Responsible Investment News

How to Tell if a Company’s Claim of Ethical Practices Is True

But the lawsuit, brought on behalf of a group of consumers who felt they were deceived by Vital Farms, raises a broader point for investors seeking to put their money into companies that have environmentally conscious business practices. What criteria need to be met for an investment to satisfy an environmental, social and governance screen known as E.S.G.?

Any company that says it is operating in an ethical way should be able to prove that claim is true or face charges of greenwashing, a term that implies deception.

But it is not always clear-cut. Does a fossil fuel company that is making strides to invest in renewable energy and is doing more than its competitors make the cut? Can a solar company have problematic human resources practices? Should investors demand that a company that holds itself out as ethical be pure and consistent in all it does, or do growing companies simply get too complex to be entirely consistent?

“The onus is on the investor to do our work and research,” said Cheryl Smith, an economist and portfolio manager at Trillium Asset Management, which manages $4.3 billion with an emphasis on socially responsible companies. “In terms of looking to do investing that is sustainable, responsible and in line with whatever principles you’re trying to express, the real key is to do the diligence on the investment.”

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