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    Human and AI Heroes vs Greenwashers

    Greenwashers beware! There is a storm coming your way that is about to rock at least a few boats full of exaggerated sustainability credentials and false ESG claims. The stars are aligning in a pattern that looks quite unfavourable for ye overeager salespeople and corporate leaders who dare commit the grave sin of taking the name of green gods in vain. Everyone is after you: from a modern-day Jeanne d’Arc to policymakers and regulators. Heavy artillery is on its way, too, as intelligent machines using layered neural networks combined with high computing power and large datasets join the good fight. Hopefully, your (not-that-innocent) bragging and cheating will never be the same again.

    Every battle needs a hero(ine) to spearhead the movement, and anti-greenwashing possibly just found one in Desiree Fixler. Fame might not have been her primary motivation, yet the former head of sustainability at DWS is quickly becoming a legend. She seems comfortable with her new role, too, as she proclaims without a trace of false modesty in an interview for Der Spiegel this week: “Maybe the case is a turning point for the industry to tone down the rhetoric and act. Really act. Maybe something good will come of it.” What makes her message even more appealing is that she sounds surprisingly down-to-earth and reasonable in her expectations. “ESG is complex and still in its infancy, so it is understandable if fund managers lag behind,” she says. “But it is quite another thing to deliberately provide false information.”

    Stating the noble reasons for taking up the public fight with her former employer, it is evident that working with ESG for years has taught Fixler how to aim with precision for maximum impact. “If executives realize that greenwashing or ESG misstatements may be securities fraud and harsh penalties could follow, they will think twice about doing it.”

    Regulators on both sides of the Atlantic are paying attention. Suddenly DWS has become the scene of a crime-like investigation. Other financial greenwashers must feel the imminent threat as well, nervously observing the speed with which financial authorities are closing in on them, boosting up their ESG units with sustainability experts and lawyers. It is high time to pour over those regulatory guidelines, including the fine print, in earnest. Reading between the lines might be a good idea, too, before formulating any bombastic slogans to adorn websites and product brochures.

    What could turn out to be even scarier for greenwashers is the rapid advance of AI. At a recent webinar hosted by NN Investment Partners[1], Professor Markus Leippold from the University of Zurich introduced the audience to a new warrior in the fight against greenwashing, ClimateBert. Reading further about the cute little moniker in a paper co-authored by Leippold[2], it is easy to get enthusiastic about the potential outcome. The deep neural language model has been trained well on thousands of sentences related to climate-risk disclosures. “ClimateBert comes to the sobering conclusion that the firms’ TCFD support is mostly cheap talk and that firms cherry-pick to report primarily non-material climate risk information,” the scientists conclude.

    In the interest of full disclosure, The Snap has been previously known to, half-jokingly, condone the phenomenon of greenwashing, at least in its well-intended ‘fake-it-till-you-make-it’ form. Well, it would appear that it is time to make it.

    [1] By the way, if you happened to miss NNIP’s  Summer Course on the future of responsible investing, you still have a chance to listen to some fascinating scientists presenting their latest findings. The recorded lectures are easily accessible and highly recommended.

    [2] Bingler, Julia Anna and Kraus, Mathias and Leippold, Markus, Cheap Talk and Cherry-Picking: What ClimateBert has to say on Corporate Climate Risk Disclosures (March 2, 2021).

     

     

    Image by Gerd Altmann from Pixabay

    Julia Axelsson
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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