Climate change, sustainable business, workplace diversification.
These topics are not new. ESG (the environmental, social, and governance issues) will be the critical theme impacting businesses over the next decade. We all know this and have largely accepted its importance. The laws are being made and the news is constantly talking about it, but why are we not actually tangibly seeing these sustainable changes that governments and higher authorities keep telling us are happening?
There is a great disparity between what is being talked about by governments and in the news, and what people are seeing in their workplaces and daily lives. In the 2023 Q2 ESG sentiment polls by GlobalData, 47% of respondents said that most companies treat ESG as a marketing exercise, an opinion that resonates with the confusion and frustration felt by many over the historic attitude towards sustainable issues.
The corporate approach towards all aspects of environmental and social positive change has for many felt exhausting, with the brunt of responsibility being placed upon the consumer to make conscious decisions and financially motivate companies to prioritize sustainable practices.
While the consumer movement to push sustainability to the forefront of discussions has been highly successful at increasing awareness of its urgency as a critical and time-sensitive issue, it saw a decline as soon as other pressing issues such as the cost-of-living crisis developed. Now is the time for governments to usher in a new era of ESG, an ESG 2.0 if you like, that will sustain the momentum of this movement.
Greenhushing – An end to greenwashing
A core issue that needs to be culled is companies profiteering from greenwashing, where companies exaggerate their environmental and ethical credentials to boost customer loyalty. The EU is acting as the people’s protector in this fight, introducing legislation to both deter companies from future greenwashing activities and hold them accountable for the claims they are already making.
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Much of the current regulatory focus has been on the financial sector, with the UK Sustainable Disclosure Regulation (the Sustainable Financial Disclosure Regulation in the EU) aiming to regulate the use of ESG terms in corporate filings. The use of terms such as ‘green’ and ‘sustainable’ will only be allowed for products that meet clear, set definitions.
These disclosures are adding transparency, making it more difficult for companies to exaggerate their sustainability performance. Similarly, the EU Green Claims Directive, proposed in March 2023, will require any ESG-related advertising claims to now be backed up by an independent verifier, which will greatly help reduce greenwashing for consumer-focused corporations in particular.
Quieting of sustainable marketing
However, as these changes are introduced, there will be a period of quiet, where companies reduce the number of green claims that they make out of fear of the new consequences for unbacked claims.
This quieting of sustainable marketing is known as greenhushing, and this transition away from greenwashing can partly explain the confusion felt among many about the lack of tangible sustainable action observed in their workplaces. It could take some time for companies to restructure their ESG strategies to align and comply with incoming government legislation.
The full scope of accountability
Business marketing and claims are not the only aspects of corporate actions that need to be regulated for their sustainability. A key focus has also been directed toward supply chain regulation and emissions offsetting. The driving factor for this comes from several sources. Corporate stakeholders with a focus on 2030 and beyond are increasingly considering the threat that relying on unsustainable practices will create for their businesses.
However, nearly 40% of respondents to the aforementioned ESG sentiment polls consider legislation and pressure from governments to be the primary reason for creating an ESG performance plan. This shows a continued increasing trend, up from 35% in Q1 2023 and 25% in Q4 2022.
Governments who have pledged 2050 and 2060 net-zero targets (the complete negation of the greenhouse gasses produced by human activity, primarily through emission reduction and CO₂ reabsorption) are introducing legislation across many jurisdictions that encourage investment and adoption of sustainable power, technology, and practices. There are also increasing expectations for companies to become accountable for not only the emissions that their business produces in its core operations but also the emissions across its whole supply and value chain, known as the ‘Scope 3 emissions’.
Higher taxes to incentivise sustainable business models
In the EU, higher tax mechanisms, such as carbon pricing, aim to financially incentivise both EU businesses and those hoping to trade within the EU single market to reduce their overall emissions to reduce the amount of tax that they are charged.
The key change overall here is a transition away from using ‘sustainability’ as a mask to attract greater business and instead moving towards a future of higher accountability and enforced regulation around corporate actions that impact the environment. The financial incentives are still available for businesses to operate with a focus on good ESG practices, however; governments are now using legislation to provide this incentive, so the changes being made are not as loud or as obvious as they once were.
Companies who focus on making sustainability a core, honest focus for their operations, will both benefit from these changes and develop a stronger outlook for success over the next decade.