A beacon in the ESG smog

Corporate pledges for action on climate change should be a beacon in the smog for investors and consumers, but are they?

Posted by
Mark Paterson

When we pause to recognise World Environment Day tomorrow (5 June) let’s consider that 40% of corporate sustainability claims made online may be greenwashing i.e. rubbish.

Consider this too:

Communicating about sustainability has become a “must do” for business. As a result, companies are talking about sustainability more than ever. Yet are they ‘walking the talk’?

Environment is the E in ESG (Environmental, Social and Governance). ESG is pretty much investor-speak for sustainability. The five top global risks for companies are related to the environment.

So, communicating the management of these risks, such as GHGs, water scarcity, natural disasters, plastic waste, land degradation, deforestation and biodiversity loss, is important.

Climate action, the United Nations Sustainable Development Goal (SDG) #13, is the most reported SDG, according to the Global ESG Monitor, a unique study of the transparency of ESG reporting.

Yet, there are fears from regulators and lawmakers, both in Australia and overseas, that companies may be over-stating the positives in their updates about managing climate risks.

In Australia, Noel Hutley SC has warned company directors that companies making net zero carbon pledges without science-informed plans for achieving the goal could be sued if they are found to have have misled or deceived, or to be likely to mislead or deceive, the users of those statements.

In the United Kingdom (UK) where carbon dioxide (CO2) emissions from one-third of the top UK firms are not in line with global climate goals, local regulator the Competition and Market Authority, has released draft guidance to companies on how to avoid greenwashing.

Sustainability is not marketing. So, how did it get to this point?

Well, with no firm regulations and several frameworks and standards for sustainability reporting to choose from, many companies talk about ESG in a manner that best suits their business, their sector, the data they have on-hand, and the resources they are able to put to it.

Transparency is meant to be like sunlight (e.g. it works like disinfectant), but if companies are not honest about their sustainability risks, actions and impacts can they be trusted?

At Currie, we say start with the facts and craft a story about sustainability from the truth. This truth can be grounded in an assessment of a company’s material non-financial risks and corroborated by science-informed targetsscenario-based action plans and audited reports.

By not taking this approach a company risks greenwashing – an outcome that is no good for the environment, erodes trusts with stakeholders and seems likely to incur costly legal fees.

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