By Mark Mellen, Director of ESG Enablement at Workiva
With an increasing focus on business’ climate plans from the public, investors, regulators, and other stakeholders, companies are keen to avoid public scrutiny and allegations of greenwashing. Headlines are littered with news of business’ sustainability misconduct and investigations on outlandish environmental claims. This has resulted in organisations assuming they must have a water-tight, completed ESG plan before sharing it with the public.
Indeed, there is a fear of being too vocal about corporate sustainability and ESG. This can be more of a hindrance than a help as it could prevent businesses from setting more ambitious goals and taking action to progress on their ESG journey. Evidently, there is now a false binary that categorises organisations as being either “good” or “bad” with respect to their ESG goals, as opposed to being at different maturity levels.
It’s clear that some accusations of greenwashing are rooted in misconception. This not only harms the businesses themselves, but also the investments they may have made that would have helped the environment or society. To combat this, now more than ever, organisations need to be transparent about their progress and remember that the various stages of progress should also be championed.
Accusations of greenwashing leads to green hushing
Despite the surge in interest in ESG from the public to investors alike, organisations continue to wade through muddy waters. Demonstrating this lack of confidence, our 2022 global research found that nearly two thirds (63%) of UK senior decision makers feel their organisation is underprepared to meet their ESG goals and regulatory reporting mandates.
The vague definitions, the alphabet soup of acronyms and the competition between companies
to outperform each other has led to a spectrum of what many are labeling as sustainable. This hype around corporate sustainability is an exercise in smoke and mirrors and has led to increasing instances of greenwashing.
Greenwashing, in turn, can lead to ‘green hushing’, an emerging practice where businesses deliberately hide the best of their climate mitigation strategies and practices. This could lead to analysis paralysis as companies seeking a perfect climate strategy pull back from actions that might land them with regulatory problems. Businesses need to consider how to show up as their authentic selves and this entails having solid data and measurement to back them up – this is where comprehensive ESG reporting comes in.
Having timely, accurate data and auditability at the fingertips for someone to make a decision drives strategy for businesses, and ultimately, can add business value to the bottom line. Not only this, but investors crave this data from businesses. If they are unable to find it, then they are unable to trust the company or will look to third party ratings or benchmarks for their information. Lack of trust makes it an easy decision to not invest which can be detrimental to a business
Progressing in a company’s ESG journey
From small to mid to large companies, the focus should be on getting the balance right
between ambition and what can realistically be achieved, informed by data to make the critical decisions.
Large established companies possess the resources, expert knowledge and time to continue to go down the ESG journey. From promoting more sustainable practices, to looking at how to better manage company relationships and assessing company structure, to creating new market or product opportunities, this all translates to business value.
Meanwhile, small and medium sized enterprises (SME) are often earlier in their journey in comparison to large companies, and they haven’t necessarily seen the results yet. However, SMEs can take inspiration from the positive impact seen within the financial industry from investing in ESG practices and apply these to the best of their current capabilities. For example, in a 2020 survey conducted by Deloitte Global and Forbes Insights on the impact of sustainability efforts of 350 executives from the Americas, Asia, and Europe, more than half of respondents (59%) said they had seen a positive impact on revenue growth and overall company profitability.
It’s true that there has been debates on whether there is a correlation between sustainability and driving long term business value for all stakeholders. The reality is that businesses have needed to maneuver through many global challenges, with ESG significance, including the pandemic, economic uncertainty and the influx of resignations. These ESG factors have illuminated the need to focus on people, geopolitical issues, health and wellness and so forth. As a result, sustainability has become a much bigger priority.
ESG is an evolving practice, and most businesses are midway in their ESG journey and genuinely want to do the right thing, despite what some may assume. In fact, according to Capital Group’s Global ESG Study 2022, there is continued momentum towards ESG with European investors leading the charge. In particular the study highlights that the proportion of global ESG users is 89%, which is up from 84% in 2021, of which Europe is in the lead with 93% followed by Asia Pacific (88%) and North America (79%). This highlights that Europe is further along on the maturity journey when it comes to the ESG market and regulations.
Most green or ESG or sustainability success is valid and should be encouraged, as long as progress can be demonstrated. Businesses need to ensure their ESG efforts are being aligned to material ESG issues for their business and focus on related performance. This requires producing the ESG data that investors can trust.
Trustworthy data comes from the right processes and technology
We know that company mission statements and social posts about ESG initiatives are no
longer taken at face value. Instead, all eyes are on companies’ data, and what they are reporting. It’s now about addressing whether internal corporate behaviour aligns with what they are reporting they will do, and how that is then represented to investors and other stakeholders. This means driving credibility towards their commitments, and this can only come from a trustworthy source – the data.
To prepare investment-grade data, organisations need to have integrated ESG data management policies and procedures rooted into their operations. Additionally, there are a variety of standards and frameworks in existence, from the Sustainability Accounting Standards Board (SASB) – now a part of the International Sustainability Standards Board (ISSB) – to the Task Force on Climate Related Disclosures (TCFD) recommendations, and Global Reporting Initiative (GRI) Standards. The objective of these standards and frameworks is to work together to enable comparable, consistent, and reliable disclosures in ESG reporting. Flexibility and easy access to information and requirements within each standard or framework and standard helps enable businesses to report information for their material ESG topics in a manner that is auditable and transparent (in addition to comparable, consistent and reliable).
Additionally, as organisations try to keep up with stakeholders’ appetite for data using the various existing standards and frameworks, they’re also at different stages in assimilating standardized ESG data into their broader business strategies and decision making. Although ESG agendas vary firm to firm and industry to industry, harnessing cloud-based technologies to input, process, and deliver ESG data stakeholders trust is a necessary strategy that leadership should prioritise. For example, our 2022 ESG survey found that in the UK, three out of four (78%) respondents noted that technology was important for compiling and collaborating on ESG data, as well as validating data for accuracy (74%) and mapping disclosures to regulations and framework standards (89%).
The goal is to leverage ESG reporting and the data it creates to propel transparent, innovation-friendly, actionable and dynamic changes. These positive changes prepare businesses well for a future of further transformation where various resources will be strained.
Champion of a business’ ESG efforts
Businesses want to be successful in ESG. However, the differing maturity stages, geographies and sizes of each company impacts the extent of focus that can be directed towards ESG initiatives. That being said, efforts are being made where possible from both small to larger companies and the key is to ensure these are being reflected in ways that stakeholders can trust.
ESG reporting enables businesses to showcase the timely actionable data that informs decisions and helps avoid accusations of greenwashing. Existing digital technologies and guidance can enable businesses to produce more connected and intelligent reporting and as a result, more transparent and trustworthy data. By establishing a unified process, businesses can help build trust in their disclosure.