Corinne Graper, CEO of The Uplift Agency.
For anyone keeping track of developments in the environmental, social and governance (ESG) space, the increase in regulations around the world has been monumental—including a standard-setting sustainability rule in the EU and a new forced labor law in Canada that appears to be tougher on enforcement. In the U.S., public companies (and the private companies doing business with them) are currently awaiting a new rule from the U.S. Securities and Exchange Commision (SEC) officially mandating climate-related disclosures.
When this rule is officially adopted, it’s likely the U.S. will join the EU in requiring companies to track and publicly report on their Scope 1, 2 and 3 greenhouse gas emissions, as well as requiring them to provide credible details about how they plan to reach their climate-related goals.
The SEC’s proposed rule makes clear that companies can no longer announce a climate goal, such as being “net-zero,” without also disclosing a credible path to success. Considering that one-third of the world’s largest companies have set net-zero targets but fewer than one in ten have a plan to get there, this new rule should see a pretty drastic shift in how companies talk about their emissions.
The requirement will set up a choice for companies: Either back up their goals with science-based strategy or backtrack on previous commitments. Will companies choose the high road and recommit to their goals? Or will they choose the low road and simply stop pursuing meaningful emissions reductions?
To protect our planet for our grandchildren and their grandchildren, I hope companies will choose to do what’s right and focus on how to limit global warming to the 1.5℃ goal.
Greenwashing And Greenhushing
By now, most business leaders are familiar with the premise of greenwashing: when a company misrepresents their climate or sustainability work, generally to look like they are doing more than they actually are for the environment. And with 70% of adults feeling that corporations should do more to combat climate change, there is intense pressure to make bold statements when it comes to sustainability.
But bold statements must be backed up with credible strategy. Accusations of greenwashing can be irrevocably damaging to reputation, which presents a new area of measurable and material financial risk for companies. When companies are accused of not being fully transparent in their environmental commitments, there will inevitably be negative financial implications. Only recently, multiple global retailers reached a $5.5 million total settlement with the Federal Trade Commission in response to “deceptive eco-friendly claims” about their products.
To mitigate this risk, companies often find it expedient to stop making public environmental commitments, leading to the creation of a more recent term: greenhushing. Greenhushing happens when companies simply stop talking about their environmental work. If companies receive a negative reaction from making public sustainability commitments, they have little incentive to do so.
With the forthcoming SEC rule, a new area of risk is created for companies making environmental claims if they are not backed by credible strategy. The SEC has already taken at least one enforcement action against a company based on misleading statements contained in a public-facing sustainability report, leading to a $55.9 million settlement. It most certainly won’t be the last.
As CEO of an ESG and sustainability advisory firm, I work with clients every day who are grappling with these very issues. And what I tell them is that there is a better way to mitigate this risk than just to stop talking about your commitment to the environment—or, worse, to roll back your sustainability efforts.
A better solution is to not just say you’re doing the right thing, but to actually do the right thing. Too many companies set goals based on what they see other companies doing rather than what makes the best sense for their business. But when a company sets realistic sustainability goals underpinned by research and thoughtful, transparent strategy, the risk of being attacked for greenwashing (or finding yourself the target of an SEC enforcement action) diminishes significantly.
Don’t stop doing the critical work to save our planet. Just do it with the utmost care and quality.
Setting (And Achieving) Credible Sustainability Goals
To make sure you are setting sustainability commitments that are both attainable and transparent, here are a few questions to get you started:
• Are your goals science-based and consistent with limiting global temperature rise to 1.5℃?
• Are you setting goals and measuring progress according to international reporting frameworks (GRI, SASB, TCFD, UN Global Compact, etc.) and government regulations?
• Are your targets feasible and attainable for your organization in the timeframe you have set out?
• Do you have the enterprise buy-in and resource allocation needed?
Avoiding “Net-Zero Tunnel Vision”
I also believe leaders need to more broadly look at how their companies’ work impacts the world around them. While creating a business that doesn’t exacerbate global warming is critical, it’s also important to consider other ways your operations impact people and local communities and avoid getting caught in “net-zero tunnel vision.” This includes focusing on your corporate impact on racial justice and human rights, among other societal impacts. If you are reducing your emissions but not addressing forced labor in your supply chain, ask yourself if you are really living up to your commitments to make a positive impact.
As more governments push companies to better understand and address how their operations have an environmental and social impact on the world, I hope companies will decide to stand behind their values and sustainability commitments. And for those companies that now realize they may have overstated what they can achieve, I hope they adjust their goals and put new strategies in place to reach them. At the end of the day, making climate commitments credible is less daunting than finding ourselves with a planet that is no longer livable for future generations.
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