Doubts About ESG Climb Amid Mounting Challenges to Companies’ Green Claims

Professor questions environmental activists’ underlying motives

As companies work to go green, they are increasingly being called out by dissatisfied environmental groups and thus are becoming more tight-lipped about their climate pledges.
Doubts About ESG Climb Amid Mounting Challenges to Companies’ Green Claims
The RBC logo in Toronto’s financial district in a file photo. The big bank has come under fire from environmental groups for financing oil and gas despite its stated commitments to go green. (The Canadian Press/Christopher Katsarov)
Rahul Vaidyanath
News Analysis

As companies work to go green, they are increasingly being called out by dissatisfied environmental groups and thus are becoming more tight-lipped about their climate pledges.

Analysis points to growing doubts over ESG (environmental, social, and governance) factors and their efficacy in allocating capital, but also concern about the purpose of activists and the legitimacy of their claims.

RBC, Canada’s largest bank, is under investigation by the federal Competition Bureau for its stated climate action commitments. It’s also being taken to task for “greenwashing,” for continuing to finance fossil fuel development such as pipeline projects, a complaint brought forward by six applicants supported by Ecojustice, Canada’s largest environmental law charity, and Stand.Earth, an environmental advocacy organization. 

“I can confirm that the Bureau has launched an investigation under the Competition Act into the Royal Bank of Canada’s alleged deceptive marketing practices after receiving an application under section 9. There is no finding of wrongdoing [at this time],” Marie-Christine Vézina, senior communications adviser with the Competition Bureau, told The Epoch Times.

RBC has been touting its ESG commitment and strongly disagreed with the allegations. CEO Dave McKay has nixed calls for actual divesting from the oil and gas sector. RBC did not respond to an inquiry from The Epoch Times.

“The impression you get is that it's basically impossible to satisfy them [environmental activists], because even if the Royal Bank stopped lending to the oil and gas sector, maybe it lends to automotive parts manufacturers, or maybe some of the executives of the bank drive their car to work. How do you get to that perfect state of grace?” Wilfrid Laurier University professor and financial economist William McNally told The Epoch Times.

“It goes back to what is the true motive of the activists?”

Questioning the Allegations

Ecojustice said in an Oct. 11 press release, “This complaint is part of a wave of legal actions around the world to challenge companies making bold climate claims not backed by credible actions.”

Furthermore, Oxfam Canada published a report on Oct. 18 on the carbon footprint of Canada’s major banks and said that it wanted to see an end to the financing of “polluting projects.”

“None of the eight major banks have committed to withdrawing from the fossil fuel sector in the short or medium term. Even more worrying is the fact that they all present themselves as having sustainable finance projects or ‘green’ investment activities,” Oxfam said.

McNally says that companies find it irresistible to use ESG as a marketing tool but that the claims against RBC’s oil and gas financing are short-sighted.

“Is RBC supposed to just stop all oil and gas gas financing tomorrow? Is that good for Canada?” he said.

“They [environmental activists] don’t admit that there might be a trade-off between their demands and what's good for Canada.”

Stand.Earth advocates for divestment from fossil fuels—a more extreme stance than merely halting funding.

But Gina Pappano, executive director of InvestNow Inc., a non-profit that, according to its website, works to show that investing in Canada’s resource sectors helps both Canada and the world, said that divestment from oil and gas companies doesn’t stop emissions as it does nothing to reduce global demand.

“The divestment folly is that issuing blanket mandates to eschew the oil and gas sector and to remove its companies from the investment pool does nothing to foster innovation nor reduce emissions,” she said in an Oct. 4 op-ed for the Canadian Energy Centre.

Pappano notes that two of Canada’s largest investment managers, Alberta Investment Management Co. and the Canada Pension Plan Investment Board, reaffirmed their intent to continue to invest in the oil and gas sector.

Dan McTeague, president of Canadians for Affordable Energy, tweeted on Oct. 11, “Maybe now woke elements within Canada’s banking community will realize appeasement of climate fanaticism, which has been perfected in Canada, never turns out well.”

Seeking Advice

Radha Curpen, vice chair, Vancouver managing partner, and national leader of ESG Strategy and Solutions at law firm Bennett Jones, advises companies on making environmental commitments. In a Sept. 13 ARC Energy Research Institute podcast, speaking on the added bureaucracy companies must deal with, she said it’s difficult for companies to know how they should report.

“A lot of companies come to us sometimes before they make a commitment because of the fact that the commitment is going to increase expectations. Definitely. There's also litigation risks with coming out of those commitments that are being made,” she said, adding that in some cases Bennett Jones has advised companies to not make certain commitments.

In its 2022 net zero report released Oct. 18, South Pole, a climate project developer and solutions provider, showed that one in four companies surveyed globally have set emission-reduction targets but don’t plan to publicize those targets. 

“Media scrutiny, NGO critique, and the threat of lawsuits may be deterring companies who are voluntarily setting targets from being more open,” according to the South Pole report, referring to the emerging practice as “green-hushing.”

Peter Tertzakian, deputy director of the ARC Energy Research Institute, said his “gut feel” is that “the whole ESG causes some sense of paralysis and greater polarization” as doubts about the sustainable investment movement increase.

“That's kind of a dangerous territory we're entering that it actually may inhibit companies from making commitments,” he said during the Sept. 13 podcast.

“You have the risk of making a commitment that will get you sued versus the risk of not making a commitment and then not being able to raise money.”

Curpen said there can be fines and higher risks of not reporting on top of litigation and shareholder activism. The publicly traded companies also have to contend with securities regulators’ compliance documentation requirements.

“There's also going to be litigation against the government and regulators like companies and anti-ESG activism groups too. So I think we're seeing both sides and it creates even more clutter,” she said.

Jackie Forrest, executive director of the ARC Energy Research Institute, noted that it becomes damaging to ESG itself when more companies or funds say they’re “green” but are found out not to be.

While greenwashing is a problem and the feasibility of ESG is being analyzed, McNally says environmental groups have to be held accountable for the consequences of their proposals, adding that the energy transition is not going to happen as quickly as they propose without considerable pain inflicted on society.

“It doesn't seem like they’ve done the math on the whole thing.”

Rahul Vaidyanath is a journalist with The Epoch Times in Ottawa. His areas of expertise include the economy, financial markets, China, and national defence and security. He has worked for the Bank of Canada, Canada Mortgage and Housing Corp., and investment banks in Toronto, New York, and Los Angeles.
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