This is not only to avoid the label of greenwashing, but in some situations, to avoid damaging litigation. Scrutiny on greenwashing is only increasing, with business’s social license to operate and legitimacy more than ever at stake. As a result, communication guidance around how to tackle this issue from a corporate reporting point of view, is becoming ever more important. Fortunately, there are ways in which companies can be proactive about preventing greenwashing in their corporate reporting communications, and in turn improve the standard of such corporate reporting.
It is often the case that green claims in corporate reporting are made using jargon or language and information that certain stakeholders cannot fully understand. This may occur more frequently in certain sectors, where scientific language or obscure industry acronyms are commonplace when describing business operations and market conditions. If this language is used in the context of a particular green claim, to the extent that only specialists can fully understand, it has the potential to be labelled as greenwashing as the language used is excluding certain stakeholder groups. To combat this, companies should attempt to ensure that any green claim is explained in a way that is accessible to all stakeholders, in layman’s terms. This is not to say that greater detail cannot be provided for specific stakeholder audiences, following the basic outline of the claim, but using simple, authentic language goes a long way.
Businesses regularly use terms such as “net zero”, “carbon negative”, “net positive”, or seeking to achieve “net zero negative emissions” and “deep decarbonisation”. These terms need expert knowledge and context to be fully understood and not all stakeholders will necessarily have extensive understanding of these terms and the differences between them, making it easy to misinterpret when a certain claim is being made. Take, for instance, the difference between “net zero” and “climate positive”. Net zero is defined by the UN as, “cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere, by oceans and forests for instance”1. However, climate positive on the other hand is defined by, “When an actor’s greenhouse gas removals, internal and external, exceed its emissions and any removals are “like for like”2. For many, this context is vital, and explanation of the difference between terms will help readers understand certain green claims that are being made within corporate reporting.
Further to net zero and its associated terminology, companies often communicate goals that are poorly defined, or are so broad that their true meaning gets diluted. Take for example, net zero claims, that are now commonplace in corporate reporting. This type of claim should not be made without substantiated targets backed up by a clear strategy, as well as narrative around implementation and logistics planning. An additional element to make a company less vulnerable to this claim is to offer interim targets, so progress can be shown. This also ensures more corporate accountability to the commitments that have been made. Again, it is important to remember that stakeholders in relation to any business have differing areas of expertise – making goals and associated claims clear, and fully substantiated, should keep a company’s complex stakeholder ecosystem content.
It is worth noting that businesses undertake greenwashing with different motives. For example, while some companies make these claims deliberately, a lot of other companies are simply not aware they are doing it (“ignorant greenwashing”)! No matter the reason, the consequences will be the same. Quality assurance, with a specific greenwashing lens, is therefore vital to the process of avoiding “ignorant greenwashing” across corporate reporting. When making green claims, ensure that, at the very least, supporting evidence exists before including the claim, and perhaps this will involve a wider training initiative in companies to educate internal stakeholders and contributors around making potentially questionable claims to minimise the risk of any accusations following publication.
With CSRD in place in the European Union since January 2023, the future looks promising for tackling greenwashing. Through the streamlining and transparency that the Directive should bring, alongside its set framework, detailed requirements, focus on double materiality and mandatory external assurance, the risk of greenwashing should reduce across corporate reporting.
Beyond the corporate reporting space, greenwashing has also been identified as a major problem for products making green claims, with the EU drafting a Green Claims Directive, to only allow claims qualified by sufficient evidence to be permitted on products.3 This has been a growing problem, highlighted by a recent EU study assessing 150 different environmental claims, where it was discovered that 53.3% of claims provided vague, misleading or unfounded information on a products’ environmental characteristics4. Undoubtedly, this is the reckoning of incoming legislation targeted towards corporate reporting. So, companies should pay attention.
Unsurprisingly, these green claims are also impacting consumer and investor behaviour, with scepticism growing around the environmental impact of different business operations as well as their associated products and services. With new anti-greenwashing legislation coming into place and consumers becoming conscious of these claims, it will not be long before regulators and varying stakeholders scrutinise the contents of companies reporting suites, especially if claims are not watertight. Non-compliance in this field is quickly leading to far broader risks beyond minor legitimacy and reputational issues.
Do you want to discuss greenwashing across corporate reporting in more detail? Please get in touch with Naomi Hawkins, Head of Business Development.
[2] https://racetozero.unfccc.int/wp-content/uploads/2021/04/Race-to-Zero-Lexicon.pdf
[3] https://environment.ec.europa.eu/topics/circular-economy/green-claims_en
[4] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52022SC0085
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