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ESG – Environmentalism or Shareholder Greenwashing?

ESG is the new buzzword floating around the business-sphere. If you’ve attended a conference in the past year or so, you’ve probably heard a spiel on Environmental, Social and Governance. Companies are receiving directives from the top of the chain to stick environmental health in the middle of their business plans.

What’s the big idea behind ESG? Best case, it’s a disclosure statement of a company’s environmental impact with an action plan to reduce their carbon footprint.

In reality? TBD if ESG is a big success or just BS.

Let’s look at how it matters to the building materials industry.

We all know that we are the biggest perpetrators of construction waste and the built environment has a huge impact on the natural environment. We also know that greenwashing took root over a decade ago and continues today despite efforts to curb it through documentation, certifications, and third party verifications. We are trying desperately to hold ourselves accountable to a laundry list of sustainability criteria, and suddenly, ESG arrives as an investor criteria when evaluating which companies to throw money at. Is it going to be more of the same BS, saying you are doing good to your investor base while your employees are putting in 60 hour days and living off ramen and Aldi Mac and Cheese? Buying carbon credits while spilling oil in the gulf? Let’s find out.

What are the benefits of ESG supposed to be? Well, theoretically the planet, the employees, the community and the company should all benefit.

The first three are obvious: efforts to make environmental strides benefit the planet, social actions will benefit the community and employees, and the governance should make the company more accountable. All three should make the company more profitable.

A study by McKinsey & Company shows that ESG links to cash flow in five ways:

  1. Reduce costs
  2. Regulatory compliance
  3. Facilitate top-line growth
  4. Optimize investment and capital expenditures
  5. Increase employee productivity

The presentation of these metrics will be key for companies. As they roll out ESG programs, these companies need to capture the data that demonstrates that their strategies are working, so establishing the baseline from which you are starting is key.

Here is a nice little chart from Bentleys Advisory and Accounting firm that shows what some of the different areas of ESG encompass:

They all sound lovely, don’t they? People want to work at companies that do these things (well, not bribery and corruption, but I am assuming what they mean is that you have rules against those things). But how do you ensure that the company is really doing these things and not just attempting to woo investment dollars?

Three of the leading companies tracking ESG criteria are Morgan Stanley Capital International (MSCI), Sustainalytics, and Thomson Reuters.

There is also the Sustainable Finance Disclosure Regulation (SFDR) developed by the European Commission. This requires financial institutions and advisors to classify funds under the Articles represented in the chart below from Endowus. This at least means that the top of the funnel (the investors) have some boundaries and spotlight on them for minimum criteria.

Further, the banking industry is savvy to the idea of greenwashing pushing its way into ESG claims. This chart from Standard Chartered Bank demonstrates just how important ESG is in the investment community, and that it is equally important to avoid being “ESG-washed” by being diligent.

So greenwashing did us one big favor: it made sure that we were discerning when ESG arrived. Just knowing that the money flowing to companies practicing ESG has vetting criteria, as depicted in the chart, is encouraging. So, we, too, as consumers and employees need to hold companies accountable to these claims by being diligent in ensuring they are implemented. If these practices are here to stay, and the claims made regarding the benefits to companies are realized, we all stand to benefit.

So let’s hope the BS is Benefits Shared.


Examine our Sustainable Goods – healthy, beautiful products for interiors and exteriors on our brands page.

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