ESG-washing and why you should avoid it

Private equity funding in the ESG space continues to grow, and a stronger ESG proposition has been seen to increase company valuations. Companies are eager to capitalise on this trend; however, with topics such as greenwashing gaining attention, it is crucial for businesses to understand where their ESG compliance stands.

Greenwashing, the lesser-known social-washing, and the even-lesser-known governance-washing are known collectively as ESG-washing. ESG-washing occurs when there is a disconnect between a company's perceived commitment to ESG-friendly practices (e.g. carbon reduction, fair labour practices or board diversification) and the actual actions or impact of the company's practices.

It is important for companies not to misrepresent or overstate their ESG impact. ESG-washing can result in a business being rejected by potential investors and eventually gaining a negative reputation in the market.

We recommend companies be proactive in determining their level of ESG compliance when approaching investors, identifying potential pitfalls and creating an actionable and measurable strategy for implementing change.