Anne H. Reilly, in
Encyclopedia of the World's Biomes, 2020 With the prevalence of self-reported data, sustainability social media communication is especially prone to greenwashing:
misrepresenting actual sustainability practices or activities to promote a false image of responsibility (Saxton et al., 2019). Prior research has noted that organizations are reluctant to disclose sustainability ‘bad news,’ leading to overly positive messaging (Reilly and Hynan, 2014). According to Herzig and Schaltegger, communication about sustainability is often characterized by information asymmetry in which the audience cannot easily access firm
sustainability data, leading to low credibility (2011, p. 157). Thus, organizations may be able to portray themselves as sustainability stewards because stakeholders must rely on the companies’ own messaging. One greenwashing illustration is Procter and Gamble’s announcement of its 2018 introduction of Pampers Pure Diapers: For parents searching for diaper and wipe options in the “natural” category who don’t want to sacrifice
performance, the new Pampers Pure Collection offers another choice. It is the first-ever diaper and wipe collection made with premium cotton and other thoughtfully selected materials, stylish prints, and the Pampers protection. (See Procter and Gamble News Releases: https://news.pg.com/news_releases/all/all/all Thursday, February 22, 2018 11:34 am EST). Calling disposable diapers and wipes ‘pure’ and ‘natural’ ignores that these products require energy to produce, are not recyclable and generally end up in landfills. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780124095489119724 Shades of greenHelen S.Y. Chen, T.C.E. Cheng, in Sustainable Resource Management, 2021 6 ImplicationsPractitioners may use the designed solution to improve consistency and transparency in sustainability reporting and ESG ratings. Here are two examples of using the design as a reference framework in archival analysis for this purpose. One application is to use HOPF and the EPIs to guide the collection and compilation of longitudinal quantitative data in corporate sustainability reports and assess the potential data gaps and inconsistencies. If identified, text analysis can then be performed to seek justifications and explanations from the supplementary contextual information (e.g., outsourcing of manufacturing or merge and acquisitions). Inconsistencies in reported data not justified or explained in the contexts are potential red flags of greenwashing, and recommendations can be made accordingly to rectify such practices. Another application of the design is for cross-sectional check of consistencies among different data sources. The quantitative data collected from corporate sustainability reports can be processed, rather crudely at this stage, into an organization level score to compare with ESG ratings by different advisories. There are likely to be significant discrepancies—which do not necessarily discredit any of the ESG ratings, but the results can identify and expose the areas of differences for reconciliation and improvement. Researchers on the environmental–economic interface can refer to HOPF for the operationalization EP measures. The generic set of EPIs can be used to guide data collection directly from archival documents instead of from secondary databases—which might or might not be compiled with verifiable data sources through transparent methodologies. Together, they can enhance the validity of GC research by grounding EP measurement on material flows with physical units instead of using proxy measures and perceptual data collected from surveys. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780128243428000171 EnvironmentS. Eden, in International Encyclopedia of Human Geography, 2009 Corporate Environmentalism and Environmental CommodificationBusiness is another key actor in environmental thinking and management, traditionally associated with the first way of thinking about the environment in seeing the environment as raw material for exploitation and profit. But in the last couple of decades, many companies have expressed concern for environmental protection, in line with the second way of thinking, under pressure from the public, government, and the environmental movement. Some would argue that this move has been superficial rather than substantial, a case of ‘greenwashing’ for public relations, rather than important operational change. We can trace this move back to the 1970s and the ‘limits to growth’ argument (above) about rising pollution because of economic growth, which cast business as the villain of environmental damage. This caused a backlash from business groups and other commentators against such ‘doom-mongering’, but increasing environmental regulation in the 1970s and 1980s and environmental campaigning that targeted big business, such as early campaigns against nonreturnable Schweppes bottles by Friends of the Earth, added pressure to respond. But it was only in the 1980s that business really grasped the green nettle, because of more global attention and science about environmental problems like ozone depletion, climate change, and deforestation. Moreover, this period saw business increasingly repositioned as part of the solution, rather than solely part of the problem. For example, the UN-sponsored Brundtland Commission (see above) on sustainable development said that industrial growth was needed, but that it should change its form to be less resource intensive and more environmentally and socially beneficial. There was then a general change, with big corporations in particular seeking green credentials and a role as the environmental solution or savior in the manner advocated by the Brundtland Commission, rather than the villain. In particular, companies set out to implement ‘good housekeeping’, which meant improving their own processes to reduce pollution (and save money), and also corporate social responsibility (CSR), which meant paying attention to their environmental and social impacts as well as developing ethical policies and philanthropic activities. For some industries this was seen as a way to reestablish their social legitimacy and ‘license to operate’ by overturning a history of bad press about incidents like benzene in Perrier water, Nike using sweatshops, Shell’s disposal of the Brent Spar platform, and the Exxon Valdez oil spill in Alaska. These attempts have been widely criticized by human geographers and others, as ‘greenwash’, public relations exercises and simplistic technological fixes rather than true changes in the relationship between business and the environment. Marxist geographers have used political economy approaches to analyze corporate environmentalism and its commodification of nature, seeing the ‘greening of business’ as a response to a crisis within capitalism, rather than a response to environmental damage. This argues that business has not moved away from the first way of thinking introduced at the beginning of this article: that environmental resources exist to be exploited, particularly in order to accumulate wealth through notions of neoliberalism, free trade, and market-led development. Further, recent interest as part of the ‘ethical turn’ in cultural and economic geography has considered fair trade, ethical standards, alternative food networks, and environmental certification processes as examples of changing business practices. Although still often critical of market solutions and of big corporations, such analyses are attempting to see how far environmental governance can involve business people, as well as householders and NGOs, in pursuit of more sustainable technologies and practices. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780080449104002686 Nature-based solutions: Action for the 21st centuryJan Cassin, ... Sophie Trémolet, in Nature-based Solutions and Water Security, 2021 Avoiding the “sustainability” and “greenwashing” trapsNBS have definitely become a trend over the past couple of years. There is a risk that the concept will be applied vaguely, without thoughtful planning. If actions are labeled as NBS without rigorous definitions and criteria, then there is a risk of undermining the credibility of the concept and of the NBS that have already been successfully implemented. Clearly defining what is credible and effective on the ground is essential for governments, NGOs, businesses, and other potential actors to be able to engage with NBS. The NBS community needs to ensure that claims about NBS are grounded in specifics and supported by sound science and local and expert knowledge. Clear definitions of what can be considered NBS and why, rigorous identification and definition of problems and how NBS can effectively address them, and effective monitoring and evaluation of NBS outcomes are ways the NBS community can build a larger evidence base and greater confidence in these approaches over time. The NBS community is a growing and diverse group. A connected community of practice can help provide more clarity and consistency around NBS as a means to avoid greenwashing traps. Some key questions remain largely undefined: What is the most appropriate role for NBS in water governance? What is the collective opinion emerging on what “good” or “best practice” NBS looks like and how it performs? How can we make sure we refine best practices over time as we gain experience with NBS, and, in particular, allow for place-based, local definitions of “good” NBS without diluting the overall meaning and relevance? A strong NBS community of practice can protect the relevance and meaning of NBS through robust dialogue and consensus-building, while demonstrating what strong and just NBS for water and climate security look like. The NBS community is making progress in this area. The IUCN Global NBS Standard (https://www.iucn.org/theme/nature-based-solutions/resources/iucn-global-standard-nbs), Conservation International’s Practical Guide to Implementing Green-Gray Infrastructure (https://www.conservation.org/docs/default-source/publication-pdfs/a-practical-guide-to-implementing-green-gray-infrastructure_aug2019.pdf?Status=Master&sfvrsn=7c25b40b_2), and more locally driven efforts, such as Peru’s Guidance on Effective, Equitable, and Sustainable Natural Infrastructure (https://www.forest-trends.org/wp-content/uploads/2020/12/Guia-EES-1.pdf; in Spanish), are three examples. A number of typologies of NBS are also helping more explicitly define what is or is not an NBS (e.g., The Nature Conservancy https://www.nature.org/content/dam/tnc/nature/en/documents/TNC_ResilientEuropeanCities_NBSWater.pdf), and new platforms and initiatives connecting practitioners, compiling evidence, and providing resources on NBS continue to emerge at a rapid pace (e.g., the NBS Initiative, https://www.naturebasedsolutionsinitiative.org/; the EU’s thinknature platform, https://www.think-nature.eu/). Finally, NBS themselves are vulnerable to changing conditions and climate shocks. Development and land use changes in the larger landscape in which NBS are embedded, changes in the hydrological cycle due to climate change, and biodiversity loss can affect the functionality and viability of individual NBS. To avoid risks to the viability of NBS approaches, NBS proponents and practitioners must consider and be sensitive to these potential changes in biodiversity, water, and climate. Just as hydrologists have recognized that the past is no longer a sound guide to how freshwater systems will perform in the future, NBS practitioners can no longer use past or current ecological conditions as solid guides for future NBS performance. We must plan for flexibility, recognizing that as climate change deepens, ecosystems and the planned performance of NBS may change in novel ways. For NBS to be flexible and durable, their planning and design must consider and incorporate the characteristics that enhance ecosystem resilience, such as connectivity, heterogeneity, and diversity (Grantham et al., 2019; Matthews et al., 2019; Poff, 2018). Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780128198711000105 Assessment of mechanisms and instruments of climate financeVaishali Kapoor, Medha Malviya, in Environmental Sustainability and Economy, 2021 4.1 Instruments for raising fundsThe instruments have to be used to raise funds for climate finance projects. Following instruments have been used: 4.1.1 Green bondsThe word “Green” is indicative of Green Finance, of which climate finance is a subset. Green finance is a broader term which covers climate change projects and other projects to achieve sustainability and environmental goals. The climate change projects aim solely at GHG emissions and climate mitigation aspects. The green bonds are like standard bonds in terms of fixed (sometimes, market linked) income stream for the holder or buyer, risks borne, risk return profile, credit ratings, and also, the seller promises to pay back after, usually longer, maturity. Green bonds are different from regular bonds only in respect of usage of funds; funds from green bonds are to be invested in projects that aim to address climate change or other environmental concerns. The scaling-up for “Green bonds” is high while its reliability is low (Torvanger et al., 2016). The green bond market started in 2007 with the issuance by the World Bank has grown since 2014, with issuance amounting to $37 billion in 2014 to $257.5 billion in 2019 (CBI, 2019). The issuers include large corporations like Vasakronan, SNCF, ICBC, Apple; government or government agency-led nations like France, Australia, United States, Mexico, etc.; and municipalities and city-level agencies like Massachusetts, City of Johannesburg, etc. (WWF, 2018; CBI, 2017). The GCLF report 2019 reported that “corporations and municipal governments spent an average of $3 billion annually on projects outside renewable energy, using the proceeds from green bond issuances.” There are as many as 22 stock exchanges worldwide facilitating green bond issuance until June 2020 (CBI, 2019). They are deemed to be fit for financing climate change projects, as these projects require high upfront capital that can be paid back after a longer horizon (WWF, 2018), and a study on 121 European Bonds for the period 2013–17 found that green bonds are more convenient than their nongreen counterparts (Gianfrate and Peri, 2019). CBI (2017) report indicated that green bonds are heavily oversubscribed, bond prices are tight, and on average, perform better than even standard bonds by the same issuer (Partridge and Medda, 2020). The studies have also found that there is a premium in the issuance of green bonds issued by municipal agencies (Baker et al., 2018) and a green premium termed as “greenium” of 5 basis points in 2018 is also found in the secondary markets of green bonds (Partridge and Medda, 2020). The only thing is tracking climate finance through issuance could be misleading, as usually the proceeds flow to refinancing or in other words, to already existing projects that may create the problem of double-counting (Buchner et al., 2019). There are challenges in making it successful. These bond markets should be made accessible to smaller projects to benefit from green premiums, reducing their cost of capital; the government should create and endorse green bond labels aligned with long-term decarbonization pathways (Shishlov et al., 2016). Also, governments need to look at the regulatory framework, legitimacy, and transparency of bonds, and take necessary actions pertaining to governance so as to avoid greenwashing (Park, 2018). All the advantages mentioned above make the green bond a potent instrument for raising funds for climate finance (Gerard and Wilson, 2009; Gianfrate and Peri, 2019). 4.1.2 Climate policy performance bondsThe climate policy performance bonds, as the name suggests, are linked to the performance in terms of carbon emissions reduction as per the commitment or else increase in production of renewable sources of energy. The government issuing it promises to pay less than the market rate of interest if commitments are met, and if the government is unable to meet its commitment, then interest paid is greater than the market rate. It is effective as governments face pressure to achieve commitments; as not achieving them is costlier now, and the additional burden is equivalent to the difference between the two interest rates announced. Thus, CPPBs help translating mere promises into action (Michaelowa et al., 2016). The issues with green bonds have been overcome with the introduction of climate policy performance bonds. These require less transparency, less accountability, and there is lesser risk of green-washing, as these have been linked to observable outcomes (CO2 levels and production of renewable sources of energy). While all other institutions benefit from mitigation and decarbonized economy, there is an additional advantage for insurance companies as they can use CPPBs to hedge funds (Michaelowa et al., 2016). 4.1.3 Debt for climate swapsUpon witnessing Japan's environmental policies that led Japanese private companies to contribute to the destruction of Southeast Asia's forests, in 1984, WWF developed a way to use the debt of least developed countries to finance conservation activities known as debt for nature swaps (Asiedu-Akrofi, 1991). The investor—bilateral or multilateral donors, private investors, or NGOs—may write off the debt of the highly indebted country in return for ecological bonds or local currency and raise funds in environmental projects in the recipient country (WWF, 2018). The investors do it at a profit margin. Similarly, debts for climate finance swaps have been devised with the only difference that funds are used for adaptation and mitigation projects. It is especially advantageous for the countries with huge debts, small islands, and least developed countries since these entail no extra financial cost to the recipient countries (Meirovich et al., 2013; Warland and Michaelowa, 2015). Though debt for climate swaps may seem a viable option even for poverty reduction in the least developed countries, there are specific issues with debt for climate swaps. Firstly, it is highly likely that the lower the governance quality in a nation, the greater will be debt swaps and vice-versa. Secondly, it may crowd out local funds for activities with climate change attributes. Thirdly, this might create the problem of moral hazard that they might incur debts recklessly, as they might find swap a cheaper and easier way to get rid of future debts (Michaelowa et al., 2016) and, the scaling-up effect for debt for climate swaps is predicted to not so high (Torvanger et al., 2016). The commonwealth proposes that donors should write off 100% of small state's debt stock held at various multilateral institutions contingent on the agreement by a debtor to make annual payments to a trust fund equal to existing debt in local currency, while at the same time multilateral institutions ensure that donor participates in proportion to climate finance pledges (Mitchell, 2015). 4.1.4 Debt for Climate Policy performance swapsThe idea of “Debt for Climate Policy performance swaps” was pioneered by Michaelowa et al. (2016) in their report, where they combined the two instruments, viz., “Debt for Climate swaps” and “climate policy performance bonds.” Each has its advantages. The former assures strict governance, and the latter relieves the least developed countries of their debt burden. Thus, combining the two instruments yields yet greater positive outcomes in the direction of climate finance. The donor here could be the country that holds government bonds of the recipient country. It could work in two ways: the donor country reduces interest rate on the debt held or reduces the total debt burden contingent on the fact that the least developed country achieves its commitment of GHG mitigation target and otherwise not. A third party independent of both of countries which entered into the swap could audit the performance (Michaelowa et al., 2016). 4.1.5 Structured fundsThe structured funds are tranches of different projects pooled into one, tailored and customized to suit the appetite of risk and return of specific investors. Regarding climate finance, pooling helps diversification and usually, public donors pick tranche with greatest risk (Lindenberg, 2014). The structured funds are better suited than green bonds for the smaller individual projects and smaller institutional investors. According to Lindenberg (2014), structured funds have the following advantages:
Besides all advantages mentioned, there are certain problems that this tailored instrument cannot be replicated elsewhere, so it entails substantial transaction costs. The issuer is generally commercial banks and public donors take high risk funds without any control over the decisions, creating risk of principal-agent. Since structured funds may crowdin funds from local partner banks, leverage ratio is estimated to be high (Lindenberg, 2014). Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B978012822188400004X Financing the green economyBurcu Ünüvar, in Handbook of Green Economics, 2019 Green financial instrumentsGreen financial products have been in the market for long. The Green Finance Initiative notes that emission trading was first considered in the 1960s. Yet, creation of the green finance sector as we understand it today is much younger. Many people mark the issuance of first green bond in 2007 as the beginning of the conventional green finance sector. Green finance is mainly associated with the green bonds at a glance, but there are many other products14: •Green loans •Carbon tilted indices •Municipal green project financing •Green crowdfunding platform •Green investment banks •Renewable yieldcos •Catastrophe bonds •Green insurance •Green funds Green bondsThe World Bank describes green bond as “plain vanilla fixed income product that offers investors the opportunity to participate in the financing of green projects that help mitigate climate change and help countries adapt to the effects of climate change.”15 The Climate Bonds Initiative (CBI), an international investor-focused not-for-profit organization, marks 2007 as the year green bond market kicks off with the AAA-rated issuance of the European Investment Bank and the World Bank. But wider action in the green bond market started in 2013. The first municipal green bond issue also came in 2013 to be followed by the first corporate green bond issue that came in 2014. There are different types of green bonds, depending on the use of proceeds or project earmarkings. A green bond might differ in the way it is earmarked for a project or pool of projects, thus having different names such “Use of proceeds bonds,” “Project bonds,” or “revenue bonds”. Some advantages of green bonds• For issuer: •It can attract capital for low-carbon assets •Signaling green/environmental/sustainable commitment of the issuer •Potential access to wider investor base •For investors: •Transparent reporting •Hedge against environmental, carbon-related risks •Improves the ESG profile of the investor Headline figures from the green bond marketAccording to the “State of the Market” report prepared by the CBI (covering 2005-1H2018): •There are 498 green bond issuers with USD 389 billion of outstanding bond value. •Labeled green bonds with energy allocation represent a third of the outstanding sector amount (USD 90 billion). •Green bonds represent 17% of outstanding issuance in the water theme. As the green bonds become more popular, exchange representation has also developed. Table 10.1 exhibits some stock exchanges that have green bond segments, supporting the liquidity of the instrument while also promoting the green finance. Table 10.1. Green bond segments on some stock exchanges.
Source: Author's Own Search from the Original Web Sources: https://www.oslobors.no/ob_eng/Oslo-Boers/Listing/Interest-bearing-instruments/Green-bonds, https://www.lseg.com/sustainable, https://business.nasdaq.com/list/listing-options/European-Markets/nordic-fixed-income/sustainable-bonds, https://www.bourse.lu/luxse, https://www.jse.co.za/articles/Pages/JSE-launches-Green-Bond-segment-to-fund-low-carbon-projects.aspx, https://www.jpx.co.jp/english/equities/products/tpbm/green-and-social-bonds/index.html. Green bonds principlesIn 2014, the International Capital Market Association (ICMA) launched voluntary process guidelines for issuing green bonds called Green Bonds Principles (GBP). Principles aim at “promoting the integrity in the Green Bond market through guidelines that recommend transparency, disclosure, and reporting” and being updated with intervals.16 GBP has four core components: 1.Use of proceeds: Since the proceeds from the green bonds will exclusively finance or refinance eligible green projects, this principle lies in the heart of the list. Accordingly, all designated projects should provide clear environmental benefits that can be assessed and quantified. There are several broad categories recognized by the principles: climate change mitigation, climate change adaptation, natural resource conservation, biodiversity conservation, pollution prevention and control, etc. 2.Process for project evaluation and selection: GBP asks the issuer to clearly communicate to investors: a.The environmental sustainability objectives b.The process evidencing how the particular project fits eligibility c.The related eligibility criteria High level of transparency is encouraged to be supplemented by an external review. 3.Management of proceeds: The proceeds of the green bond or an equal amount should be credited to an account that can be tracked. Until the bond matures, the balance of the account should be adjusted. Meanwhile, it is highly recommended to have an auditor or a third party opinion throughout this process. 4.Reporting: Issuers are encouraged to submit regular, readily available, transparent reporting showing their methodology, assumptions, and key data. These volunteer guidelines also aim at preventing “greenwashing,” in which the seller either promises unrealistically high environmental benefits or covers the environmental damage. Yet there is still a long way to walk in terms of monitoring and verification of data and reporting. Green loansThe Loan Market Association (LMA) defines green loans as “any type of loan instrument made available exclusively to finance or refinance, in whole or in part, new and/or existing eligible green projects.”17 Despite showing significant discrepancy in size among countries, the use of green loans is getting popular in many different countries,18 with outstanding loan amounts varying from USD 56.8 billion in the United States and USD 13 billion in the United Kingdom to USD 1.4 billion in Italy and USD 1.3 billion in Ireland. Green loans vary also in type, some of which are as follows: 1.Green project finance: Cash flows generated by a project/portfolio of projects serve as the collateral. 2.Green syndicated loans: Lending facility will be rendered by a “group of banks.” 3.Green bilateral loans: Borrower and lender have corporate guarantee in between. Green loans principlesAt the beginning of their launch, green loans were also subject to GBP. Green Loans Principles emerged early 2018 to promote the development and integrity of the market. Green Loans Principles aims at setting a framework that can be understood easily by all market participants for clarifying the nature of green loans following four pillars: •Use of proceeds: All designated green projects linked to the loan should have clear environmental benefits, which can be assessed, and where feasible, quantified, measured, and reported by the borrower. The principle recognizes that definitions of green and green projects may vary depending on sector and geography. •Process of project evaluation and selection: The environmental sustainability objectives, how the project fits the eligibility, while documenting exclusion criteria, etc. •Management of proceeds: Proceeds should be credited to a dedicated account or otherwise tracked by the borrower in an appropriate manner, maintaining transparency and promoting the integrity of the product. •Reporting: A transparent reporting that includes a list of the green projects to which the green loan proceeds are to be allocated should be kept ready by the borrower. Green sukukA sukuk is an Islamic bond that can generate returns to investors complying with the Sharia law. Accordingly, sukuk supplies a certificate, with proceeds used to purchase an asset that is mutually owned by buyer and seller. Proceeds from green sukuk must only be devoted to climate-friendly investments. It is open both for conventional and green investors, and the World Bank sees it “a big step toward bridging the gap between conventional financing and Islamic financing.”19 Catastrophe bonds (cat bonds)Catastrophe bonds are alternative to traditional insurance and reinsurance products.20 Their coupon and principal payments depend on the nonoccurrence of a predefined catastrophic event, the performance of an insurance portfolio, or the value of an index of natural catastrophe risks.21 Climate bondsClimate bonds are used to finance/refinance projects that address climate risks. The difference between “green bonds” and “climate bonds” takes significant attention. Climate bonds are represented by a broader set of bonds, whose proceeds are devoted to climate-related subjects but not necessarily labeled as green. Indeed, according to the figures of CBI, climate-aligned bond universe reached USD 1.45 trillion of which USD 389 billion is labeled green bonds. While tracking the issuance of climate bonds, CBI follows certain alignment criteria according to its taxonomy. •Fully aligned climate issuers: Bond issuers that derive more than 95% of revenues from climate-aligned assets and green business lines. •Strongly aligned climate issuers: Bond issuers where 75%–95% of revenues are derived from climate-aligned assets and green business lines (Graph 10.1).  Graph 10.1. The climate-aligned bond universe, 1H2018, USD billion. Source: Climate Bonds Initiative.Do the climate risks affect the cost of capital?Developing countries usually run a high borrowing need on the back of young population, limited savings, population growth, and urbanization that fuel their need for investment. The dilemma for the developing countries stands right at this point where the investment need is high but so are the pressures over the cost of financing. On a related front, in its World Economic Outlook Report dating October 2017, the International Monetary Fund-World Bank (IMF-WB) noted that “low-income developing countries and small states, respectively, are 5 and 200 times more likely to be hit by a weather-related natural disaster than the rest of the world.” Meanwhile, the loss due to climate-related disasters have a bigger portion in the gross domestic product of the low-income countries. While the usually high borrowing cost of the low- and low- to middle-income countries is no surprise, studies showing the relationship between climate vulnerability and cost of capital are limited. However, considering the fiscal aspect of the climate-related risks, it should be most unusual to think that economic losses will not be translated into financial losses. A report prepared by the Imperial College Business School and SOAS University of London notes the relationship between physical climate risks and country-level financial indicators.22 Accordingly, weather shocks and/or climate trends have an impact on rating agencies’ decision and on sovereign debt yields. Yet, there is a transmission mechanism in between going through economic and external indicators as well as fiscal and monetary indicators. Higher insurance premiums, loss of tax revenues, reduced economic output, stranded assets, social conflict, and trade imbalances are noted among these indicators. In case of negative weather shocks or adverse climate trends, insurance premiums will be higher and/or high tax losses will come on to the table. Economic output will be under pressure, with trade imbalances and stranded assets, which might eventually trigger social conflict. Under such a scenario, it will be unrealistic to think that there will be no consequences on the financial markets front. Indeed, Graph 10.2 exhibits rising sovereign yields accompanied by high climate vulnerability. Graph 10.2. Climate vulnerability index and sovereign yields. Red dots show the countries classified in Vulnerable-20 [Countries included into the study: Australia, Austria, Belgium, Brazil, Bulgari, Canada, Chile, China, Croatia, S. Cyprus, Czech Republic, Denmark, Finland, France, Germany, India, Indonesia, Ireland, Israel, Italy, Japan, Lithuania, Mexico, Netherlands, New Zealand, Peru, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, the United Kingdom, the United States. Red dots are Colombia, Costa Rica, Lebanon, Philippines (V-20 members)]. Source: ND-Gain, Bloomberg, Author's Own Calculations, Data December 2018.These consequences are getting more systematic now, as rating agencies started to include climate-related risks into their sovereign grading. It is now generally accepted that climate-related risks have a share in sovereign risk profile. Credit rating agency Moody's is reported to be the first to mention the role of climate-related actions in risk profile as of 2016 to be followed by others. While the story has been gaining popularity around the sovereign rating, climate-related issues affect corporate ratings as well. To give an idea, S&P reviewed23 the impact of environmental and climate risks and opportunities on their corporate credit ratings between mid-2015 and mid-2017. Accordingly: •There were 717 ratings where environmental and climate risks were important in the analysis. •There were 106 ratings where environmental and climate risks were key to a rating action. •Of these 106 cases, 44% of the actions were in the positive direction, whereas 56% of the actions were in the negative direction. Just recently, Kling et al. (2018) assessed the impact of climate risks on sovereign borrowing costs. Authors worked with a sample of 46 countries made up of a selection of Vulnerable-20 (V-20) countries, the G-7, and a group of middle- to low-income countries not in V-20. The sample period is from 1996 to 2016. Their work links climate vulnerability and social preparedness to cost of debt, leading to their primary conclusion that “countries with higher degrees of climate vulnerability face higher sovereign borrowing costs” confirming Graph 10.2. Climate vulnerability has an upward and significant impact on sovereign yields, whereas social preparedness has a downward and significant effect on bond yields. Authors go into a more specific calculation for V20 countries. Calculating an average base cost of 12.4% for debt issues of V-20, their model predicts that climate vulnerability increases the cost of debt, on average by 117 basis points. Can green finance fight high cost of capital?Can green financing and particularly green bonds serve as panacea against high borrowing costs? The debate goes that issuers in the green bond universe can expect better pricing compared with a similar term vanilla product, explained by “green premium” or the so-called “greenium.” There is no generally accepted answer to prove the existence of greenium (if there is at all). A usual approach for the issuer is to check if the new issue premium is smaller than it has been historically or lower than expected. The CBI uses the term “greenium” to mean “green bonds that price inside their own yield curves.” Schmitt (2017) finds a green bond premium of −3.2 bps yet points at supply and demand conditions for possible change in the yield. The CBI and the International Finance Corporation released a report highlighting green bond pricing in the primary market in the first half of 2018.24 The report built yield curves for 18 of 29 green bonds and ended up noting “no evidence of greenium.” Yet findings about the secondary market performance are also interesting to note: •In the immediate secondary market, 72% of green bonds had tighter spreads after 7 days. •After 28 days, 62% of green bonds have tighter spreads. Without betting on debatable greenium, there is more or less a consensus over certain positive side effects of green finance, which should be prioritized: •The disclosure requirement that comes with the green issues usually curbs the information asymmetry. •Due to the environmental screening, green bonds are deemed to have lower exposure to environmental risks. In fact, Preclaw and Bakshi (2015) suggest that if the standards of the green bonds are improved, they can be used as hedging mechanism against environmental risks. Read full chapter URL: https://www.sciencedirect.com/science/article/pii/B9780128166352000109 Measuring the sustainability of investment funds: A critical review of methods and frameworks in sustainable financeIoana-Stefania Popescu, ... Enrico Benetto, in Journal of Cleaner Production, 2021 AbstractInvestors increasingly demand that asset managers measure the non-financial performance of their investment portfolios. Amidst concerns of greenwashing, reliable sustainability assessment methods are needed to ensure that funds are channeled towards priority sectors for the transition to a low-carbon and more inclusive economy. This critical review provides a classification, analysis and evaluation of current sustainability measurement methods for investment funds from both industry and academia. The evaluation is based on a seven-criteria matrix, developed based on gaps identified in seminal academic works and in reports from international organizations. Following the evaluation, we find that carbon footprints and exposure metrics and environmental, social and governance (ESG) ratings, while widely used, have several shortcomings, failing to capture the real-world sustainability impact of investments. We suggest that open-source, science-based and sustainability-driven assessment methods are prioritized going forward. Methods can be upgraded by incorporating measurement of positive impact creation and by adopting a life cycle perspective. Given the need to anchor sustainability assessments in the reality, the compatibility of investment products with science-based targets for sustainable development should become a central element of reporting requirements. Finally, methods incorporating a forward-looking perspective, as well as an assessment of investor's additionality are scarce and should be given priority in future research. Read full article URL: https://www.sciencedirect.com/science/article/pii/S0959652621022344 Fuzzy inference system to study the behavior of the green consumer facing the perception of greenwashingMarta Pagán Martínez, ... Rosamaria Cox Moura-Leite Padgett, in Journal of Cleaner Production, 2020 AbstractWith increased consumption of green products, organizations have promoted their products and services as green to attract an environmentally growing segment. However, 98% of the products advertised as green have some element characterized as greenwashing, affecting consumer satisfaction. Given the need to classify subjective, ambiguous and imprecise indicators as consumer satisfaction degree of green products, a computational model of measurement is proposed that incorporates fuzzy logic techniques to reduce the incidence of uncertainty in decision analysis processes, facilitating decision-making. The fuzzy rule-based system created allows the efficient handling of uncertainties and vagueness of input data, measuring the relationships between various input variables to analyze consumer behavior and perception of greenwashing. The Mamdani's Inference Method was used to make different combinations of linguistic variables and to evaluate the relationship of these variables to consumer behavior, implementing a quantitative method of decision-making regarding the behavior of the variables. As a result, it is observed that greenwashing confuses and influences the consumer in green product confidence in retail. After the application of the system, it is concluded that the results are feasible and with the use of fuzzy logic, the system can help in the analysis and determination of the consumer satisfaction degree, and can helps companies to make future forecasts about consumer behavior of green products. The proposed approach enriches the information on the attitudes of green consumers when they perceive greenwashing. Besides, the system facilitates the decision-making and actions of both consumers and companies that apply the greenwashing as a marketing strategy. Read full article URL: https://www.sciencedirect.com/science/article/pii/S0959652619307498 “Green Marketing”: An analysis of definitions, strategy steps, and tools through a systematic review of the literatureRosa Maria Dangelico, Daniele Vocalelli, in Journal of Cleaner Production, 2017 4 DiscussionFig. 4 reports a synthesis of this study's results, according to the general marketing framework proposed by Kotler and Armstrong (2014). Fig. 4. Green Marketing Strategy and the Green Marketing Mix (adapted from Kotler and Armstrong, 2014). The most internal circle represents the Green Marketing Strategy, with its four main steps: segmentation, targeting, positioning, and differentiation. For each of these steps, the most relevant results are reported. The most external circle represents the Green Marketing Mix, with its four main elements: Product, Price, Place, and Promotion. For each of these elements, the most relevant distinctive features are highlighted. Finally, the picture depicts the meaning of two very relevant concepts for defining a good Green Marketing Strategy while avoiding the risks of a misleading company behavior: Green Marketing and Greenwashing. Regarding the Green Marketing concept, reviewed studies show an evolution of the concept over time, moving away from being a tool of traditional marketing to becoming a strategy affecting the whole company, from focusing on specific environmental problems to taking into account global sustainability issues, from regarding specific products and industries to pervade the whole market. It should also be noticed that several terms have been used to refer to the integration of environmental sustainability into marketing, in some cases interchangeably, in other cases with different meanings. However, it seems not to be agreement regarding the slightly different meanings of the terms used. With regard to Greenwashing, while definitions and examples of it are reported in the reviewed literature, the concept of unintentional Greenwashing is not dealt with. Iraldo (2016) explains that unintentional Greenwashing happens when a firm is so attracted by an action that can improve its product environmental impact, that it does not correctly evaluate the overall environmental impact of the product. For example, in some cases, using recycled materials may have a higher environmental impact than using virgin raw materials when considering a life cycle perspective. Further, the recent case of Volkswagen and its deception on cars' emission clearly shows that all is not what seem, suggesting that Greenwashing is very subtle and diffused. These considerations prompt the need for new research on and theoretical framing of Greenwashing. An analysis of the reviewed studies highlights that, while many studies have focused on the different elements of the Green Marketing Mix, a more limited effort has been devoted to study the Green Marketing Strategy and its different steps. In particular, despite the huge amount of studies on segmenting the market based on the level of greenness of consumers, only few studies dealing with targeting have been identified. However, we believe that it would be very relevant for companies aiming to integrate environmental sustainability into their marketing strategy, to define their target market/s. For example, they can decide whether to address a market niche of “deep” green consumers, to differentiate their product offering so to address consumers characterized by different levels of greenness, or to try to penetrate the whole market, through mass marketing of green products. Future research should be devoted to identify and formally classify different targeting approach for a Green Marketing Strategy, highlighting which is the best option based on industry and firm characteristics. With regard to the Green Marketing Mix elements, some aspects have not been dealt with and should be deepened. In terms of Product, companies have to decide, coherently with their targeting approach, how to green their product portfolio. For example, they can green their whole product offering or marketing green product lines along with conventional product lines. A complete analysis of the different options available to companies is missing in the literature. Further, this review highlighted that, in the marketing literature, little attention has been devoted to Product Service Systems (PSSs – systems of products, services, infrastructures and networks that satisfy customers' needs while being competitive and with a lower environmental impact than traditional products) (Mont, 2002), and other related concepts, such as dematerialization and servicizing. These could be important product strategies to pursue environmental sustainability. This highlights the existence of a chasm between marketing/business literature and engineering/sustainability literature, which was already suggested by both Boehm and Thomas (2013) and by Peattie and Peattie (2009). In terms of Place, this review highlights that a complete integration between the marketing literature and the logistic literature that deals with green distribution chains is missing, since in the reviewed studies limited attention has been devoted to distribution channels for green products. Actually, some of the reviewed studies mentioned reverse logistics and closed-loop supply chains, while little attention has been devoted to technologies or types of transportation means that can support green logistics. This result confirms what found in a previous review on Green Marketing by Chamorro et al. (2009) who found that only one article out of 112 analyzed in detail distribution channels for green products. Our review suggests that it would be interesting to reflect on the effect of the wider use of on-line marketing channels on the real greenness of a marketing strategy. In fact, while on the one hand it could reduce intermediaries (and so the environmental impact related to physical point of sales), on the other hand, it may stimulate purchase from sellers located even very far from the consumer (that could be preferred to closer sellers for an even very little money saving), with a consequent increase of the environmental impact due to product delivery. Further, the environmental impact of ICTs should also be taken into account, given that data centers' are high energy demanding (e.g. Koomey, 2011). As Peattie (2001b) suggested, a Sustainable Green Marketing would require moving away from global distribution systems to re-localization of supply systems. In this context, local products, especially in the agri-food industry, should be considered as a key example. For these products, the greenness of the Product is strictly related to the Place, implying that the two levers should be jointly considered by companies. Further, it should be noticed that, among the studies retrieved during the systematic review process, only one (Sitnikov et al., 2015) mentions the 7Ps of the marketing mix (Product, Price, Place, Promotion, People, Process, and Physical evidence). However, the study deals with a concept of Green Marketing Strategy that is closer to a corporate green strategy, that is out of the scope of this paper. There are other studies on the topic of the 7Ps in Green Marketing, even though outside the three databases and/or the time frame used for the systematic review (e.g., Matin and Alauddin, 2016; Sarkar, 2012). However, the last 3Ps (Providing information, Processes, and Policies) mentioned by both Matin and Alauddin (2016) and Sarkar (2012), citing Peattie (1992), are different from the last 3Ps reported by Sitnikov et al. (2015). Further, these studies do not explain these 3Ps meanings and characteristics. This shows that the topic is not yet well developed and that there is not academic agreement on it, suggesting that future research should be devoted to deepen our understanding of the additional 3Ps in the context of Green Marketing. Read full article URL: https://www.sciencedirect.com/science/article/pii/S0959652617316372 Carbon performance and disclosure: A systematic review of governance-related determinants and financial consequencesPatrick Velte, ... Rainer Lueg, in Journal of Cleaner Production, 2020 2 Conceptual background and development of research frameworkThis section defines the terms relevant for this review and discusses the use of legitimacy theory as a basis for the framework that guides our review on carbon disclosure. 2.1 General issues in carbon-related researchCarbon-related research suffers from the same two issues as non-financial disclosure in general. First, measurement of carbon performance as well as the disclosure of a carbon-related report are still voluntary in most international settings. This impairs the reliability and validity of the carbon-related constructs used in research (Gray, 2006; Michelon et al., 2015). This lack of harmonization also leads to incomparable disclosure levels that can range from too low information density to information overload (KPMG, 2017; Tschopp and Huefner, 2015). Second, legitimacy theory conjectures that some firms engage in greenwashing and information overload practices (Mahoney et al., 2013) by using isolated positive carbon-related disclosure to misrepresent their lack of carbon performance (Lyon and Maxwell, 2011). Since legitimacy theory also stresses the risk of a symbolic use of carbon disclosure, we base our review framework on this theory. 2.2 Legitimacy theory as the prevailing lensResearchers rely on distinct theories to describe the phenomenon of carbon performance and disclosure (Hahn et al., 2015). Yet, legitimacy theory (Dowling and Pfeffer, 1975) is the prevailing theoretical lens (Ascui, 2014). We discuss three areas of carbon performance and disclosure with respect to legitimacy theory: the phenomenon itself, its governance-related determinants, and its financial consequences. 2.2.1 The link between carbon performance and carbon disclosure and vice versaCarbon performance is the result of managerial activity that deals with carbon emissions. It describes the quantitative emissions of climate-changing greenhouse gases as well as measures and processes for emission reduction from the air. The constructs manifest in, for example, carbon intensity (static and physical units), carbon exposure (static and monetary units), carbon dependency (dynamic and physical units), or carbon risk (dynamic and monetary units) (Hoffmann and Busch, 2008). Busch and Lewandowski (2018) suggest measuring the construct as carbon emissions of scopes 1 (direct), 2 (indirect), and 3 (along the supply chain). Carbon disclosure reports historic and prospective carbon performance to internal and external stakeholders as well as other climate-related information; for instance, qualitative information about outlook or strategy (Pitrakkos and Maroun, 2019). Carbon disclosure can be voluntary (such as the Green House Gas [GHG] protocol and the CDP) or mandatory (such as the EU’s Emissions Trading Scheme [ETS], Japan’s GHG system, and Emissions & Generation Resource Integrated Database [eGRID]). Carbon information in this context is regularly disclosed periodically as part of a CSR report. Carbon disclosure and performance are related to each other. Firms tend to report their achieved carbon performance on a voluntary basis in contexts where stakeholders expect such reporting activities (Deegan, 2002). As carbon-related activities have gained relevance in society (especially in environmentally sensitive industries), carbon disclosure constitutes the communication channel that enhances the legitimacy of a firm from the perspective of society (Deegan, 2002). In the other direction, the stakeholders’ expectation to observe disclosure may initiate enhanced carbon-related performance (Qian and Schaltegger, 2017). Yet, higher carbon expectations toward a firm could also trigger shallow greenwashing activities as an attempt to create a positive image and gain legitimacy, even if the firm only engages in few carbon-related activities (Mahoney et al., 2013). Nevertheless, greenwashing activities may create legitimacy for firms with poor carbon performance (Cho et al., 2012), which makes them indistinguishable from firms with good performance. The link could also disappear if a sample contains too many unidentified greenwashing firms that confound the generally positive link (Qian and Schaltegger, 2017). Therefore, we assume that carbon disclosure and carbon performance should generally exhibit a positive link. If a firm has achieved a high level of carbon-related performance, we expect this firm to be more willing to report these practices on a voluntary basis, either in a CSR report or in an integrated report, to gain legitimacy for its carbon-related performance. Further, we assume that firms displaying high carbon performance will publish carbon-related disclosure of a higher quality compared to firms showing lower carbon-related performance, as greenwashing practices are of less importance in this case. Furthermore, we assume that if the quality of a firm’s carbon disclosure is high, it will have positive effects on carbon performance in the long run. The firm receives critical feedback from its shareholders and other stakeholders on its disclosed carbon parameters, and this may act as an instrument to further improve the carbon-related activities. 2.2.2 The impact of governance on carbon performance and disclosureLegitimacy theory suggests that firms adjust their business activities to enhance their carbon performance and share this with their stakeholders through disclosure (Chu et al., 2013). Furthermore, the regulatory environment can mainly influence managers’ decisions on carbon performance and disclosure. Firm- and country-related governance are dominant determinants of this in the contemporary literature. Firm-related determinants represent corporate governance mechanisms that should improve carbon performance and disclosure (Kilic and Kuzey, 2019). These mechanisms aim at enhancing the legitimacy of a firm toward (non-)shareholding stakeholders (Suchman, 1995) and respond to social expectations regarding climate change policies (Jaggi et al., 2018a). Firm-related determinants manifest in unbiased 1)board composition (esp. diversity), 2)ownership structure with a high share of sustainable, institutional investors (Barroso Casado et al., 2015), and 3)stakeholder pressure (esp. media coverage). Again, it stands to reason that a context with powerful (non-)shareholding stakeholders should foster high carbon performance and disclosure compared to a context in which shareholders and stakeholders are almost powerless against corporatist boards. Country-related determinants evolve through public awareness of carbon emissions and government aims to reduce those emissions. They manifest in 1)the existence of a case law regime (indicating a prevalence of shareholder-oriented governance over corporatism), 2)the strength of legal enforcement (indicating the power of claims from stakeholders and shareholders against firms), and 3)the degree of shareholder rights (indicating the power of shareholder claims against the board and increased investor protection). It stands to reason that a pro (non-)shareholding stakeholder environment should expose a high level of carbon performance and disclosure compared to a context that favors corporatism and strong boards. Thus, it can be assumed that firm- and country-related governance parameters positively affect carbon performance as well as carbon-related disclosure. First, firm-related governance aspects may enhance the carbon performance and carbon disclosure of a firm. This is especially the case if the board is characterized by a high degree of diversity showing efforts towards carbon-related activities and carbon-related reporting practices, an ownership structure containing a high percentage of sustainable investors, and a high degree of media pressure regarding carbon-related parameters. Furthermore, especially regulatory developments obliging firms to increase their carbon-related activities or observing whether firms comply with uniform carbon-related standards may act as an indirect instrument to enhance the carbon performance and carbon disclosure of a firm. 2.2.3 The financial consequences of carbon performance and disclosureFinancial consequences constitute changes in static firm values. In this review, we use the term firm value only to explain how the combination of financial performance and risk affects firm value. Commonly, the two main constituents of firm value are the benefits (e.g., cash flows) a firm expects to receive (financial performance), which are then discounted with the firm-related (risk-based) cost of capital (Koller et al., 2015). Hence, we use the term financial consequences for firms to subsume the two concepts of financial performance and cost of capital (risk). Furthermore, value relevance of disclosed carbon performance as well as other carbon-related information and information asymmetry are connected with shareholders’ expectations and trust, which will influence firm value. Carbon performance is part of firms’ operative performance and can have financial consequences through both lower risk and changes in financial performance (Cuganesan et al., 2007; Lueg et al., 2019). Carbon disclosure is not part of firms’ operative performance. Lueg et al. (2019) argue that disclosure hardly affects financial performance through changes of free cash flows. Yet, the improved transparency of high-quality disclosure reduces the information gap to the stakeholders and hence has financial consequences through lower risk (Lueg et al., 2019). Stakeholders may use carbon disclosure to assess the carbon-related activities and related risks of a firm. They tend to reward firms with sustained carbon performance and disclosure (Deegan and Rankin, 1997). Conforming to societal expectations increases financial performance for several reasons (for the numerous reviews on the general link between environmental and social performance with financial performance, cf. Albertini, 2013; Busch and Lewandowski, 2018; Dixon-Fowler et al., 2013; Endrikat et al., 2014; Fonseca and Ferro, 2016; Hang et al., 2019; Horváthová, 2010; Margolis and Walsh, 2003; Orlitzky et al., 2003). For example, sustainable investors—which invest over decades in one firm and—care about its long-range prospects (Barroso Casado et al., 2015)—may provide capital at discounted—rates, as legitimating activities may have a positive impact on firms’ activities and management of carbon-related risks (Häfner et al., 2017). Disclosing the impact of carbon emissions on business activities or a firm’ risk profile in relation to carbon-related activities may have positive financial consequences (Matsumura et al., 2013). A firm that meets, for example, customers’ expectations by reducing its carbon footprint (Lemma et al., 2019) can reasonably expect sustained or even higher revenues from existing or potential customers. Thus, it can be assumed that the expansion of carbon-related activities as well as their disclosure act as an instrument towards the capital market to illustrate the lower risk profile of the firm regarding environmental aspects and litigation risks. The capital market will honor these efforts by lowering the risk premium resulting in improved abilities to raise capital. Furthermore, by expanding carbon-related activities and related disclosure procedures the respective firm potentially illustrates its capacity for innovation in the area of environmental aspects, which could lead to a reduction of risk premiums and an improvement of financial consequences for firms. 2.3 Research frameworkOur research framework is shown in Fig. 1. The analysis addresses: Fig. 1. Empirical-quantitative research on carbon performance & disclosure. 1)Governance-related determinants on carbon performance and disclosure 2)The bidirectional link between carbon performance and carbon disclosure as a contextual factor 3)Financial consequences for firms of carbon performance and disclosure. Read full article URL: https://www.sciencedirect.com/science/article/pii/S0959652620301104 |
Which of the following is not an example of a firm’s efforts toward greater sustainability?
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