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April 13, 2022updated 14 Apr 2022 3:27pm

ESG: Greenwashing washed away by generational tide change

Catch-all concepts such as ‘Corporate and Social Responsibility’ (CSR), ‘Environmental, Social, and Governance’ (ESG) and ‘Sustainability’ have been spoken of, appeared on websites, and been published in corporate financial reports for many years. Many businesses that GlobalData has spoken to across the globe admit that before CSR morphed into ESG, much of the commentary on these issues amounted to little more than lip service.

Confidence is low amongst employees queried by GlobalData regarding their employers’ full commitment to ESG, with only 35% believing the business community is committed to improving its ESG performance.

However, green winds of change are blowing. The level of confidence in businesses’ commitment more than doubled during 2021. Ethical concerns are more and more often cited as a genuine reason for an interest in ESG – and this is especially true when it comes to the environment. GlobalData has seen commitment to sustainability targets such as net zero increase significantly.

Catalysts for change

Covid has acted as somewhat of a catalyst. Warnings issued by various scientific bodies, such as the recent report from the Intergovernmental Panel on Climate Change (IPCC) stating that climate change is worse than it feared, have also focused corporate minds.

Even given the scientific consensus, the true impact of ethical concerns on corporations’ sustainability initiatives remain almost impossible to gauge. But there are other reasons why businesses are taking a keener interest, and why the level of commitment will continue to increase.

Simple economic and commercial reality is almost always the most significant deciding factor when businesses make decisions. Thus, rising transport costs due to the impact of Covid and rising fuel prices mean that policies such as work from home and reduced corporate travel sit nicely under both the ‘green’ banner, while also being a standard form of business efficiency. Similarly, reducing energy and fuel consumption in factories and offices ticks both boxes.

But there is more to it. Moving to sustainable energy sources often offers no direct saving and can in fact be more expensive. Enterprises are also increasingly focused on choosing business and technology partners who can demonstrate strong ‘green’ credentials – and in close-run battles the green factor is likely to tip the balance.

ESG: the green trifecta

The reasons for this type of behavior are threefold. Firstly, more and more investment decisions are driven by sustainability. Many investors and lenders will no longer offer funds to companies unless they can prove that they have a clear sustainability policy and commitment towards reducing their carbon footprints. Increased scrutiny of sustainability reporting by investors means that greenwashing is more easily spotted and may lead to being blacklisted or facing legal consequences.

The second reason is regulatory. Whether companies want to be green or not, governmental legislation already imposes sustainability requirements on businesses and as more Governments commit to net zero and net zero deadlines draw nearer, the more regulation will increase.

The final reason is a human reason. Human concern about climate change is real and growing. This is particularly true amongst the younger generations. Younger people have also grown up with the science and have more to lose from the longer-term impacts of climate change. At the customer level, the impact of social media means that companies with poor ESG records are increasingly called out and risk being boycotted. New entrants to the workforce also tend to place a stronger emphasis on ESG issues when choosing an employer. So, businesses who want to be able to employ the best and the brightest need to show they that they are serious about sustainability.