Are B2B Companies Truly Embracing ESG or Just Greenwashing?
How improving ESG performance can benefit businesses – and society as a whole
More than 90% of S&P 500 companies currently publish ESG reports in some form, according to McKinsey
February 2023
A survey by BRC shows that while 80% of respondents produced sustainability reports, only 44% followed recognized ESG reporting frameworks – Center for Sustainability and Excellence
May 2023
The rise of Environmental, Social and Governance (ESG) practices shows no sign of slowing. Since the turn of the decade, it has become an integral part of corporate culture. There are many reasons to celebrate this. Improving ESG has the potential to reduce costs, boost stock performance and increase customer and employee loyalty. And at its heart, ESG is a positive approach to fighting climate change, pushing towards net zero and embracing equality and inclusivity.
So it’s no wonder so many companies have embraced ESG in one form or another.
While some organisations have a proactive commitment to their initiatives, many, if not most, find the whole ESG implementation process challenging and frustrating.
This, in our view, is driven by four key factors:
Audit focus kills creativity
Impressive sounding initiatives don’t always drive change
Data, insight and incentives are lacking…particularly stateside.
ESG is rarely connected throughout organisations
HOW TO CLEAN UP YOUR ACT
To overcome these challenges and drive change, organisations can adopt one or more of the following approaches:
1) Go beyond reporting.
Giving ESG teams licence to explore opportunities for initiatives across organisations will drive engagement.
2) Get ESG decisions out of marketing
ESG might feel like an easy win for brand and marketing teams, but it can quickly make efforts feel hollow if they are the driving force. ESG and marketing should work together, with board level support important to connect departments and deploy resources effectively.
3) Improve analysis:
ESG reporting generates a wealth of data, but lots sits buried within 100-page reports. Proper analysis of data can help organisations identify new opportunities and build a positive case for progress.
4) Make it core:
Placing ESG at the heart of business and weaving it throughout company policy, brings customers and employees on the journey and helps avoid perceptions of “greenwashing”.
1
Audit focus kills creativity
“For the vast majority of organisations,
ESG is merely a means of enhancing their
reputation or giving them a competitive advantage”
ESG Lead, UK
FTSE 500 Company
Key Take Aways
ESG reporting can feel like a box-ticking exercise
Reporting is often prioritised ahead of progress
Reporting requirements discourage innovative thinking
ESG governance should help organisations get to grips with their responsibilities around environmental and social issues, not hinder them. But the nature of reporting requirements puts them on the defensive. “It’s a box-ticking exercise” as many professionals put it.
Stringent reporting frameworks are unlikely to inspire change. Additionally, their complex and ever-evolving nature keeps ESG teams on their ‘reporting toes’ and unable to address broader environmental or social initiatives. Reporting is prioritised, while genuinely transformative initiatives get put on the back burner.
This paints a grim picture, but it’s understandable. Organisations are worried about failing customers, staff, investors and shareholders – but also concerned about accusations of greenwashing. This precipitates a cautious approach: get the boxes ticked now, and leave genuine sustainable transformation for another day.
“We just needed to have a carbon reduction target, we can always change it later” (ex-CEO, Global Marketing Agency
2.
Impressive sounding initiatives don’t always drive change
“Outside of reporting, much of what we do is driven by marketing departments seeking content rather than actually stretching our ESG initiatives.
It’s the tail wagging the dog”
ESG Director,
FTSE 500 Company
Key Take Aways
Within the US, there’s a dismal lack of action whenever reporting isn’t mandatory
An emphasis on diversity in the US prioritises social factors at the expense of environmental ones
By failing to appreciate the value of ESG data they gather, UK organisations are missing opportunities to drive sustainable transformation
Marketing departments are always on the lookout for headline-grabbing ESG content to polish their brand. (Look at the websites of pretty much every global corporation, and you’ll see a significant thread of ESG running through it.) This creates significant pressure for ESG initiatives that have a strong PR hook more likely to get investment and support at board level.
While these might drive brand growth, they don’t necessarily provide the foundation for environmental or social change. ESG teams know what those initiatives are. They often they require significant short invest investment and take years to see a return. Unlikely to grab headlines, they struggle to be heard outside the ESG team, and many good ideas never see the light of day.
3.
Data, insight and incentives are lacking…particularly stateside.
“I’m embarrassed to say that we give little thought to our environmental impact. There is little to encourage businesses in the US to take the leap”
Senior Procurement
S&P 500 Company
Key Take Aways
Within the US, there’s a dismal lack of action whenever reporting isn’t mandatory
An emphasis on diversity in the US prioritises social factors at the expense of environmental ones
By failing to appreciate the value of ESG data they gather, UK organisations are missing opportunities to drive sustainable transformation
We’ve discussed the downsides to ESG reporting, but without any reporting mandate the problems become more severe. In the US, the absence of mandatory federal ESG reporting and a hugely fragmented approach by individual states sees businesses trail far behind the UK in ESG.
Fewer organisations have senior ESG roles, and when they do, their focus is on social responsibility, with the “E” largely ignored (or at best a ‘nice to have’.) This lack of interest in the environmental impact of corporations has, of course, been exacerbated by the current energy crisis.
In the UK, meanwhile, the challenge comes more from a lack of appreciation of the valuable data gathered by ESG teams through reporting. Organisations face two core challenges,1) a lack of time and resources to properly analyse data that’s been gathered and 2) poor appreciation from business leaders of its value, and how it could unlock sustainable transformation and ultimately economic growth.
4.
ESG is rarely connected throughout organisations
“There is little to no culture of ESG within our organisation.
I’m sure our annual report suggests otherwise, but outside of a bit of recycling we have little to no ESG mandate”
Facilities Site Manager
FTSE 100 Company
Key Take Aways
Most bolt on an ESG framework instead of weaving it through their organisation
Paying lip service to ESG frustrates many employees
A lack of commitment to ESG impacts staff retention and customer opinion
While many organisations have senior ESG leads who often have the ear of the board or CEO, it appears very rare to have top-down, strategic integration of ESG throughout key departments.
This results in the ESG culture of many organisations being somewhat thin and lacking in drive. Employees, meanwhile, are often passionate about environmental and social causes, and full of ideas at a more granular level which could have very positive outcomes. This mismatch in attitudes across the strata of an organisation is striking, but one that is rarely addressed or resolved.
Overall, the lack of a strategic thread running through the ESG policy of many organisations gives the sense of a light veneer, one which lacks a connection with employees and which may verge on greenwashing.
SEE THE BIGGER PICTURE
While ESG is unquestionably forcing corporations to consider their environmental, social and governance responsibilities, we have to ask whether it’s doing enough to benefit society more generally. Are reporting structures sufficiently robust? Are organisations incentivised to engage with quieter, more effective initiatives which aren’t necessarily going to grab headlines? Are ESG teams given the flexibility to be creative? And what will compel organisations to understand the value of making ESG integral to every aspect of their business?
At the heart of these questions is the disconnect between what ESG actually is, what we think it is and what we’re told it is. It could be cynically seen as the way organisations reluctantly meet their obligations to governmental policy, or attempt to make themselves more attractive to customers, staff and investors by making greener, more inclusive promises. But it’s also the beginning of something far more fundamental: a shift towards greater corporate responsibility towards human beings, and indeed the world we all share. We’d all do well to take it more seriously.
Get in touch with us today to find out your organisations ESG score