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Promising the earth

Jess Alden

Setting meaningful ESG targets is becoming essential, but those who only pay lip service create serious reputation risk

As more businesses yield to the demand to commit to ESG standards, allegations of greenwashing are rising too as campaigners and media pick holes in whether they are delivering on their promises.

ESG values are top on the list of things that investors look for, whether that be the big banks or private equity. A company such as Oatly is a prime example of investors wanting to spend their money on environmentally friendly brands. Last year, Blackstone Private Equity invested in Oatly, which resulted in some significant controversy, activists compared the eco-friendly brand to ongoing and inaccurate allegations that Blackstone had contributed to deforestation in the Amazon – leading to Oatly posting an explanation on their website called “change isn’t easy”.

“Greenwashing” is the buzz word of 2021 – prompting Greenpeace to announce recently that “We’re living in a golden age of greenwash”. It’s particularly prominent when considering the move to be ‘net zero’. In particular, in the context of carbon offsetting – the practice of offsetting is frequently labelled “greenwashing” as it is seen as Greenpeace succinctly say “instead of cutting your own carbon emissions, you pay someone else to cut theirs or somehow capture yours”. Indeed, offsetting in general and reference to this practice may leave a business open to criticism with activists saying that offsetting is simply not good enough to achieve net zero.

When companies don’t live up to expectation, or when they don’t act in the way that stakeholders and customers expect them to, reputational risk and damage occurs. When there is a gap between the perception and reality, issues occur. In the ESG context, then, Greenwashing is a dangerous practice to be participating in for a company’s reputation. Accordingly, if a company holds itself out to be something that it’s not, then the media will attempt to correct the record – and will avidly argue that it is in the public interest to do so.

The ever widening definition of what is in the public interest, we expect, will encompass companies that fail to meet the ESG targets that they set themselves. It will also mean that we will see more confidential information published in the name of the public interest under an ESG veil – this year Goldman Sachs had an internal PowerPoint presentation leaked and reported on that detailed junior employee burn out and treatment. We expect to see many other companies have what would ordinarily be confidential information published by whistle-blowers and the press in the name of the public interest (Brewdog perhaps being the most recent example of a company facing this difficulty).

Once you’re labelled a greenwasher – it’s difficult to prove you’re not. The business will be faced with the uphill battle of having to prove a negative. By having policies without substance, businesses leave themselves open to reputational harm and being labelled as greenwashing. The solution is to set targets that you can show that you can achieve – demonstrable actions will aid in this process. You can avoid the criticism by tackling these issues head on and being able to demonstrate steps taken rather than having a straw man of an ESG policy. Companies that have initiatives with the motivation of genuinely reaching ESG status and goals will be separated from those who have ESG initiatives purely for PR purposes very quickly.

Companies are therefore treading a difficult path, navigating through wanting to show that they support certain values and a particular ethos on one side but also being able to meet those expectations. Surely the simpler answer is not to over promise and under deliver?