Importance of Organisational Sustainability for Finance Companies Offering ESG Products.
In the last three years we have seen an explosion of funds flowing into the ESG space, a focus on sustainability has evolved from a niche strategy to mainstream investment priority. With the emergence of a triple bottom line, people, profit and planet - now guiding investment philosophies.
The question for firms and the future direction of the market is whether there lies a responsibility for those spruiking these investment products to “practice what they preach”. From a regulatory standpoint, the ACCC’s greenwashing stance and leading legal perspectives such as the Hutley Opinion certainly think so.
However, embracing sustainable practices within investment funds is not simply a matter of risk-aversion. Just as the triple bottom line is applied to investment opportunities, we believe the maturing investor will also look more broadly at the organization they are dealing with.
In an increasingly competitive market, opportunity beckons for those willing to embrace sustainable practices and strengthen the foundations with which they approach new and existing customers.
Organisational Sustainability vs Sustainable Products
Throughout 2022 we saw investors raise their expectations around ESG products, simple exclusions of oil and gas stocks no longer provided the credentials for “green” labeling a fund. In fact this poor quality and transparency wanders into dangerous greenwashing territory.
In this same sentiment, firms that offer sustainable products are not entitled to refer to their organisation as sustainable. As per guidance from the ACCC, you are overstating the impact of a specific investment option and opening yourself up to greenwashing claims.
Organisational sustainability refers to the process of calculating, improving and reporting on the environmental impact of your company. Carbon emissions are the broadly accepted metric for understanding and tracking this sustainable performance.
As we see more scrutiny both from an investor and legislative perspective around ESG reporting, there are a wealth of benefits available to funds who embrace organisational sustainability. From greater credibility in the market to the ability to speak freely without risk of greenwashing accusations and reinforced stakeholder confidence.
Trends in the Market: Australia and Abroad
The EU recently implemented new sustainability reporting directives, with the SEC also announcing plans to require ESG funds to disclose information about their strategies. This comes on the back of the “green rush”, a meteoric rise of funds flowing into ESG investments, that led many firms to go to market with hastily packaged products.
The result has been greater scrutiny not just from a regulatory perspective but from the average investor. A 2021 PWC study found that only 40% of investors trust ESG ratings and scores.
The question is how can forward thinking investment funds easily curtail this growing skepticism in the market? How can they safely market and promote ESG products to the masses without a standardised reporting framework?
An obvious solution is the alignment of organisation with product, investors are far more likely to gravitate towards companies whose values reflect their investments. We have seen a number of leading Australian funds already embrace sustainable practices and certify themselves as carbon neutral.
Australian Carbon Neutral Certified Funds
We analysed all 600 companies currently certified as carbon neutral under the Climate Active certification. The Climate Active certification is the only government backed carbon neutral certification and requires companies to release a public disclosure statement.
We found that 17 investment funds (aside from super) had received certification from Climate Active. From these funds they had an average of 308 tonnes of CO2e emissions per year. Due to comparable business activities, emissions across the industry were closely aligned with company staff size. On average these companies emitted 10 tonnes per employee.
You can see the government certified investment funds listed below.
- Adamantem Capital
- Carthona Capital
- Tetris Capital
- Donor Republic
- MaxCap Group
- Carthona Capital
- Ethical Partners
- Fortitude Investment Partners
- Melior Investment Management
- Pacific Equity Partners
- Potentum Partners
- Tribeca Investment Partners
- Warakirri Asset Management
What these leading funds have been quick to recognise is the benefit both to their stakeholders and potential investors in improving their own sustainable performance.
It is also important to note that there are many more companies who have achieved carbon neutrality, outside of the Climate Active certification.
What Are The Opportunities for Investment Funds?
Funds are perfectly placed to adopt organisational sustainability both from a business and cost perspective. Thanks to the introduction of new climate tech companies such as NetNada the cost and time taken to calculate and reduce emissions has dropped considerably.
What once took months, considerable human resources and a large investment to complete can now be done in minutes using technology, with a similar cost to website hosting.
Below we have delved deeper into the clear opportunities that present themselves to funds looking to embrace sustainability through carbon accounting and environmental consulting.
Empower Internal and External Stakeholders
In an increasingly competitive market, the opportunity to demonstrate to internal and external stakeholders your authentic commitment to sustainability is invaluable. This goes beyond simply offering an ESG fund and actually tracking, reducing and reporting on your organisations impact.
For example the sharing of a sustainability plan guided by carbon emissions, reduction strategies and science based targets. Many funds are choosing to include sustainability reports in their reporting to investors, board members and internal staff.
The good news is that these reports no longer require expensive consultants and can be generated using information from your carbon accounts. NetNada offers our clients the option of custom sustainability reports as part of our service.
Low Expected Emissions
Due to the business model of investment funds, generally the largest emission sources will be associated with office utilities and staff travel. The larger the company, the larger the office and greater energy consumption.
However, the day to day operations of the business are not reliant upon energy consumption and thus generally lead to lower emission levels. This means the process of reducing and offsetting becomes less expensive and simpler.
The opportunity to achieve carbon neutrality, to apply for credible certifications and quickly establish credibility in the space is not only affordable but it can be done quickly.
Ability To Reduce Emissions
Once you have determined the source of emissions you can start reducing them. Many other businesses find themselves having to consider the restructure of business activities or processes in order to reduce emissions, for example it is difficult for a removalist company to reduce their diesel consumption.
This is not a problem for investment funds, there are no fuel-intensive practices, large logistic operations or other emission heavy activities associated with the business. Which removes many of the challenges around reducing emissions.
Generally reduction recommendations will center around energy consumption and other utilities, implementing more sustainable practices is not only easy but can lead to considerable cost savings for the business.
Fast Accurate Calculations
Due to the straightforward business model of funds from a carbon accounting perspective, making accurate calculations is relatively straight forward. Generally manufacturing and companies with large supply chains will face greater issues.
Using consumption-based calculations from NetNada, funds can receive their organisational carbon emissions extremely quickly. Which means there is no need for extensive meetings or endless excel sheets to fill out.
New technology has replaced the role of traditional environmental consultants. With platforms such as NetNada’s being able to provide exact and precise carbon accounts using the existing accounting data within your business.
The process of calculating and reducing your organization’s impact provides a wide range of marketing points. Funds can now report on their emissions and commitment through their website, newsletters, conferences, monthly fact sheets and more.
This is where the opportunity to demonstrate your organisational values align with products on offer lies. Whether it be via social media updates on new accreditations or the inclusion of emission reductions in EDM’s to customers.
Using trusted calculations backed by international frameworks you can be confident in protecting your marketing efforts from growing accusations of greenwashing. This gives you additional scope to speak confidently about ESG topics in the market.
Where to Start
When it comes to embracing organizational sustainability, the first step for financial funds is to understand what their current impact is. We have outlined a suggested roadmap for how to get started.
Measure your impact
The first and foremost step is to get an accurate understanding of your company’s carbon account. This can be done by engaging an environmental consultant or working with a technology company such as NetNada’s.
You cannot reduce what you haven’t measured and as such the act of measuring your carbon emissions is an extremely important one. This data will provide you with the sources of emissions, your scope 1, 2 and 3 analysis and help guide your next steps.
Reduce your impact
Once you have determined the carbon outputs of your business and identified the sources of emissions you can look to make a reduction plan and commit to certain strategies. Without carbon accounting, a firm is simply feeling around in the dark as to how they can improve their impact.
Examples of ways to reduce your impact include switching energy providers, reducing fuel consumption, installing solar panels, analysing waste practices, changing away from carbon intensive suppliers and so on.
Any consultant or technology platform you work with should be providing you with tailored reduction strategies based on your carbon account.
Offset & Certify
Over time you will be able to reduce your carbon emissions and therefore improve the sustainability of your organizations. Many funds may decide to offset their remaining emissions and achieve carbon neutrality.
NetNada’s technology provides the basis for many third-party certifications and we have partnered with a range of offset suppliers. We only work with vetted, gold-standard offsets so you can have peace of mind when choosing carbon credits through us.