The Challenges Companies Face in Meeting ESG Goals
In my previous blog post, we discussed the most recent https://ellenmacarthurfoundation.org/global-commitment-2022/overview Progress Report and the challenges companies face in meeting their sustainability commitments. Most reports indicate that we are falling behind on our ESG targets. I do not doubt the intent and desire of large brands to meet their sustainability objectives, but the question remains whether these companies are willing to pay the price to achieve these objectives. While some companies are brave enough to admit their failures and are very open about their struggles, others often engage in what is called "greenwashing." This term was first used back in the 1960s and is defined as "advertising and public messaging to appear more climate-friendly and environmentally sustainable than [a company] really is." Just like the cartoon below illustrates:
The Pitfalls of Greenwashing in ESG Advertising
There are several reasons companies may resort to greenwashing, but none of them can be justified, and none of them should be tolerated. Greenwashing usually starts with some form of "ignorance," but it never stops there. Initially, companies see ESG commitments as a great marketing tool and a demonstration of commitment to responsible corporate standing (in some instances, there are also legal requirements). These commitments are rolled out with great fanfare, like joining a list of signatories of the US Plastics Pact (there are 117 of such signatories as of October 2022). Everybody applauds, the company gets positive news coverage, a large portion of the company website is devoted to the cause. Unfortunately, for way too many companies, it is where their "sustainability journey" peaks.
Balancing Profitability and ESG Commitments
Companies may have legitimate reasons to adjust their ESG targets and timelines, as sustainability commitments can be expensive and must be balanced with other shareholder and stakeholder interests, such as profitability. While achieving a balance between sustainability and profitability should be discussed openly and transparently, some companies choose to resort to greenwashing instead of honestly acknowledging their failure to meet ESG objectives. As a result, greenwashing is becoming more elaborate, with some companies engaging in more nuanced tactics to avoid criticism and negative press. Calling practices “sustainable” and “eco-friendly” is no longer sufficient to demonstrate a commitment to sustainability, as shareholders and society at large demand action.
Two Types of Greenwashing that Undermine ESG GoalsThere are several types of less-than-honorable corporate behavior that can be classified as greenwashing, and one of the most widespread is "green labeling." This occurs when close examination of sustainability claims reveals that they are mostly misleading. With regards to bio-plastics, a significant portion of products labeled “biodegradable” or “compostable” are in fact neither. Although regulations have been enforced to prevent unsubstantiated claims, the green labeling practice continues to this day. For example, PLA products have been labeled as “biodegradable” and “compostable” for many years without proof that they will degrade in the environment. PLA is a bio-based polymer/plastic, but it can take hundreds of years to degrade in an environment like a composter or a landfill, and it does not meet the majority of technical criteria required for the material to be called “biodegradable” or “compostable.” Although some research shows that some additives can accelerate degradation, it is clear that the majority of PLA biodegradability statements are not true. Furthermore, PLA products represent one of the largest threats to existing plastics recycling infrastructure.
Another type of greenwashing is “green rinsing,” which is an emerging tactic that involves companies continuously replacing their ESG targets with different metrics or different dates. Rather than acknowledging difficulties or inability to achieve ESG targets, the company announces that it is “elevating” its commitment, conveniently forgetting to mention its simultaneously extended implementation timeline and a very obvious fact that its previously announced (lower) commitments have not been or will not be met. The biggest problem with green rinsing is a lack of desire to explain the root cause of missing the original targets and a complete absence of legitimate discussions of why the public should believe that the new target had a better chance of being achieved.
The Importance of Accountability in ESG Reporting
During the recent COP27 climate conference in November, a prominent case of greenwashing was discussed. Major brands have been under immense pressure to reduce their harmful emissions and these initiatives are among their primary ESG objectives. It is hard to believe, but combined pledges by large companies to achieve net-zero emissions cover a whopping 80% of current emission levels. Clearly, reducing emissions by 80% is not realistic. In fact, the UN Secretary General has called such pledges a form of greenwashing, stating that they demonstrate “a surplus of confusion and deficit of credibility”. When faced with scrutiny, companies are revising their pledges with different metrics and timelines but without acknowledging any wrongdoing. Most major oil and gas companies are no longer advertising net-zero emissions as regulatory documents now prohibit such claims for any company with investments in fossil fuel projects. Instead, the companies are switching to more ambiguous metrics such as “low-carbon” rather than specific targets like “CO2-free”.