To say that the pandemic changed everything would be one of the greatest understatements of all time. From a business context, customer, stakeholder, and investor expectations in the organisations they engage with, work for, and support have seen a greater emphasis placed on how ‘responsible’ they are.
This is no zeitgeist; rather, it has become a permanent fixture of everyday business life. ESG, or environment, social and governance to be precise, has quickly found its way to the top of the organisational agenda over the last couple of years and with it an expectation that organisations will step up and take charge of reporting on such matters.
While not mandatory (not yet anyway), what we call ‘responsible reporting’ will soon become as important to businesses and their stakeholders as traditional financial reporting.
It seems that not a day goes by without a business that many of us are familiar with being named and shamed in the media due to an allegation of greenwashing – an exaggeration of the organisation’s environmental credentials and sustainability commitments in a bid to win favour with customers and be perceived as ‘doing their bit’ for the planet.
Responsible reporting is fast-becoming as important to businesses and their stakeholders as traditional financial reporting.
In fact, the Competition and Markets Authority (CMA) report that 40% of such claims made by businesses are false. Our own research of over 1,500 respondents conducted in September 2022 found that as many as one in five (19%) business leaders admit that their company has been guilty of greenwashing. The consequences of this don’t bare thinking about, but they cannot be dismissed.
At time of writing, the CMA is investigating half a dozen high street brands over their so-called green credentials which are questionable at best. Irrespective of the outcome of their investigation, the implications of simply being accused of greenwashing can be extremely detrimental to the organisation’s bottom line:
- perception of the business or brand can be tarred
- their reputation will likely tarnished and take considerable time to repair
- customer trust and loyalty may be lost either temporarily or permanently
- talent attraction and staff attrition rates could very easily be negatively impacted, and
- the ability of the organisation to attract future investment will invariably take a hit.
1 in 5 – Number of businesses that admit they have been guilty of greenwashing their eco claims
But what of those businesses who are doing great things and making a positive impact on the environment – how can they avoid becoming one of the 40% accused of greenwashing their claims?
It all comes down to reporting – or ‘measurement’ to be precise. Much like the organisation produces its quarterly and annual financial reports it is becoming increasingly likely that a new ‘responsible report’ will be accompany it. This new report will demonstrate the outcomes achieved by the sustainably focused actions undertaken by the business to curb its emissions. The word ‘outcomes’ is pivotal here.
Indeed, any business can say what they like in the public domain. But that ‘public’ is becoming increasingly sceptical if such claims cannot be followed up with a ‘… and that means’ statement. Let me give you an example of something that many businesses will be familiar with: tree planting.
Your company publicly states that it has planted 10,000 trees over the last 12 months. Great, but so what? This is where most businesses stop and why many of them invite criticism. Responsible reporting would add to this by saying: “… – which is 100,000 kgs of CO2 removed from the atmosphere and the equivalent to taking 21 cars off Britain’s roads this year.”
Customers are becoming increasingly sceptical if an organisation’s environmental claims cannot be substantiated. Failure to ‘show’ rather than ‘tell’ sees it run the risk of being labelled as a greenwasher.
Impact reporting – or responsible reporting, whatever your preference – and the fortunes of the orgainisation’s bottom line are inextricably linked.
Indeed, additional research that my company conducted in 2021 showed that 61% of customers would choose a product or service provider that has a clear purpose and can demonstrate the impact it has over a competitor with no clear purpose and prone to making bold claims.
Moreover, 80% would be prepared to do so even if they were more expensive than their competitor.
The rise in greenwashing may partly be the result of a lack of understanding among businesses of how to measure the impact of their sustainability initiatives in the first place. Most leaders understand they have a responsibility to operate their businesses more sustainably and that when done right this can drive business value.
However, where it fails is when there is a lack of knowledge on how to embed sustainability into their business processes, workforces, and supply chains and where there is an absence of any clearly defined sustainability goals.
This, I believe, is in part responsible for some of the greenwashing activity we are seeing right now. Businesses know they need to be seen to be doing more to reduce their carbon footprint and feel under pressure to say ‘something’ positive to appease their customers. It is desperate, yet a position that can easily be avoided.
Nonfinancial reporting will become just as, if not more, important as financial performance reporting. There will be no hiding from this, consumer and client demand will necessitate it.
For more on this, watch our three-part video series on ‘Mastering your ESG comms‘.