ESG reporting – getting beyond greenwashing
With more emphasis than ever on demonstrating environmentally friendly business practices, how can organisations avoid overstating their eco-credentials?
STRATEGY
Image: Istock
Nisha Makwana
ESG Reporting Consultant
Issue 64 | 2023
In 2023, Environmental, Social and Governance (ESG) reporting is an inescapable part of the business landscape. It is becoming central to corporate strategy for many organisations. The rise in awareness of environmental and social issues globally has prompted companies to place a greater emphasis on promoting their sustainability and environmental credentials. Other than sustainability though, the main word on everyone’s lips, when it comes to ESG, seems to be ‘greenwashing’. So what is greenwashing and why is it important for leadership teams?
Greenwashing
Greenwashing is where companies make false or misleading statements about their environmental credentials, whether intentionally or unintentionally. Most often, it is overstated environmental credentials, omitting key information, and/or making meaningless, unproven marketing statements.
On a smaller scale, an example of greenwashing includes using recycling symbols on packaging without making it clear which parts can be recycled. In addition, companies may pay for carbon offsetting, such as the planting of trees or carbon storage, without trying to reduce their underlying emissions.
UK green taxonomy
The government has committed to a green taxonomy for UK companies by the end of 2023. Like the EU green taxonomy, this will set out the criteria that activities will need to meet to be considered environmentally friendly.
Since we are not there yet, the ESG landscape is currently more difficult than ever to navigate. Executive leadership teams have the challenge of demonstrating how they are balancing the interests of their bottom lines with those of employees, customers, and wider communities. Moreover, what their organisations say must stand up under the microscope of detailed scrutiny that is, at least in part, yet to be confirmed.
Demonstrate your journey
Given that greenwashing can be unintentional, how can you ensure your organisation is not brought into public focus in this way?
The key is accepting that you are still on that journey, and the challenge to each organisation lies in demonstrating that they are going in the right direction.
Navigating the ESG landscape can seem daunting given the myriad frameworks and regulations, all with different targets and measures. For some, the wide array of metrics and reporting options available can present too much choice and may lead organisations to stumble at the starting blocks.
Here it is important to implement an industry-specific approach: pick the frameworks that are most appropriate for your industry, are used by your peers and supported by the credit rating agency where you will be most rewarded based on your corporate goals.
Baseline of ESG principles
An organisation must put on its thinking cap and come up with a baseline of general principles and then make these principles come alive. It needs to be relevant to your industry and business. In the housing sector, many housing providers have begun this process with the publication of a sustainable finance framework, intended to inform investors of their ESG credentials.
The goal is to demonstrate that your organisation is a good steward of all forms of capital. Not just financial, but environmental and social as well. It is important to recognise that ESG reporting is not just a compliance exercise. By collecting data, you are also taking the first steps towards managing ESG issues in the same way that you manage financial data, risks and other issues.
The ‘G’ for governance is instructive here. Effective ESG strategy must be inseparable from a company’s governance, and this means responsibility must lie with the CEO and board. CEOs are invariably too busy to take full ownership, but best practice requires buy-in and oversight from the CEO, supported by knowledgeable directors and non-executive directors equipped with appropriate resources. Demonstrating joined-up organisational thinking via a clear journey with appropriate oversight is key.
Telling your story
Tools to tell your story include the use of primary and secondary data. Primary means identifiable changes arising directly from the actions of your organisation; secondary data are identifiable changes for the organisation, individuals, communities and stakeholders as well as the wider environment, which are a result of the primary outcomes.
A robust approach could be to analyse positive primary and secondary outcomes achieved across each ESG strand, ensuring the data that underpins them can be measured effectively and tracked against. When we consider tracking and measuring, regardless of framework or strategy, the information aim is investment-grade data: clear, concise, traceable and auditable.
Climate change is a long-term game, which requires immediate action but may not produce visible results for another five to seven years. Therefore, at this time, measuring the impact of business decisions in this area is about the journey rather than a destination and this is the real essence of ESG reporting. It is about demonstrating the social conscience and direction of travel for each organisation, in ways that can continue to build and grow.
ESG is a great example of quality over quantity. In business, rather than claiming to be A1 at everything, it is best for organisations to be honest, transparent and deep-rooted in their ESG approaches and strategies. This will serve them well in getting beyond greenwashing, internally and externally.
“Climate change is a long-term game, which requires immediate action but may not produce visible results for another five to seven years.”
