Personal responsibility, ESG & the causes & impacts of greenwashing | Terence Jeyaretnam

This is a transcript of my recent interview with Terence Jeyaretnam, as part of my contributor conversation series for our latest report, which you can get for free by clicking below:

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You can also listen to the full interview on all good podcasts via the link below

https://smarterimpact.buzzsprout.com/1168484/12105146

Transcript follows

Philip Bateman: Greetings folks, Philip Bateman here from Bravo Charlie and I’m here with Terence Jeyaretnam, who is the APAC leader and partner for Climate Change and Sustainability Services at EY, and Terence, thanks so much for joining me today. I really appreciate your contribution.

Terence Jeyaretnam: Thanks for having me, Philip.

PB: And we’re talking about “A Better Way Forwards”, which is the recent research report we’re putting together on taking the greenwashing out of ESG and impact investing. And it’s an overview of the regulatory initiatives in Australia, the UK and Europe and how you can effectively communicate in consideration of those.

Terence, looking at your LinkedIn profile you’ve got an amazing list of things you’re working on. I don’t actually understand how you have time to do all of them. Is it all current, like the ten or twelve positions you currently work on?

TJ: A number of them are current and I guess I get them done because I don’t watch as much TV and I’m really boring!

PB: Fair enough! Well, I’m not sure you’re that boring because what I’ve got here is you’re the Non Executive Director for Global Citizen, which focuses on ending extreme poverty, you’re with Fairtrade Australia and New Zealand. And I know I’ve seen those Fairtrade logos on so many of the things I buy, though that may be an indication of my consumption habits.. Food Frontier, looking at how we sustainably feed the world, things like plant-based proteins and cell-grown meats. You’re also on the Sustainability Accounting Standards Board, SASB, which features in our documents, and your monthly column in Pro Bono Australia: “All the ESG News that’s Fit to Print”. How is that, getting across the ESG space every week? Is it a positive thing? Is it a negative thing? How do you..?

TJ: Yes, the monthly column’s a really interesting point, in that about 18 months ago I sort of thought even I can’t- and I’ve been working in this space for 30 odd years- and I can’t seem to keep in touch with all the things that are happening, both negative and positive. And I thought, well, at least for myself, I’m going to try and look through the feeds and look at what are the top ten things that happened that month and document them. And I thought, well, if I’m going to document them, I’ll publish it so that everyone else gets to read it and get something out of it. So that’s how those began. And then Pro Bono picked it up and have started publishing it. And you’re right, there’s lots of positives, but there’s still lots of bad news. And the bad news seems to be coming in tsunami-like forms at us and everything from the latest WWF report on loss of biodiversity, through to the extreme events that we’re having, particularly in Australia, but all around the world. We seem to be experiencing effects of climate change and other environmental impacts at a much greater rate than we thought we would, already.

PB: And I think that’s one of the main motivators for why I’ve basically commissioned my team and myself to do this work and in seeking your involvement, because I’ve seen this hold up of sustainable finance or impact investing as the way to take capitalism, which arguably is the mechanism through which we are experiencing this biodiversity loss, and reorientate it towards the UN Sustainable Development Goals or for purpose investments, and as there’s been this massive goldrush essentially, for climate or sustainability aligned funds, there has also been the rise of what’s been called semantically ‚’greenwashing’. Which brings us to today, and I was curious from your perspective, what is greenwashing? If we were to break it down as semantic density.

TJ: I guess greenwashing originated as a term about 20 years ago, essentially pointing to claims that were being made that were inauthentic in terms of their environmental credentials, and particularly corporate claims when it came to, for example, labelling, and that’s where the term originated and eco-labelling became a thing. And products, and I guess marketers sought to put labels on to give some sort of positive attribute to a product that may not necessarily have a lot going for it. And that’s really where things originated. The ACCC picked it up about a decade ago in Australia.

And said, “well, we’re going to come after greenwashing claims”, and there were a couple of cases.

But it has started to become again an issue, as you said, as the world starts to move towards sustainable funds, impact investing, and most corporates needing to be socially responsible and needing to show to their customers or B2B clients that they are good corporate citizens and they’re abiding by regulations when it comes to environment and climate. And that we’re now starting to talk about whether ESG, in a broad context, has enough guardrails to ensure that the greenwashing is limited, and that outcomes are maximised.

So greenwashing could occur as I said, in a corporate context, with products or services, with the labelling and the claims that might be made. Greenwashing could happen in a financing context. So we’ve got funds, debt and capital starting to move to sustainable finance. That’s one of the mechanisms that banks themselves and financial institutions can become Net Zero over time, is to move all of their capital and debt to Net Zero. And if the taxonomy around it isn’t consistent, and there’s inconsistent use of sustainable finance terminology, there could be greenwashing claims there. There was a classic case of one of the ports having a sustainability linked loan, but lots of coal going through that particular port, and that became a news story.

And the third area could be that funds themselves could be greenwashing, in that one fund could have one negative screen versus another fund, could be a comprehensive impact focused fund with negative and positive screens. And so as you can see, there’s inconsistency, and the market might not see the difference, but one fund might be having a very light touch and others could be doing it properly.

PB: And I think that’s one of the main reasons why, as you said, there’s so much going on in this space, why I’ve been pushing to get this report out, because as we look across the different measurement frameworks and standards and push towards some sort of way people can harmonise their reporting, there is just tremendous activity in the space. And, I’ve spent my life around corporate marketing departments and and fund-related marketing departments. And I’m not going to say people are out there trying to ‘pull a swift one’. There’s this tension between, “Where’s the market going? What can the comms and the marketing department say on our behalf? What do the the corporate and the institutional leaders want to be communicating? And what are the customers wanting?” And you have this rolling discussion or at least mechanism trying to meet all of these requirements, at the same time as develop global reporting frameworks. And the speed at which the market operates these days due to ubiquitous internet is just phenomenal. So, it’s like the perfect storm for misreporting and saying things on Twitter that then get blown up and and 10,000 people are on your doorstep saying, “hang on..” So I give due to people who are actually putting the work into to chip away at the coalface of this stuff. Or the sustainable, eco, solar-power face, if we’re going to call it that.. I digress.

So what is the impact of continued greenwashing to the climate change and sustainability challenges we face? This is as countries, as companies, as a species, essentially.

TJ: Yeah.. it’s a very deep question. I guess referring back to my previous comments about how there’s so many impacts that are increasing at a scale that we didn’t envisage, so quickly. I do get worried about how fast companies and financial markets are moving to prevent the loss of species and the climate change impacts that we’re seeing. So in that context, I don’t think greenwashing is helping. But that’s not necessarily.. I don’t think we can blame any particular stakeholder in that chain. I think there’s got to be strong regulation around greenwashing, and that’s got to be strong guidance and guardrails and standards around claims and around taxonomy.

If we think about how you tackle it as a company or an entity, you would think that corporate counsel would have some concern about greenwashing claims, and you would think, though, that the communications and media folk would like to say the best things possible about a company or a fund. And it’s that natural tension between, can we say as much as we can versus what’s allowable. And that’s where companies need to be authentic in terms of the claims that they make and ensure that directors and management are not held liable in the future in terms of these claims, because all of these claims can be retrospectively reviewed. And that’s one of the things that I think is under-tested, still.

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Some of the regulatory issues that are forming around us.. There are standards coming. So there’s accounting standards that are being developed through the International Sustainability Standards Board, which I think will increase rigour around potential greenwashing. There is a standard being developed for Australian sustainable finance taxonomy and that’s going to help the sustainable finance work. And there’s opinions in a legal context out there around greenwashing within say Net Zero plans, and how directors could be held liable. So there’s a range of mechanisms and guardrails that are coming, and I think it will be harder to greenwash, but we’re going through that journey at the moment.

PB: One thing I’ve noticed is that punitive regulatory compliance, whilst it may be sporadic, it doesn’t drive change, it is retrospective. And usually the speed at which markets operate, things are well done and dusted by the time we get to the punitive regulatory response. And within that, what we’re putting together here is really a call to action. What you highlight there in relation to director liability is very important because that also goes with this corporate governance perspective that, they will come and take your house in the future, if you knowingly or unknowingly, because ignorance isn’t an excuse in Australia, or potentially around the world.

TJ: And that itself is both positive and negative, because you then see directors going back into their shell to say, “Hang on, let’s not make any Net Zero claims because we could be held liable”. So, these things.. we are a bit of a journey between doing as much as we can from a climate and environmental context, through to ensuring the claims are right, through to ensuring that you’re protected in making those claims.

PB: And there is a distinction in the report around regulatory environments in Australia, the UK and Europe, because I think the risk avoidance of Australian directors related to our directors and officers liability insurance lack of ‘ceiling’ on that, if you will, as you were stating, is inherent in why we’ve been a bit risk averse for quite a long time. And those things said, the document paints a picture of the regulatory environment and what’s developing and then it speaks to theory of change and impact measurement as a way to make legitimate claims about things because they’re being measured. And I was wondering, what would you encourage firms to consider from across the ESG space? And that’s both single and double materiality, the theory of change, the impact measurement perspectives, in how they go about day-to-day business.

TJ: Well, firms should ensure that their compliance requirements are met around ESG and broader environmental and social and governance issues. They should then move toward what might be coming our way and what needs to be adhered to. So that could be the ISSB standards, the carbon border adjustment tax.. these things that are coming at Australian companies, how do we start to prepare ourselves so that we are ready for these changes and the transition that’s underway.

And then you start to think about, “What are our stakeholders wanting from us? What are our investors wanting, what are our investors telling us, employees telling us?” through to customer pulse surveys and what customers and suppliers are telling us. And beyond which you then need to look at, and this is what Tim Collins is saying, you want to be the best at what you do. And in order to be the best at what you do, you should be internalising external impacts and having some progress as you move forward. So you should be comparing yourself to other peers, but locally and globally, and ensuring that you are getting as good at making widgets, as ensuring that you’re as good on climate change and environmental issues.

PB: I noticed something in listening to that, the assumption that everybody wants to go from good to great, because when institutional super funds divest their fossil fuel interests, those get picked up. And I don’t know if the people who pick them up are excited about going from good to great from a measurement framework perspective. What do we say to those people?

TJ: I guess what we say to those people is, “Have you considered climate risk in the way you should really be looking at climate risk?” We are already starting to see write downs, big write downs globally and in Australia. So we’ve had WA and Queensland bring forward coal exits, we’ve had AGL and Origin talk about accelerating coal exit. That is a write down on balance sheets, unless it’s already written down, which is unlikely with some of those stations like Bluewaters. So the question then is, are you seeing the change as quickly as it might be coming at you? I remember this photo of one of the avenues in New York in I think it was 1901 through to 1903 when it was full of horse carriages and one car, around the early 1900s. And a decade later, it was full of cars and one horse carriage. And that’s how quickly the shift occurred. And I say to friends and colleagues that by 2030, we’re all going to be driving electric cars. You just can’t see that yet. That transition is coming very quickly.

PB: Yeah. I was really struck by.. not struck by.. it was nice to see your blog where one of the points was about air taxis because I’ve been following those for ages. And then I just saw through one of the crowdfunding.. for the equity crowdfunding platforms for a company who is investing in landing pads all around the place, for when the air taxis get here, and it was just really poignant because I was saying to my partner “Yeah, well we’ll just have an electric air taxi that takes us around places..” I think Melbourne’s one of the Uber Air test locations. 

TJ: Yeah totally.

PB: But I think Uber Air then sold their interest in somebody because the pandemic hit and they were like “argh!” so I was like “I’m not going to name names because it’ll seem like I’m spruiking for them and I don’t offer investment advice based on my own passion for..”

TJ: One of the sharing economy things I’ve done for a while is Car Next Door, and they’ve been bought by Uber. So it’s become Uber Carshare. 

PB: Yeah? Wow. And the Good Car Company just got a bucketload of cash from the company backed by Mike Cannon-Brookes. It’s good times. The change is rapid. Though the tension here is that for you and I, sitting in the middle of Melbourne in a very, very prosperous nation, is how this then flows out to the rest of the world. And we take that change and create.. there’s a lot to be discussed.. 

TJ: There’s a lot to educate the developing world, so they can leapfrog and not go through all the pain that we’ve had. And I don’t think that message is taken by the DFATs of this world as well as it could be. 

PB: Yeah, definitely. The micro-finance leap with cell phones to Africa is tremendous to me. We don’t need.. we didn’t even learn that, we could have just gone to 5G and not had the NBN, or had the NBN Fibre to the Premises.. Or go straight to renewables. And avoid the next power player coal fired power station. It’s a fascinating time. And if there was one thing you wanted people to know about the challenge ahead of us from an economic transition perspective, what would you tell them? 

TJ: This is not a corporate message, but having grappled with this for a long time, I do think that personal responsibility has a lot to do with where we need to go. And I think that if people could shift their patterns, particularly in terms of what they eat, and I’m a huge believer with my board role at Food Frontier and so on, that plant-based eating is both healthy as well as good for the planet and good for the animals. And that is a shift that we’ve got to make, as David Attenborough would say. But beyond that, just thinking about consumption generally, and electrifying your home, because these things are going to help yourself, with personal transition, but also the world at the same time. 

PB: And it’s an emanation as well. If you do those things and you share about them and then the people around you notice and they go, “Hey, well, Terrence has done that, Jeffrey’s done that, Sarah has done that. Why can’t we do it?” 

TJ: It’s infectious.

PB: Yeah, and especially for corporate leaders. I mean, if we’re talking about this stuff and you aren’t doing it, well, then you’re just talking about it. You’re not leading. So probably good to lead if you’re a leader. Thanks so much for your time and your contribution. I really appreciate it.

TJ: Great.