capture of policy making, and the control of politicians with money and lobbyists have made it impossible to pass climate legislation in the United States. “Our democracy has been paralyzed, bought, captured – it has to stop.”
Vice-president Gore does not expect oil and gas companies to drive the energy transition. “Last year, the largest oil and gas companies announced that they are tripling their investments in renewable energy and carbon capture. But they have tripled it all the way up to 4% of their spending. So 96% remains invested in the development of more and more oil & gas deposits. The only company that has truly transformed to a renewable energy company is Danish company Ørsted. And when it did, its value increased five times.”
What about hydrogen?
Andrew Forrest, whose Fortescue Metals Group wants to fully decarbonize by 2030, brought up another form of greenwashing. “Oil and gas companies are selling hydrogen as the clean fuel of the future. However, if it’s not produced from green electricity, it will create a lot of emissions in the production stage,” Forrest pointed out. Only one fuel will stop global warming and that is hydrogen made of green electricity.”
Investors need to do their own analysis to filter out greenwashing
As a long-term pension investor, Ronald Wuijster also comes across a great deal of greenwashing when analyzing companies. “However, we should not lose hope either,” he argued. “We see a lot of green, social and sustainable bonds and we analyze those bonds ourselves. Roughly a quarter of those would not qualify according to our own standards, but I really do see companies we invest in that are starting to make a difference.“
“Companies that are doing well are usually modest about what they’re doing. Companies that sell great stories you should be careful about. Maybe they do the odd project, but if you look at the company as a whole, it’s a different story.”
As uniform standards and integral solutions are still lacking, Wuijster sees an important role for investors. ”We need to talk to various stakeholders of a company to check whether its claims are consistent. At APG we combine various data sources to verify companies’ data and then do our own analysis. We follow the value chain to make sure that claims, for example on CO2 emissions reduction, are consistent. We do not simply copy ESG ratings but do use the data as input for our own analysis. And we don’t know everything as investors. On biodiversity, for example, we use the knowledge of Cambridge University and indigenous communities.”
Does regulation help?
In Europe, there have been some notable examples of companies being called out for misleading the public. Minister Lea Wermelin sees the population in a lot of countries wanting to do the right thing. As a result, many companies are making green claims. “That is a good development but what we need to do, is hold them accountable. In the European Union, with the EU Taxonomy we want to make sure people trust the labeling of sustainable products.”
Regulation does help, said Ronald Wuijster, but it is not the only answer. “I’m happy with the European Union coming up with strong rules, and at the same time we know that many pages of rules are not necessarily changing companies’ behavior.” As a long-term investor, APG is actively engaging with companies to create awareness and propose solutions, increasingly joining forces with other investors. “The pressure is increasing and that adds to the regulation. It is needed but it should not become a box-ticking exercise. It’s the combination that’s most effective.”
Watch a recording of the livestreamed session here.