ESG Colourwashing: Combating Modern-day Corporate Hypocrisy
Klemen Kreca, Associate, Schönherr Attorneys at Law
Timo Matthias Spitzer, Head of Legal Corporate and Investment Banking Germany, Austria, Switzerland & Scandinavia, Banco Santander, SA.
Driven partly by the COVID-19 crisis, Environmental, Social and Governance (ESG) criteria have gained significant relevance, creating a growing market demand for both ESG-based consumer and investor products. This is the product of a shift in consumer and investor preferences on the one hand, as well as increased political pressures on the other. A company might opt for ESG-compliance out of a sense of moral duty beyond the immediate financial interests of shareholders, thereby focusing on the wellbeing of all stakeholders including the wider society. Nonetheless, rarely are companies truly altruistic. Studies have found that integrating sustainability metrics into a business model more often than not creates real added financial value, betters the working environment and improves the reputation of the company significantly. Some if not most companies are being good, but only insofar as it benefits them financially. This in turn creates a significant moral hazard, where the appearance of ESG compliance could prove more lucrative than actually implementing ESG principles.
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