Understanding ESG Objectives And Goals In The Era Of Greenwashing
by Timothy M. Doyle
Eugenia Unanyants-Jackson, the Global Head of ESG at PGIM, the investment management business of Prudential Financial* with over $1.2 trillion in assets under management, recently published a white paperon ESG and greenwashing. Last month, I sat down with her to discuss greenwashing, ESG strategy and goals, subjectivity, trade-offs, shielding poor economic performance, and ESG-related commitments.
Unanyants-Jackson argues that more greenwashing is occurring because there is "a strong commercial imperative for investors to move more of their assets into some kind of ESG focused strategies." There is also a rising "perception" of greenwashing, based on ESG's subjectivity in its definition and expectations, that has made developing investment strategies more difficult. It is therefore critical for asset managers to understand an investor's objectives and determine which strategy to use to reach their goals. Unanyants-Jackson described two ways that ESG can add value for investors. The first is by using a strategy that "manages investment risk and helps identify investment opportunities which arise from ESG factors." These risks appear when analyzing the data regarding a company's poor performance on ESG factors such as those related to climate, workforce, and corporate-governance practices. An ESG analysis allows an asset manager to identify those risks and may create opportunities that otherwise would have been missed.
The second way for ESG to create value – albeit value not necessarily captured by investors in financial returns – is by helping investors "generate environmental and social benefits … alongside financial returns." While this second aspect is not mainstream, it is growing globally as investors increasingly express their desire to have an "impact." However, it also adds to the complexity of ESG, given the subjectivity and heterogeneity in desired impact strategies. Some investors care more about climate change, while others are more focused on workforce development.
ESG - Lipstick On A Pig