FTSE 100 Companies' ESG and Purpose Misalignment
According to recent research, FTSE 100 companies face a disconnection between their purpose and ESG reporting. With the growing concerns of "greenwashing," it is crucial for firms to ensure that their purpose goes beyond mere performance and translates into tangible actions.
In today's world, consumers increasingly expect ethical engagement from the brands they support, particularly concerning climate change, diversity, and animal rights. Many companies have implemented policies to convince customers that they have strong ethical values. However, the concept of "purpose" remains vague, leading to a significant amount of these pledges being nothing more than empty talk.
One prominent example of this is greenwashing, which involves deceptive marketing tactics used to portray an organisation's products and policies as environmentally friendly. When brands are caught engaging in greenwashing without substantial actions, the resulting loss of trust can cause irreparable harm to their reputation.
A recent study conducted by Blurred, a global strategic and creative consultancy, highlights the need for a significant number of FTSE 100 companies to prioritise addressing their "impact gaps." The study introduces a groundbreaking methodology for evaluating the integration of ESG and Purpose in public companies by comparing their ESG disclosures with their public corporate purpose claims. According to the research analysts, the average integration score for companies assessed within the FTSE 100 is 5.2 out of 10.
The FTSE 100 is an index consisting of the 100 largest companies listed on the London Stock Exchange, determined by their market capitalisation. When analysing which types of companies tend to lag in fulfilling their purpose commitments, Blurred found that smaller companies predominantly rank lower on their chart.
These smaller firms are slower in making purpose commitment announcements and disclosing their environmental, social, and governance practices compared to larger companies with higher market capitalisation, who are actively sharing extensive information on ESG and purpose.
However, it is important to note that not all large companies are leading these efforts. Certain sectors, including prominent brands within the health and pharmaceutical industries, as well as financial services players, exhibit less transparency in their purpose and ESG disclosures compared to utilities and mining companies.
Firms that make false promises, particularly those that prioritise purpose-based commitments over ESG reporting, may face even more significant challenges. Consumers are becoming increasingly critical of companies that emphasise purpose without aligning it with transparent ESG practices.
A notable example of this trend is observed in the fast-moving consumer goods (FMCG) sector, where Blurred's research reveals a substantial disparity between purpose-focused messaging and actual ESG reporting. Such discrepancies are likely to erode consumer trust, even for companies considered environmentally friendly, as seen in recent controversies involving Ikea and Lush.
However, the focus on FMCG brands by Blurred does not imply other sectors evaluated fare better. The overall finding indicates that only a limited number of FTSE 100 companies genuinely connect ESG practices with their highest-level communications.
Stuart Lambert, Chief Strategy Officer at Blurred, emphasised the lack of substance in many FTSE 100 companies' stated purpose, describing them as mere marketing taglines without deeper connections to governance, values, or decision-making. Lambert stresses the need for companies to integrate their narratives on ESG and purpose, prioritising disclosure of the harm they may cause before making claims about the positive impact they intend to achieve.
To view and compare company ESG Ratings and Sustainability Reports across sectors, follow our Company ESG Profiles page.