How Can Businesses Build Trust With Their ESG Claims?

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by Eric Burdon,

Shein

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Despite the steady growth and acceptance of ESG among companies and investors, these same groups could very well be the reason the public struggles to accept ESG in certain parts of the world. We see this time and again in America, where one of the most vocal opponents of ESG is the Republican Party.

Even though part of that stems from the public not being familiar with ESG, some of the minorities who oppose ESG have well-rounded reasons beyond “combat wokeness.” We see those same companies who pledge they’ll help the environment only to destroy it further. We’ll be seeing investors invest in companies like Shein, which exploits employees and destroys more of the environment, even when Shein itself is attempting to brand itself and its performance as sustainable. And then there is COP 28, at which we might see a regression in solving climate issues.

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The Ability Of Business To Meet Expectations

Between greenwashingshareholder interest, and even failed recycling programmes, there are plenty of reasons to be frustrated with corporate sustainability and the movement at large. You can see this in a recent survey among investors, too. Three out of four institutional investors don’t trust companies to meet their ESG commitments.

Something needs to change, and it’s not just about following the blueprint that’s already laid out. Just as committing to reducing carbon emissions is crucial, a focus on developing trust among

stakeholders is just as important.

So how do we build it?

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Government Regulation

Each country is at different stages in this regard, and fortunately, at this moment, regulations are getting tighter. Even in the United States, the US Securities and Exchange Commission passed laws in 2022 aimed at making greenwashing tougher to do.

But the issue is that there needs to be more regulation than simply stomping out greenwashing. In the EU, they’re already requiring mandatory ESG disclosures for the largest companies that interact with the EU market. Within the next few years, all businesses will need to disclose ESG reports.

Other countries have followed suit, making mandatory reporting effective in a few years, and that’s a start. Society, clients, and customers at large should demand compliance in this sense to better evaluate the ESG aspects of a company's performance, to highlight examples and opportunities for disruption that can have realistic consequences for near-term success.

However, while government incentives overall are helpful, blunt methods like making these measures mandatory and charging penalties for non-compliance don’t always bring about change. Strong-arming in this way doesn’t build trust in ESG.

What governments should also consider is outlining why this is so important for businesses to do. They need to structure ESG reporting as another method for staying competitive as well as offer tools to make the reporting process easier to do.

Singapore is a good example of this, as they provide industry transformation road maps and endorse targets.

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Better Company Transparency

The short version is that better transparency will look like a very public, easy-to-use database that leaves a paper trail of data on every single company and those who operate them. 

It creates a scenario where if a business owner is caught greenwashing, they’re still able to start a new business. However, they won’t be able to obscure their track record, as this database, upon entering the person’s name, will be able to display their entire business history. This includes compliance breaches, investigations, lawsuits, and other noteworthy events.

In fact, Singapore has already created this sort of system.

But the benefits of this kind of system stretch far beyond stomping out greenwashing efforts. For small businesses, this allows them to prove their credentials and secure green financing options. Banks can also use this as another source for checking a business owner's environmental practices.

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Competitiveness Means Work

Building trust in a movement this massive is going to take time. That said, those who are aware of the problems and are looking to make a difference have to learn to cooperate with one another to tackle these issues. 

Whether it’s a business, stakeholder, or shareholder, and regardless of size, building a culture of trust and accountability is more than complying with and filing ESG reports. It’s about talking about it, pointing the finger at problem companies, and working to be better about ESG practices as well.

To check how your company’s ESG scores fare among industry peers, take a look at our Company ESG Profiles.

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