@ the IERP® Global Conference, August 2023
Noting that there were many factors that were causing companies to behave in unacceptable ways today, speaker Jai Shankar said that there was a level of pressure on governments as well to ensure that companies conformed to sustainable practices and met stated targets. Shankar, the Sustainability Lead, and Director of the Central, West, South Asia & Africa, Americas & Europe Section of MATRADE, said that the EU has been pushing the ESG and green agenda aggressively, especially with regulations related to greenwashing.
Citing statistics to support this, he said that the EU has found 53% of ‘green’ claims to be vague, misleading or unfounded; that 40% of claims have no supporting evidence, and half of all ‘green’ labels offer weak or non-existent verification. There are currently 230 sustainability labels and 100 green energy labels in the EU with vastly different levels of transparency. “The EU has developed the EU Green Claims Directory, expected to come into effect at the end of 2026, to address the issue of greenwashing,” he said.
‘Green labelling,’ ‘green lighting,’ ‘green shifting,’ ‘green rinsing,’ and ‘green crowding’ are terms associated with greenwashing. Green labelling was done by many organic producers; green lighting applies when the focus is shifted to something a company is doing right, not what it is doing wrong. “You may be doing just a little CSR but your focus is on that,” Shankar explained. “Green shifting is when you do something not right but you find a scapegoat for it; green rinsing is modifying goals to meet targets, like saying “I am going to plant one million trees” but changing the target a year later.”
Green crowding refers to the insidious practice of companies which hide behind groups like NGOs, and pretend to promote a green agenda but stunt the development of such activities. Making claims that do not focus on the core activities of the business constitutes greenwashing. “Make sure that any claims you want to make regarding ESG compliance are substantiated,” he said, adding that sustainability or ESG practices could not be carried out on a piecemeal basis. “This needs to be raised at C level because the potential risk impact on the company and brand is substantial.”
Businesses that seriously want to incorporate sustainability/ESG practices into their operations need to set up internal processes that support these. Shankar pointed out that many companies would probably not have started from zero base. “One of the biggest myths of ESG compliance is that you have to start at zero base,” he said. “But most likely you will not. There are probably a lot of things you have already done – like installing solar panels on your rooftop or getting certified to environmental standards. You should start talking about it from the outset of your journey, not at the end of it.”
The company needs to decide its brand proposition from the beginning. This will help to angle the product pitch and guide the storytelling around it. “If this is not possible, diversify the product,” he advised. “Or talk about the company’s values.” However, once this decision has been made, it could become tricky, he warned, as there were other factors to consider, such as data, besides a host of other issues. This will come under the purview of the corporate communications team but they may not have the data, or it may be too early to have sufficient data, despite the board’s decision to build the company profile based on this.
“This puts pressure on the people involved – your internal stakeholders – who may decide to manipulate information to meet expectations,” he cautioned, adding that this could be detrimental in the long run. Board members and senior management may not realise it but different teams may be working on different aspects of ESG within the company, for example on social media and, separately, on ESG branding. Other issues may arise, such as people challenging the data, or the lack of accountability by unsupervised staff that could lead to poor documentation. There may also be no incentives to say or do the right thing, and a lack of support at strategic levels.
Sometimes, instances of greenblushing may arise, where the data on sustainability is available but is hidden or downplayed for various reasons. This may result in other challenges, such as the lack of active promotion or communication of genuinely sustainable policies. “Perhaps your business never needed it in the past,” Shankar said. “As such, there is no team in place to manage it. Many companies do not have this but you will need a very strong communications team, moving forward. This team can help whoever is doing the reporting to craft communications and (document) facts, to highlight the things you are doing.”
Companies could start by defining their sustainability goals or stating a particular bias; as they mature and get more practice, they will become better. They should also take their various stakeholders’ demands into consideration. “There is no one-size-fits-all,” he said. “Different stakeholders are expecting different storylines. Some information may not be necessary, or should be communicated only to certain sectors.” Stakeholders such as bankers, for instance, consider the risks of giving the company a loan, and so may look at the impact of climate change on its operations, and its sustainability.
If the company supplies a big organisation which already has ESG structures in place, that organisation may want to know how the company’s operations impact its people, surroundings, community and environment. In both cases, the perspective of ESG storytelling will be different. Communicating with the government or regulators, and with consumers, will require different storylines as well. For instance, a prospective buyer today may check a company’s website and expect to see how the company’s sustainable practices are impacting the environment and communities where it operates.
“They used to look at price and quality but are now looking at sustainable practices,” he cautioned. “It indicates that management has the proper perspective or thought process.” The EU already expects companies to realise this. “The fact that you are communicating this, or if your Sustainability Report is there, could indicate that buyers are dealing with a world-class company.” Many companies were global but not world-class, he said, pointing out the difference in the definitions. “Global means you are present all over the world but world-class is where everybody is heading,” he said.
“If you are global but not world-class, you are pretty much offering to greenwash because you want to do it quickly; you do not embrace it and you do not think it is of strategic value. If you are an international, world-class company, you will know that this is how the world practices, these are the global standards, and you want to be a part of a global community. You have to decide whether you want to be global or world-class.” Companies need to build up their data and communicate it through a comprehensive communications plan, using clear, transparent language without vague terminology. Sustainability reports outsourced to third parties must be clear and guided by the organisation.
This is imperative as the third party will use the language they are comfortable with, which may not be what the organisation needs to build its brand. “Sustainability reports are new,” Shankar said. “They fall somewhere between consultants’ terminology and journalistic writing. Sustainability reporting is a new industry and people are struggling. Many sustainability reports are being built by consultants based on frameworks which are then translated into more commercially-attuned language. “You may want to give more serious consideration to this area because the final document represents your stand as far as your sustainability journey is concerned,” he said.
Speaking about the impact that greenwashing has on trade, he said that companies may end up deceiving their stakeholders. While the government used to be the regulator in the past, today the regulatory arm and enforcement include peers, the media and other stakeholders. There is more attention to activities. Greenwashing may also lead to market distortion and ultimately affect a firm and its industry’s competitiveness. Companies must decide on what standards and frameworks they want to use. The EU’s European Sustainability Reporting Standard (ESRS), which combines different standards like GRI and TCFD, will have a double materiality impact.
ESRS will come into effect at the end of 2024, he said. “Once you have the data and decided on the framework, you will need training, starting at the board level, for a clear understanding of how it should be done,” he said. This will then be cascaded down to senior management – but strategic intent was critical. “Collaborate with other industry associations and other stakeholders to build a brand,” he advised. “Work in a collaborative way with associations to come out with a strong statement or strong positioning in terms of your ESG journey. Build it up from an industry perspective, and then bring it down to a company perspective.”
