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  • Ildiko Almasi Simsic

Managing sustainable assets vs. managing assets sustainably

Let me start with a disclaimer: I am looking at the whole ESG and sustainability agenda from a social impact practitioner perspective.


The other day I was reading an article on ESG Funds and how recent studies from 2021 found that funds with a commitment to responsible investing and ESG often score equal or lower than traditional funds when evaluating their portfolios (all references are linked below). I use the term ESG funds to refer to funds with a mandate to contribute to sustainable outcomes in environment, social or governance. The same brief also referenced The Economist article on greenwashing that found several ESG funds that hold investments in fossil-fuel producing companies. These companies include some giants such as Exxon-Mobil that has a statement on sustainability with annual reporting; and - what is more meaningful to me - an Environmental and Social Management System that manages operations related environmental and social impacts.

This made me think how rarely we make the distinction in the ESG sphere between sustainable assets and assets managed sustainably. The difference - to me - is very significant. In a previous blog I talked about often overlooked social impacts of sustainable projects such as wind farms. How can it be that a sustainable and environmentally friendly project has adverse environmental and social impacts? Glad you asked!


The impact measurement and reporting happens on two different levels and it leads to a confusion of definition and scope. ESG reporting or sustainability reporting usually happens on a corporate level where the asset is designated the sustainable category because it is in the renewable energy sector for instance. The funds who invest in fossil-fuel producing assets will not be able to have a high ESG score because of the nature of their assets/portfolio. The E&S (environmental and social) risks and impacts are measured on the project level and relate to identifying, analysing, monitoring and managing the intended and unintended environmental and social consequences. Here we are talking about tangible impact assessments with primary data collected from the affected populations, and management plans (see Exxon-Mobil example) addressing the identified impacts for instance on management of spills, quality and quantity of jobs created, occupational health and safety management (for some pretty high risk tasks) as well as impacts on land, livelihoods and access to ecosystem services.


My personal opinion is that I’d rather have an ESG or E&S conscious entity in charge of high risk or non-sustainable assets and manage them sustainably. Let us think of the not so hypothetical scenario where some large projects with significant adverse environmental and social impacts being implemented by entities who don’t have to comply with good international industry practice, IFI standards or the Equator Principles because they don’t need the financing. E&S practitioners are well aware of the gaps between national Environmental Impact Assessment legislation and IFI standards, but I could also name resettlement legislation, stakeholder engagement or labor and labor accommodation standards. Some of these companies might feel morally obligated to have a CSR program to obtain a ‘social license to operate’ but this can be perceived as ‘buying’ the social license to operate. A well-designed CSR program adds a lot of value and creates benefits for participating communities, but this should only come after the safeguards measures are in place.


Let me know your thoughts!



References:

  1. https://www.cfainstitute.org/-/media/documents/article/rf-brief/Horan-ESG_RF_Brief_2022_Online.pdf

  2. Gibson-Brandon, Rajna, Simon Glossner, Philipp Krueger, Pedro Matos, and Tom Steffen. 2021. “Responsible Institutional Investing around the World.” Available at https://papers.ssrn.com/sol3/papers. cfm?abstract_id=3525530

  3. The Economist: “Sustainable Finance Is Rife with Greenwash. Time for More Disclosure” (2021)

  4. https://corporate.exxonmobil.com/-/media/Global/Files/sustainability-report/publication/Sustainability-Report.pdf

  5. https://corporate.exxonmobil.com/Sustainability/Sustainability-Report/Environment/Environmental-management-system

  6. https://corporate.exxonmobil.com/Sustainability/Sustainability-Report/Social

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