In our conversation with Daniel Dao, a researcher from the University of Strathclyde, we explored the crucial distinction between "ESG Walk" and "ESG Talk." These terms are increasingly relevant as investors strive to ensure that the companies they invest in are genuinely committed to sustainable practices. Let's break down what these concepts mean and why they matter for your investment strategy.

What is ESG Talk? ESG Talk refers to the promises and commitments that companies make regarding their ESG principles. This includes:

• Public Declarations: Statements about sustainability goals and ethical practices.

• Sustainability Reports: Detailed documents that outline a company's ESG strategy and progress.

• Marketing Campaigns: Efforts to position the company as a leader in ESG.

Example: BP's "Beyond Petroleum" campaign in the early 2000s rebranded the oil giant as an environmentally friendly company, despite its continued focus on fossil fuels.

The Problem with ESG Talk:

• Superficial Claims: Often, ESG Talk can be more about optics than actual impact. Companies may use ESG buzzwords to enhance their reputation without making substantive changes.

• Greenwashing: This is where ESG Talk becomes misleading, presenting an image of responsibility that doesn't align with reality.

Example: H&M's "Conscious Collection" faced criticism for potentially misleading consumers about its environmental benefits, highlighting the risk of greenwashing in the fashion industry.

Transparency and Independent Verification: To combat greenwashing, transparency is essential. Companies must not only share information but ensure its accuracy through independent verification. This means that ESG claims should be backed by third-party audits, providing stakeholders with confidence that a company's ESG Talk is rooted in fact, not fiction. Without such measures, ESG Talk remains just that—talk.

What is ESG Walk? ESG Walk is about what a company actually does to meet its ESG goals. It's the tangible actions and measurable outcomes that demonstrate a company's commitment to sustainability. This includes:

• Reducing Carbon Emissions: Real, verifiable reductions in a company's carbon footprint.

• Improving Labour Conditions: Actions taken to ensure fair treatment of workers throughout the supply chain.

• Enhancing Governance: Steps taken to ensure ethical practices and transparency at the board level.

Example: Patagonia's consistent efforts to use recycled materials and promote environmental causes demonstrate a strong alignment between their ESG Walk and Talk.

Ethics and Corporate Integrity: Greenwashing and ethics are fundamentally opposed. While greenwashing involves misleading claims to create a false impression of sustainability, ethical companies prioritise honesty and integrity in all business activities. Ethical companies ensure their ESG Walk aligns with their ESG Talk, building long-term trust and credibility with stakeholders.

Why the Gap Between ESG Walk and Talk Matters: Investors need to be aware of the potential gap between what companies say and what they do. This gap can lead to:

• Misguided Investments: Putting money into companies that aren't as sustainable as they claim to be.

• Reputational Risks: Associating with companies that are exposed for greenwashing can harm your own brand's reputation.

• Financial Risks: Companies that don't deliver on their ESG promises may face long-term financial difficulties, impacting your portfolio's performance.

Traceability as a Solution to Greenwashing: One of the key challenges in closing the gap between ESG Walk and Talk is traceability, especially within supply chains. Lack of traceability makes it difficult to verify the authenticity of ESG claims, particularly in complex global supply chains. Improving traceability—by implementing systems that track materials back to their original sources—ensures that companies can substantiate their ESG claims, making it harder to engage in deceptive practices. Without robust traceability, greenwashing will likely persist.

While ESG Talk sets the stage for corporate sustainability claims, it’s the ESG Walk that truly matters. By leveraging tools like PortF, which enable you to monitor a company’s ESG Walk and provide automated alerts for high-risk ESG metrics, investors can focus on real, verifiable actions. This approach helps foster a more sustainable and trustworthy investment landscape, ensuring that your investments align with genuine sustainability efforts.

If you want to learn more about PortF, contact us today.

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