New CSSB to Combat The Perfect ESG-Investing Storm

New CSSB to Combat The Perfect ESG-Investing Storm

The new Canadian Sustainability Standards Board (CSSB) was just announced this week to help combat the use of greenwashing in the ESG investment sector, alongside a coordinated effort worldwide with the International Sustainability Standards Board (ISSB). This announcement couldn’t come at a better time as enthusiastic attitudes toward ESG are turning to skepticism following claims that ESG investing is a scam. On May 18th Elon Musk ruffled feathers with the Tweet below after Tesla was removed from the S&P 500 …yet companies like Exxon Mobile were highly rated: 

However, Elon isn’t the only one noticing an increase in greenwashing around ESG. Forbes also reported on two major incidents in May:

“On the 31st, German police raided Deutsche Bank and its asset management group DWS over accusations that they fudged their Environmental, Social and Governance (ESG) credentials…the SEC fined BNY Mellon $1.5 million for ‘…Misstatements and Omissions Concerning ESG Considerations.’ “

On top of declining confidence in the sector, the entire investment industry is digging in its heels after ongoing coverage about the stock market crashing this week and the largest US interest rate increase since 1994. Creating new standards around ESG investing couldn’t come at a better time to help encourage investors to stay active in what has been a thriving market sector. Responsible investing accounted for 62% of Canada’s total assets under management in 2019 and Bloomberg estimated “$2.5 trillion of debt advertised as green or ESG-oriented” could be issued in just 2022 alone. 

Standards Versus Circumstances

The new standards will address the need for more transparency and accountability, while adopting a global baseline for metrics that can measure environmental and social companies in a uniform way. Part of the CSSB’s role will be to review standards created by the ISSB to determine if they’re appropriate for Canada and if so, to set out guidance for how to adopt them. Metrics include boardroom gender diversity, climate change, water scarcity, and more.

Getting these standards right will be important to regain investor confidence in the sector. It is the lack of regulation that has allowed so much greenwashing to exist in the first place. “Neither regulators nor analysts nor the companies themselves have a standard for scoring ESG. In the absence of standards, swindlers are free to profit from the label,” says Wal van Lierop, President and CEO of Chrysalix Venture Capital, an award-winning VC firm focused on innovation, sustainability and cleantech. Consider how different it would be to measure the impact plant-based meat is having versus a company that has implemented measures to mitigate flooding, or even one working for diversity and inclusion. As the Canadian RegTech Association pointed out, ESG is not just about the E. 

Regulators Paving the Road Ahead

Indeed, it’s extremely difficult to regulate the vast number of activities that could and should be considered under the ESG label, while weeding out “greenwashers.” It will be interesting to watch on a global and national scale how these sustainability boards will work together and navigate accountability for the E, the S and the G under one umbrella.

The outcomes of this important regulatory framework will shape generations of future ESG investments, while immediately helping to boost trust and confidence in the sector. The Accounting Standards Oversight Council and the Auditing and Assurance Standards Oversight Council are forming the new CSSB that is scheduled to be operational by April 1, 2023… April Fools Day.

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Featured Image: Unsplash/Johannes Plenio

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