Amid growing concerns about “greenwashing” in Canada’s $3-trillion responsible investing sector, a University of Guelph management professor is calling for clearer reporting standards.
Dr. Rumina Dhalla studies social responsibility and sustainability in U of G’s Gordon S. Lang School of Business and Economics. A professor in the Department of Management, Dhalla is a member of Lang’s Institute for Sustainable Commerce at Guelph and a board chair of the UN Global Compact Network Canada.
The 2022 Canadian Responsible Investment (RI) Trends Report by Canada’s Responsible Investment Association found that investment in the RI sector is beginning to slow as skepticism toward the industry grows.
To counter that skepticism, Dhalla calls for a more sophisticated approach to assessing the authenticity of companies’ environment, social and governance (ESG) investment claims and performance.
What’s been missing so far, she says, is standardized, mandatory reporting of ESG achievements so that investors can easily assess the validity and reliability of claims.
“There is a need for standardization of terms across industries so investors clearly understand what is meant by environmental, social and governance factors,” she said. “It is also important that companies that claim to be ESG-valid provide information on their achievements of each of these factors.”
It’s difficult for investors to know whether a company that says it has invested in “green” technology and achieved its environment-related goals might also violate health and safety rules or fail to meet employment equity standards, for example.
Dhalla would also like to see ESG reports that are audited by third parties.
“While this may add a burden on the companies, it would provide investors with some way to assess the ESG health of a company and allow them to make comparisons between companies,” she said.
What’s more, such reports should be mandatory.
“Voluntary reporting without standardization could lead to companies reporting on performance without having an obligation to report on negative events that may impact the company’s ESG performance,” she said.
Standardized reporting on ESG performance and mandatory reporting on both positive and negative events will not only provide potential investors with reliable information for their investments but also “could influence a shift to investments in companies authentically delivering on their ESG commitment,” she said.
Dhalla is available for interviews.
Dr. Rumina Dhalla