Canadian ESG-related investment assets surge to $3.2 trillion: report

Greenhushing — the withholding of sustainability milestones and other environmental investment goals by institutional investors and investee companies — is a trend that could already be on the way out, says Mary Jane McQuillen, head of environmental, social and governance investing at ClearBridge Investments, a subsidiary of Franklin Templeton Investments.

The effects of greenhushing are expected to be temporary due to a changing investment landscape for ESG assets and new rules from financial regulators looking to enhance climate-related disclosures. “I don’t know how long [greenhushing] will last, it feels like more of a reaction as opposed to a long-term framework that’s meant to support a better good for investors.”

A 2023 report by KPMG noted while greenhushing isn’t overtly dishonest, it limits the quality and amount of publicly available information, which is crucial for the allocation decision of institutional investors. “Without this transparency, it becomes challenging to analyze corporate climate targets, share best practices on decarbonization and calculate Scope 3 emissions, which by definition require widespread reporting.”

Read: Majority of Canadian institutional investors consider climate change a top ESG focus: survey

In March, the U.S. Securities and Exchange Commission finalized a ruling on climate-related disclosures for investors, making it mandatory for public companies to disclose certain climate-related information in their annual reports and registration statements.

“The rules will provide investors with consistent, comparable and decision-useful information and issuers with clear reporting requirements,” said Gary Gensler, chair at the SEC, in a press release. “Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today.

The new U.S. disclosures will also ask for climate-related targets or goals and the impact of identified climate-related risks on a business. The rules include a need to disclose emissions categorized as Scope 1 and Scope 2, which the U.S. Environmental Protection Agency defines as direct greenhouse emissions from a source controlled or owned by an organization and indirect greenhouse emissions related to the purchase of electricity, steam, heat or cooling, respectively.

Read: How will growing anti-ESG sentiment in the U.S. impact Canadian institutional investors?

Greenhushing may have also resulted from recent underperformance by ESG assets, says McQuillen. “If you’re looking short term versus the longer term . . . . then you might say, ‘OK, I’m going to have a negative perception on ESG for performance.”

The pushback against ESG metrics, particularly in the U.S., could potentially lead to more clarity in disclosure efforts, says Hugh O’Reilly, president and chief executive officer at Acuity Global Inc. “I think these challenges . . . the best way to view them is it’s a good thing. Because it’s going to force practitioners to do a better job explaining what they’re doing, why they’re doing it, why it matters and how it’s in the interest of beneficiaries.”

Similarly, he notes the act of greenhushing won’t change the perception of ESG terminologies and metrics as factors that can potentially limit investments. “We have a challenge and it’s incumbent upon people who are engaged in these practices to demonstrate [ESG’s] value [and] review their policies . . . to make sure they’re looking at things that are measurable.”

Read: Head to Head: Is it time to change the terminology around ESG?