Dive Brief:

• Sustainability-related financing has tripled since 2015, with a tenfold increase in flows to environmental, social and governance (ESG) funds, an eight-fold increase in sustainable debt issuance and a doubling in the value of ESG-related deals by private equity and venture capital firms, according to a report by Generation Investment Management.

• Yet “failure to tackle greenwash poses a serious risk to the sustainable transition,” Generation said, noting “growing unease at the low quality of some net zero commitments, the gap between goals and actions and the absence of guardrails for those utilizing natural solutions, including as offsets.”

• “The time for celebrating vague, distant goals on net zero or ‘nature positive’ has long passed,” Generation said, adding “investors need clarity over how companies will turn goals to actions in the next few years.”

Dive Insight:

U.S. regulators this year have stepped up efforts to ensure companies are responding to climate risks and providing adequate disclosure on carbon emissions reductions.

The Securities and Exchange Commission (SEC) is reviewing the agency’s regulation of climate disclosures with an eye on promoting “consistent, comparable and reliable information.” SEC Chair Gary Gensler has said he aims to ensure such reports include details on metrics such as greenhouse gas emissions.

Treasury Secretary Janet Yellen in April backed the SEC’s push for disclosure and said the Treasury will consider ways to promote the Biden administration's greenhouse gas reduction goals through taxation, international cooperation and economic policy.

Also, the Federal Reserve in January announced the creation of a supervision climate committee to “develop an appropriate program to ensure the resilience of supervised firms to climate-related financial risks.”

Some companies are not living up to their public commitments to reduce carbon emissions, Generation Chairman Al Gore said in a statement.

“There remains a yawning gap between long-term climate goals and near-term action plans,” Gore said. “Large emitters must increase their climate ambitions with renewed credibility and urgency.”

Overstating sustainability practices, or greenwashing, is rampant among on-line retailers, according to the European Commission. The commission in a November 2020 study found that 42% of 344 on-line stores and traders may have made claims on sustainability that were false, exaggerated or deceptive.

“Consumers are faced with confusing and often misleading claims about sustainability benefits,” Generation said.

Many carbon offset programs may also overstate their benefits in combating climate change, Generation said.

A study of California’s program determined that “its climate-equivalence claims fall far short on the basis of directly observable evidence.”

Researchers said that 29.4% of the credits that they reviewed were excessive, with a total value of $410 million.

“The quality of carbon offset markets remains a concern, even in regions with strong governance,” Generation said.

Investors in particular should beware of potential deception, according to regulators.

The SEC said in a “risk alert” in April that some investment advisers, investment companies and private funds may have misguided investors about their approach to investing based on environmental, social and governance (ESG) principles.

The SEC found “some instances of potentially misleading statements regarding ESG investing processes and representations regarding the adherence to global ESG frameworks,” according to a review by the Division of Examinations.