A Better Way To Handle Greenwashing
It’s easier to say than it is to do. You see this theme repeated in greenwashing scandals all the time. But now, instead of these scandals being obvious, they are more sophisticated.
The new greenwashing examples look like the ones with Inditex, the parent company of Zara. It’s a large fashion brand, and they want you to know they’re serious about saving the planet. So much so that Inditex states on its website that it's aiming for “Net Zero Emissions” by 2040.
It sounds lofty and reasonable, and it’s enough to fool someone who takes their word. But that claim starts to fall apart when you do some digging. To start, an independent analysis from Carbon Network Watch says Inditex’s plan is “ambiguous and unsubstantiated.”
Greenwashing As The Norm
We’ve reached a point where unsubstantiated claims now fall under greenwashing definitions. But the problem is that a lot of businesses are doing this. For perspective, 4,100 companies have claimed they have “transition plans” that align with Paris’s target emission goals. However, out of those companies, a CDP report shows only 81 percent have “credible” plans.
Not only that, but the claims that are being made are not revolutionary. “Net Zero Emissions” by 2040 is a strategy that multiple companies have stated.
We’re seeing this new rise of greenwashing because businesses are afraid of losing their shareholders. As ESG becomes further adopted, companies risk losing established and new investors. In an attempt to stay relevant, they dive into ESG with little planning to make their goals a reality.
This has resulted in scandals and fines for companies. And while that’s a deterrent to greenwashing, this new kind of strategy clearly needs to adapt and be better. Here is how it can look.
Throughout the world, governments are already planning regulations for ESG and roping corporations and other businesses into these plans. Companies are expected to release financial disclosures and reports if they’re public. They need to provide accurate information that would be valuable to an investor as well. All of this is done to protect investors from financial harm should the company tank or underperform.
After all, investors should know if lawsuits for a company doing exceptionally well are on the horizon or if a tech company is struggling to hold patent protection for its new innovative product.
This argument, though, could easily apply to greenhouse gas emissions and information about how climate change affects their business. In fact, regulatory bodies are working to implement this very soon, with many expecting these disclosures as early as January 2024.
This is a good first step, as investors are right now at the forefront of this movement. And when the entire world is facing extreme weather, it’s clear that all businesses will be impacted in some fashion. As an example, it would be good for Airbnb to disclose that the islands they’re promoting could soon be gone due to rising water levels. Failing to mention that would be doing its investors a disservice.
In addition to more regulations, routine progress reports should be mandatory. A lot of companies sneak by with only yearly reports, such as Norfolk Southern. It gives the impression that emissions disclosures and calculations are really difficult. The reality is that they’re not.
The higher taxes, duties, fines, lawsuits, damages to reputation, activist investors, industry shifts, and the costs of doing business in this new way are. Those alone provide plenty of incentives for companies to put more effort into their claims and to show the numbers. This is in addition to the green goals having been voluntary up to this point.
What this method should do is make fact-checking green claims by publicly traded companies easy to do. After all, when metrics are universally accepted, it’ll be easy to compare company numbers regardless of where they’re established. Realistically, all companies will only need to worry about one set of figures.
Broader Legal Liability
But what these other two methods help with is ultimately investors being able to punish businesses, specifically the company boards. Even in the United States, there are greenwashing lawsuits occurring before mandatory disclosures. On 9 February, ClientEarth filed a lawsuit against individual board members of Shell. They alleged that board members at Shell mismanaged climate risk and made misleading statements.
The problem with ClientEarth’s filing is that they’re in an uphill legal battle for multiple reasons. The biggest isn’t the financial stability of Shell, although that is one, but rather how we’re forcing companies to come clean about their environmental sins. Getting environmental disclosures through financial disclosures doesn’t exactly prove a company is good or bad. Financial disclosures are all about profitability.
This is why the EU’s standards are so good, because, ultimately, they embrace a concept called “double materiality.” It’s a concept that makes corporations have ethical responsibilities to more than just their shareholders.
Yes, Shell has had some nasty oil spills. Currently, investors might not consider that material, but the people in the Niger Delta definitely care about it. It’s a similar scene with Norfolk Southern and their train derailment. Some investors might not care about the derailment, but the people in East Palestine who saw the black smog billowing up above them definitely do.
Even if these large corporations win their lawsuits, as the US isn’t keen on the double materiality concept just yet, it still forces companies to come out.
Maybe then we can see more change in the right direction.
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