Kitsonlin
2021-10-08
Evening
Some Firms Are Painting Their Problems Green. Investors Should See Through It.
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Investors Should See Through It.","url":"https://stock-news.laohu8.com/highlight/detail?id=1149491595","media":"Barron's","summary":"Greenwashing is when a firm uses sustainability performance on one dimension to cover up poor perfor","content":"<p>Greenwashing is when a firm uses sustainability performance on one dimension to cover up poor performance on another. The first-known use of the term was in 1989, according to Merriam-Webster. Yet, while greenwashing is used pejoratively, from a historical perspective, perhaps its emergence wasn’t all negative. In some ways, you could frame it as an advance in thinking.</p>\n<p>Consider this: In a world where short-term profits are the sole measure of firm success, there is no need for greenwashing because there is no accountability for today’s externalities. Nor is there any consideration for the possibility that those externalities will become priced or internalized over a longer time horizon. It’s only as accountability increases that greenwashing even becomes feasible.</p>\n<p>In a similar vein, earnings management (that is, the window dressing of financial statements to make them look stronger than they actually are) is onlytemptingwhen firms are held accountable for their financial performance in the first place. So, in that sense, the addition of greenwashing to our lexicon was perhaps a sign of progress.</p>\n<p>That doesn’t mean investors should embrace greenwashing, of course. It suggests an attempt to use someenvironmentalor other efforts to distract from (or compensate for) the activities of a firm that are probably more challenging and also more important for the firm to address. Note that greenwashing in this sense is bad, because it reflects a failure to prioritize the most important issues. And, worse, if the attempts at greenwashing are successful, it will deflect attention away from the more pressing issues.</p>\n<p>In other words, the problem with greenwashing isn’t lying, or even misrepresentation. Instead, greenwashing is like a magician’s sleight of hand, the use of something real, perhaps even subtle, to misdirect attention.</p>\n<p>As there is increasing focus on corporate sustainability, incentives for greenwashing will likely increase. What then can we do to help inoculate the system against greenwashing?</p>\n<p>At theValue Reporting Foundation, which maintains a set of sustainability-related resources including the SASB Standards, we believe in prioritization and standardization as tools to make disclosure more useful in decision-making. When developing topics and metrics for disclosure, we begin with a consideration of a firm’s impacts. What activities might the firm engage in that have impacts for its ability to engage in long-term value creation? The next step could be to ask firms to decide which of those to disclose. The risk there, however, is that firms might choose to address the easy ones rather than the most important ones.</p>\n<p>Effectively, SASB standards address the intersection of sustainability performance and financial impact. This is not a values statement. Instead, it’s a recognition that investor influence, through engagement and capital-allocation decisions, can be an effective tool, to offset pressure both to deliver on short-term earnings performance and to look green for the sake of being green. But the effectiveness of that tool is linked to long-term value creation. Too narrow a focus favors short-termism. Too wide of one enables greenwashing.</p>\n<p>Of course, concerns for value creation aren’t the sole determinant of firm behavior. Public policy must lay the ground rules. Good public policy, like good corporate governance, requires accountability, including measurement and reporting of behavior. But those accountability needs are different. Different reporting, different measurements—a different focus—may be needed to inform public policy decisions. In such circumstances, the case for requiring firm disclosure along a particular dimension need not be grounded in the implications of that activity for long-term value creation.</p>\n<p>Take research and development and diversity, equity, and inclusion: Does the management of these issues have implications for long-term value creation? Yes. Do those implications manifest in different ways and degrees from one industry to another? I would again say yes. Should investors care about both? Yes, but not necessarily in a generic way for either. For biotech firms, R&D is crucial. But many industries spend effectively nothing on R&D. In a similar vein, as we are examining in a project on human capital, the value implications of DE&I are likely linked to the human capital characteristics of industries, which can vary. But, as a society, we might say that some aspects of DE&I need widespread transparency because they are reflective of the type of society we want to be. In those cases, policymakers should step in and ensure that the needed transparency is there, regardless of whether investors would see the issue as being equally value relevant, in the same way, across all industries.</p>\n<p>Indeed, when thinking about public policy to govern firm behavior, the emphasis is less focused on the impacts on a company and more on the company’s actions on others. Policymakers need to carefully monitor any action that has significant implications for the planet or people in aggregate, particularly so when the implications for the firm in the near term are relatively small or when the impacts are small individually.</p>\n<p>To summarize, a focus on the risks and opportunities that are likely to be financially material isn’t a belief that impacts<i>on</i>a company matter and that impacts<i>by</i>a company do not. Rather, it’s a recognition that greenwashing is only possible when you can misdirect attention and that combating greenwashing requires prioritization and standardization. If the stakeholder is an investor, they need to focus on the issues most relevant to their decision-making—that means they need to consider the biggest potential impacts on the firm, whether those impacts stem from the firm itself, from other firms like it, or from changes in the environment wholly beyond the control of the company. Source matters less than potential when thinking about which impacts and dependencies investors need better information about. (Though the source of the impact has implications for how the firm might factor the risk or opportunities into its strategy).</p>\n<p>In the end, my fear isn’t that there will be increasing incentives for firms to engage in greenwashing. I’d be more worried if that weren’t true. But we need to support a corporate reporting system that works to meet the needs of the capital markets and civil society. In order to do that effectively, we need to recognize that we shouldn’t expect the capital markets to solve all problems. Some externalities, even when “priced,” aren’t going to significantly influence corporate strategy. When that’s the case, when appealing to the implications for value creation isn’t going to move the needle, policymakers can step in. But let’s not forget that these are separate tools—with separate information needs—for distinct, but connected, issues. Otherwise, we run the risk of institutionalizing greenwashing.</p>","source":"lsy1610680873436","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Some Firms Are Painting Their Problems Green. 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Investors Should See Through It.\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-10-08 17:24 GMT+8 <a href=https://www.barrons.com/articles/some-firms-are-painting-their-problems-green-investors-should-see-through-it-51633645059?mod=hp_LATEST><strong>Barron's</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Greenwashing is when a firm uses sustainability performance on one dimension to cover up poor performance on another. The first-known use of the term was in 1989, according to Merriam-Webster. Yet, ...</p>\n\n<a href=\"https://www.barrons.com/articles/some-firms-are-painting-their-problems-green-investors-should-see-through-it-51633645059?mod=hp_LATEST\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SPY":"标普500ETF",".IXIC":"NASDAQ Composite",".DJI":"道琼斯",".SPX":"S&P 500 Index"},"source_url":"https://www.barrons.com/articles/some-firms-are-painting-their-problems-green-investors-should-see-through-it-51633645059?mod=hp_LATEST","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1149491595","content_text":"Greenwashing is when a firm uses sustainability performance on one dimension to cover up poor performance on another. The first-known use of the term was in 1989, according to Merriam-Webster. Yet, while greenwashing is used pejoratively, from a historical perspective, perhaps its emergence wasn’t all negative. In some ways, you could frame it as an advance in thinking.\nConsider this: In a world where short-term profits are the sole measure of firm success, there is no need for greenwashing because there is no accountability for today’s externalities. Nor is there any consideration for the possibility that those externalities will become priced or internalized over a longer time horizon. It’s only as accountability increases that greenwashing even becomes feasible.\nIn a similar vein, earnings management (that is, the window dressing of financial statements to make them look stronger than they actually are) is onlytemptingwhen firms are held accountable for their financial performance in the first place. So, in that sense, the addition of greenwashing to our lexicon was perhaps a sign of progress.\nThat doesn’t mean investors should embrace greenwashing, of course. It suggests an attempt to use someenvironmentalor other efforts to distract from (or compensate for) the activities of a firm that are probably more challenging and also more important for the firm to address. Note that greenwashing in this sense is bad, because it reflects a failure to prioritize the most important issues. And, worse, if the attempts at greenwashing are successful, it will deflect attention away from the more pressing issues.\nIn other words, the problem with greenwashing isn’t lying, or even misrepresentation. Instead, greenwashing is like a magician’s sleight of hand, the use of something real, perhaps even subtle, to misdirect attention.\nAs there is increasing focus on corporate sustainability, incentives for greenwashing will likely increase. What then can we do to help inoculate the system against greenwashing?\nAt theValue Reporting Foundation, which maintains a set of sustainability-related resources including the SASB Standards, we believe in prioritization and standardization as tools to make disclosure more useful in decision-making. When developing topics and metrics for disclosure, we begin with a consideration of a firm’s impacts. What activities might the firm engage in that have impacts for its ability to engage in long-term value creation? The next step could be to ask firms to decide which of those to disclose. The risk there, however, is that firms might choose to address the easy ones rather than the most important ones.\nEffectively, SASB standards address the intersection of sustainability performance and financial impact. This is not a values statement. Instead, it’s a recognition that investor influence, through engagement and capital-allocation decisions, can be an effective tool, to offset pressure both to deliver on short-term earnings performance and to look green for the sake of being green. But the effectiveness of that tool is linked to long-term value creation. Too narrow a focus favors short-termism. Too wide of one enables greenwashing.\nOf course, concerns for value creation aren’t the sole determinant of firm behavior. Public policy must lay the ground rules. Good public policy, like good corporate governance, requires accountability, including measurement and reporting of behavior. But those accountability needs are different. Different reporting, different measurements—a different focus—may be needed to inform public policy decisions. In such circumstances, the case for requiring firm disclosure along a particular dimension need not be grounded in the implications of that activity for long-term value creation.\nTake research and development and diversity, equity, and inclusion: Does the management of these issues have implications for long-term value creation? Yes. Do those implications manifest in different ways and degrees from one industry to another? I would again say yes. Should investors care about both? Yes, but not necessarily in a generic way for either. For biotech firms, R&D is crucial. But many industries spend effectively nothing on R&D. In a similar vein, as we are examining in a project on human capital, the value implications of DE&I are likely linked to the human capital characteristics of industries, which can vary. But, as a society, we might say that some aspects of DE&I need widespread transparency because they are reflective of the type of society we want to be. In those cases, policymakers should step in and ensure that the needed transparency is there, regardless of whether investors would see the issue as being equally value relevant, in the same way, across all industries.\nIndeed, when thinking about public policy to govern firm behavior, the emphasis is less focused on the impacts on a company and more on the company’s actions on others. Policymakers need to carefully monitor any action that has significant implications for the planet or people in aggregate, particularly so when the implications for the firm in the near term are relatively small or when the impacts are small individually.\nTo summarize, a focus on the risks and opportunities that are likely to be financially material isn’t a belief that impactsona company matter and that impactsbya company do not. Rather, it’s a recognition that greenwashing is only possible when you can misdirect attention and that combating greenwashing requires prioritization and standardization. If the stakeholder is an investor, they need to focus on the issues most relevant to their decision-making—that means they need to consider the biggest potential impacts on the firm, whether those impacts stem from the firm itself, from other firms like it, or from changes in the environment wholly beyond the control of the company. Source matters less than potential when thinking about which impacts and dependencies investors need better information about. (Though the source of the impact has implications for how the firm might factor the risk or opportunities into its strategy).\nIn the end, my fear isn’t that there will be increasing incentives for firms to engage in greenwashing. I’d be more worried if that weren’t true. But we need to support a corporate reporting system that works to meet the needs of the capital markets and civil society. In order to do that effectively, we need to recognize that we shouldn’t expect the capital markets to solve all problems. Some externalities, even when “priced,” aren’t going to significantly influence corporate strategy. When that’s the case, when appealing to the implications for value creation isn’t going to move the needle, policymakers can step in. But let’s not forget that these are separate tools—with separate information needs—for distinct, but connected, issues. Otherwise, we run the risk of institutionalizing greenwashing.","news_type":1},"isVote":1,"tweetType":1,"viewCount":64,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":7,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/821952222"}
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