The dangers of corporate greenwashing

The global temperatures are rising at an alarming rate, coming closing to the 1.5°C mark than previously estimated. According to the IPCC Working Group I report published in July 2021, unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach. It’s imperative that the global temperature stays below the 1.5°C mark, anything more, the damage caused to Earth will be both irreversible and extreme. Anthropogenic climate change had already observed changes in the climate system, impacting organisms and ecosystems, as well as on human systems and well-being. By going beyond 1.5°C, scientists believe that adaptation will be more difficult, with intense and more frequent extreme weather events, as well as reductions in Arctic Sea ice, snow cover and permafrost. adversely impacting resources, ecosystems, biodiversity, food security whilst suffering a huge economic and human loss.

Starting in the 1960’s, there has been a global shift towards more environmentally sustainable ways of doing business. Companies started shifting to a more sustainable mode, recognizing the importance of incorporating ‘eco-friendly’ policies, ensuring their businesses demonstrates a commitment to a sustainable future. Unfortunately, the previous UN report issued in 2018 predicted, what was further confirmed by the recent report which suggests that even if the countries do meet their pledged goals to reduce emissions (set during the Paris Agreement), these commitments won’t be enough to starve of severe warming of the planet.

There is no magic bullet, addressing climate change will require significant change in the way humans behave, with a drastic change in technology, human behavior, shift in the way energy is produced and consumed and more importantly smarter use of scare natural resources. For example, improvements to energy efficiency and vehicle fuel economy, increases in wind and solar power, biofuels from organic waste, setting a price on carbon, and protecting forests are all potent ways to reduce the amount of carbon dioxide and other gases trapping heat on the planet.

What is the role of businesses for climate action? Almost all of the organisations today claim to be more sustainable and environmentally conscious, but how many are following through with their claims and commitments? How many companies are truly making a change?

Research by CERB showed that less than 30% of companies were developing sustainability reports. A trend was observed where although the companies were committed to sustainability, reporting on the performance was not a common practice. Furthermore, in the absence of any standardized and credible testing mechanisms, there is always a high risk of companies greenwashing their financial reports to appear more sustainable and environmentally conscious. This is a process where companies spend more money, time and effort on marketing itself as “green” rather than minimizing its adverse impact on the environment.

The investors, consumers and other stakeholders are increasingly becoming conscious about environment and society. Investors are interested to know which companies are most at risk from climate change, which are best prepared, and which are taking action Consumers are becoming more aware of environmentally sound businesses and value products and services that are safe for the environment. Therefore, companies are under constant pressure to become more sustainable and environmentally conscious. But the real question is how many companies are genuinely going green vs those only interested in green marketing?  Environmental, Social and Governance (ESG) analysis and reporting can provide valuable insights and help create long-term value for stakeholders. ESG reporting aims to standardize and quantify the environmental, social and governance costs and benefits derived from the activities of the reporting companies accordingly. But unfortunately, with no standardised calculation criteria, measuring and comparing different companies becomes a redundant exercise, while increasing the opportunity for companies to greenwash.

The Challenge

A gap clearly exists where due to the unavailability of regulatory framework for transparency and standardized reporting there is no way of judging whether the information provided by companies is trustworthy and credible. With an absence of global applicable standards for preventing and curbing green washing, the trend of greenwashing is growing exponentially. If this trend continues, there is a high probability that it will undermine the meaning of responsible and sustainable behavior where sustainability will become yet another buzzword without real content. The need to develop extensive guidelines on environmental communications and demand for better disclosure is urgent, ensuring companies provide authentic and reliable environmental claims and it can then be made public for cross referencing and third-party verification.

Time has come for the regulatory bodies in Pakistan to take notice of this and work together in collaboration, developing a standardized set of ESG reporting guidelines which the companies will need to comply with, ensuring a starting ground for uniform reporting with transparent, consistent reliable data while minimizing the risk of corporate greenwashing.