Companies that fail to report truthfully about their operations’ impact on the environment may find it difficult to raise cash or secure loans, McGuireWoods London debt finance partner Marc Naidoo told Internal Auditor magazine for a story in its April 2022 issue.
The story, titled “Greenwashing,” analyzed the growing risks companies face if they offer a deceptively positive report about their environmental, social and governance (ESG) progress. Naidoo told the magazine, published by the Institute of Internal Auditors, that companies may want to ensure that money earmarked for ESG isn’t commingled with ordinary funds, to avoid accusations that the money supports operations or strategies that don’t meet expectations of good ESG practice.
“If a company were to borrow funds specifically for a green project, but those funds are aggregated with its normal business operations, a financier could inadvertently be funding a dirty project or operations,” Naidoo said.
Naidoo also recommended that such loans be repaid directly from the ESG project in question “to ensure that the money recycled through the system is always green.”
Naidoo is a member of the five-person executive committee leading McGuireWoods’ ESG task force.