“A green boom is coming,” the Economist stated recently, and the data agrees with them. The market, particularly in Europe and North America, is becoming increasingly skewed towards sustainability.
We’re seeing rocketing share prices in firms like Tesla and Plug Power, investors raining money on climate-related technology, and ESG-linked assets raising $490 billion last year. The race to own the green future seems akin to the race to own the future of the internet – which, even after the turn of the millennium bubble burst, hasn’t slowed pace.
Investors are seeing the opportunity in the zeitgeist and are capitalising on it. But many companies, in an attempt to dive into the golden river flowing from Wall Street, Eurolist and Canary Wharf, are skipping crucial steps: shortcutting ESG and presenting themselves as sustainable without proper due diligence.
Greenwashing – where companies paint an inflated picture of their eco credentials – occurs for a number of reasons, which are rarely malevolent. But regardless of the motivation, the results will show it to be bad business.
Why does greenwashing still occur?
The primary challenge with ESG is that there is no standardised framework. Every company is free to tackle in their own way. As a result, it’s possible for a business to say they’re meeting their ESG targets, even though those targets may be far short of what is needed to achieve a positive outcome.
Similarly confusing are their reports. When it comes to transparency, firms sometimes disclose what is either irrelevant or peripheral, while neglecting to shine a light on the core metrics that matter. This isn’t necessarily deliberately misleading. Often it’s simply the sign that PR logic has been at work: that a business should be presented in the best possible light.
Now investors who are more than ESG-aware are likely to spot this greenwashing for what it is. But the charade does make it more difficult for genuinely green firms to cut through the noise and let their ESG ranking speak for itself.
As many have recognised, we need a more standardised approach. But collective efforts are challenging to put together and enforce. The Paris agreement, for instance, shows that the more detailed an agreement is, the harder it is to get countries to agree.
Then there are the complications that occur across industries. To compare the ESG efforts of a manufacturer to a service provider is almost impossible to do accurately. So there has to be a way to tailor criteria to match the context, as well as to more meaningfully compare the merits of one sector with another.
The EU at least, is taking significant steps to standardise frameworks. Sustainable Finance Disclosure Regulation (SFDR) has already come into effect, with more detailed rules to come in 2022. But even the SFDR has shown that it is tough for countries to reach a consensus – and some countries are lobbying for natural gas to be added to the green energy list.
The advantages of avoiding greenwashing
While greenwashing may steal a business some short term PR, in the long term it can only have negative consequences, both for PR and business strategy. Poor transparency can be uncovered by journalists, asset managers and even AI. But more importantly, greenwashing fails to set a company’s course for future success.
For companies to be sustainable, they need to be profitable. And equally, in the long view, for businesses to remain profitable they need to be sustainable. An organisation’s initial pivot to be green may invoke losses but the return over time is far greater.
Investors are increasingly betting on ESG businesses and climate-related technology not simply because it’s a way to boost sustainability credentials but because it’s where the future is. It’s where innovation is happening and if you focus too much on the reputational gains, you can inadvertently overlook the greater strategic opportunity on offer.
How to avoid greenwashing
To keep greenwashing away from your business, you have to bring sustainability into the heart of it. And your sustainability strategy is the place to start.
Clearly, if your firm has a large carbon footprint or generates reams of non-biodegradable waste, you need to tackle this. But at some point you need to think beyond mitigation and look to build sustainability holistically into everything your business does. When it’s part of your business strategy, the sustainable option is more clearly the profitable one, tradeoffs become less, and your choices become easier.
When there’s a commitment to sustainability, businesses can tackle the root causes affecting people, profits and the planet. CSR is no longer merely an opportunity for good PR but an opportunity for good business too.
Rarely is greenwashing the product of bad intentions. Often there’s a genuine desire to do good but the strategy behind it is simply not enough to create a positive outcome. This can be easily avoided, however. When the commitment is there, the right strategy can be created by getting the right expertise on board.
How external experts can help
Sustainability is not a department or sector; it cuts across all operations for all businesses. So what companies need is experts who can integrate sustainability into their field of expertise whether they are advising on corporate strategy or devising a supply chain.
With Mashora, you’re not just accessing sustainability expertise. Instead you’re accessing consultants who understand the issues pertaining to your industry or region and can keep sustainability always in view. They can help you avoid greenwashing while addressing issues that are core to your business.
If you need an audit, an external expert can offer an independent verification of your CSR efforts. This can help to avoid the risk of greenwashing, which can easily happen with in-house audits. Likewise when you get advice from a Mashora expert, they can be upfront in their feedback so you don’t inadvertently overlook a key problem.
Ultimately greenwashing will damage your bottom line while sustainability will strengthen it. This will become even more apparent as markets continue to shift, regulations increase and progressive projects reap returns.
Greenwashing won’t help businesses to be a part of this future, but a commitment to sustainability, along with the specialist advice or consultants you need, will launch you into it. Get matched to an expert to get started.