Hi Quartz members,
The greenwash police are racing to Wall Street, sirens ablaze.
Last week it was revealed that the Securities and Exchange Commission is investigating Goldman Sachs for possibly overstating the environmental, social, and governance (ESG) credentials of some mutual funds. It’s the latest move in a broader crackdown by US and European regulators on the ESG investing industry. The SEC launched an ESG investigation of Deutsche Bank last year, which was followed by a police raid on the bank’s Frankfurt headquarters in May. The SEC also fined BNY Mellon $1.5 million for “misstatements and omissions about ESG considerations.”
These investigations all revolve around the question of whether and how the firms consider ESG criteria—everything from carbon footprint to board diversity—in selecting which company stocks to include in ESG-labeled investment funds. Since ESG funds are one of the hottest items on Wall Street—their value reached $2.7 trillion in 2021—there’s been a rush to slap an ESG label on everything, sometimes without due diligence.
But the investigations also are a warning from the SEC about a deeper problem: that ESG considerations, even when dutifully applied, mean something different to everyone and do an especially bad job of measuring climate impact. That explains how S&P’s ESG index fund, for example, can hold half a dozen oil and gas companies but drop Tesla, the world’s top electric vehicle maker. Over the last two months the SEC has rolled out draft rules that will govern how public companies disclose climate data and how fund managers use it for ESG labeling, placing an ESG overhaul at the center of president Joe Biden’s climate agenda. The idea is that with tighter ESG rules, more money will flow into genuinely climate-friendly companies (that won’t help Tesla, however, unless it can resolve issues related to safety and working conditions).
While those rules grind through the bureaucratic approval process over the next several months, the SEC is using existing fraud regulations to crack down on lazy ESG practices and send a message that the most egregious greenwashing has to stop. That should make fund managers think twice about how they use ESG labels—but is unlikely to diminish the appetite for green and socially responsible investing.
“I don’t think it’s going to slow down,” said Katelynn Bradley, a former official in the House of Representatives Financial Services Committee. “This is all based on investor demand, and I don’t see that changing at all.”
Missing the target. As hot as ESG investing is, it’s not stringent enough to stop companies from hiding behind bogus climate strategies. According to an analysis this week led by the University of Oxford, 65% of corporate net zero targets (which have been set by about 702 large public companies globally) aren’t backed up by a credible plan to deliver emissions cuts on time. The quality of these plans may improve once the new SEC rules let investors take a better look under the hood.
👀 Despite their warnings, VCs are still investing
😞 Gas prices are so high they’re making governments suspicious
🚀 The disappearance of a top livestreamer shows the risk of doing business in China
🤔 Everything we know about the coming Sriracha shortage
⛽ The biggest corporate holder of bitcoin is facing a reckoning
🍿 Americans are finally pulling back on spending
🤞 Tesla is leaving the market for low-end electric cars to traditional automakers
🥊 What if Ukraine wins? Most Western commentary on the war in Ukraine has focused on preventing Russia from winning. In Foreign Affairs, Liana Fix and Michael Kimmage consider what would happen the day after a Ukrainian victory. The West will still need to provide considerable support, they argue, because “Even if he loses the war, Putin will not let go of Ukraine.”
🤖 ‘Low-power mode’ for brains. In Quanta magazine, Allison Whitten describes a neuroscience paper that documents an “energy-saving” mode in the brains of mice. When deprived of sufficient food, the mice’s brains used less energy at the cost of less fine-grained visual perception. The results hint at how malnourishment might affect humans’ cognitive functioning.
❤️ To Costco, with love. For Yuxi Lin, a daughter of Chinese immigrants, the American wholesale retailer Costco is a site of memory, identity, and family connection. In a personal essay on Longreads, she shares snapshots from different moments in her life connected to Costco from shopping with her parents, to eating there alone. Food sits at the story’s center, as a conveyer of love, of cultural inheritance, and also a reminder of intergenerational trauma.
🕰 Waste of time. The average white-collar worker spends half a year correcting typos over the course of their career, and nearly as much typing in logins and remembering passwords. Those stats come from a study of “futile” tasks at work, reported by The Economist. Deleting emails adds up to six weeks, but if they’re Quartz emails and you read them first then that’s time well spent.
😘 Worth a Google. In the New York Times, Cade Metz and Daisuke Wakabayashi report on a lawsuit against Google by a former employee who claims he was fired after complaining that his team was dominated by an obscure religious sect. The Fellowship of Friends, they report, “believes a higher consciousness can be achieved by embracing fine arts and culture, has also gained a foothold inside a business unit at Google.”
Thanks for reading! And don’t hesitate to reach out with comments, questions, or topics you want to know more about.
Have a socially responsible, fraud-free weekend,
—Tim McDonnell, climate and energy reporter
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