"Invest in our Planet." What does this year's Earth Day theme mean?

Money makes the world goes round, it’s a hard pill to swallow but this is how our economy works. Money gets things done, and so we need to do everything we can to be sure the money getting things done is doing what it should — making an impact, making a change and not doing more damage.

At Impaakt we consider this the single most important piece of the puzzle when it comes to solving the climate dilemma. Money and, more importantly, how we invest it is something that we all need more education on. It should share the spotlight with other big climate change solving themes like the clean energy transition — the clean money transition should be more prominent than it is, so why are we falling short?

One viewpoint is some of this valuable change is happening and can be seen through the increased accountability of businesses and government on their role in the climate crisis. This is driven by investors, regulators, media, employees, customers, communities, and other stakeholders that examine how such powerful bodies behave when it comes to environmental, social and governance factors.

Exhibit A. Big banks and their involvement in fossil fuel funding (the single largest contributor to GHG emissions and global warming). The media and other stakeholders have been calling out big players who continue investing in these damaging practices. Some banks make promises to move away from fossil fuel funding (pledges include being net-zero by 2050 on their investments), but the latest report from ‘Banking on Climate Chaos.org’ paints a different picture:

It seems as though calls for global action to reign in these sorts of investments have fallen on dull ears. While some banks are scaling back, others are ramping up proving increased accountably is not doing the trick — at least not fast enough.

On their website, Earth Day suggests that companies who have robust Environment Social Governance (ESG) standards also enjoy better profitability, stronger financials, happier employees, and more resilient stock performance. And this is precisely because ESG is built to measure these factors, thus it is unsurprising that these measures do not translate into impact on the planet and society. 

Furthermore, these ESG standards have additional limitations and, while there has been good progress in data disclosure standards (many rulings now dictate transparency requirements on climate-related factors like emissions, see CDP.net for more info on that), the data outputs are often focused on how the climate will impact the company, rather than the other way around.

Secondly, ESG data is built around the data that comes from the companies themselves (which can also be problematic and out of date by the time it reaches investors). Many of the traditional approaches to ESG focus on a company's practices and promises which allows them to make claims or goals that give them positive scores without any follow-through.

By allowing a company to use ESG as a tool to demonstrate how sustainable they are (hello greenwashing), sadly this approach too often ignores the core data, the end game, and the actual impact of said company. In fact, the outputs are more focused on the risks and opportunities that the climate poses to the company. This becomes more troublesome when we know that this data and these ESG scores are used by financial institutes, asset managers, pension funds, etc. to make decisions about who to invest in. Simply put, ESG ratings indicate to these institutes how well a company is managing its risks versus its peers and not what impact they actually have on the world, and that is a big problem.

As the pressure of the climate crisis continues to build, investing in companies that impact the world in a positive way will run parallel with investing in problem-solving solutions to the climate crisis. That is why this year’s Earth Day theme ‘Invest in our Planet’ hits so strongly with us. Impaakt provides the financial industry with data that ESG lacks. We only focus on impact which means investors get a clearer picture of whether a company is truly sustainable and considerate of how it impacts the planet and the people on it. By doing so we hope to ensure that the financial industry becomes a force for good, one that solves problems rather than creates them.

Let’s hope the adoption of the new era of data is taken seriously enough that we don’t end up in ground-hog Earth Day again next year, where little progress has been made.

If you want to learn more about our mission head here or learn how Impaakt works. Plus if you are an investor looking for impact data, you should head to our services page to learn more about what we offer our clients.

You can also get more involved in Earth Day by looking at ways to Invest in our Planet.

The Impaakt Team