"You're Never Wrong For Doing The Right Thing" - Regulation & CSRD Helping to Improve Comms and to Mitigate Greenwash

Over recent weeks, following the launch of FOUR32 and within my advisory to the Climate Majority Project, I’ve seen a rise in talk about the data-loaded and acronym-heavy impact of sustainability regulation, the idea of wider mandatory ESG reporting to ensure a level commercial playing field and the emergence of CSRD and its double materiality requirements - where companies must consider how their actions impact both people and the planet, but also how sustainability issues can affect their financial-wellbeing.

For many organisations, this year represents the last of a more simplified sustainability report as they prepare to integrate the expectations of CSRD into their workflow, more aligned with financial reporting and a need for third-party assurances of the ESG data. The big four auditors are eyeing CSRD with glee.

Aligned with these policy adjustments, just last month, the EU Parliament voted overwhelmingly to approve a series of rules set out in the Green Claims Directive, to protect people from misleading environmental claims by companies. This sits alongside similar guidance shared last year by both the UK’s Competition & Markets Authority and Advertising Standards Authority.

Like many, I’ve followed greenwash accusations in the news agenda over time and looked to understand what’s behind the claims. Much has been said of the significant reputational risks of greenwash and getting sustainability communications wrong, especially with the growth in stakeholder consciousness and louder alarm bells of a climate crisis in the minds of many. We also hear of the opposite, in greenstalling or greenhush, having similar associated reputational risks - certainly opportunity costs for sustainable growth.

Where the sustainability “industry’ is now compared to even 5 years ago is considerably different. What might be described as a pre-regulation environment (by contrast to today’s standards), and perhaps compared to the Wild West from a sustainability communications / greenwash standpoint, is now coming of age, and we can all breathe a little easier. CSRD represents a step towards advancing reporting standards and promoting greater transparency and comparability. It facilitates a more structured and authentic approach to sustainability communications which, in turn, will empower companies to effectively convey genuine efforts and progress, while also enabling stakeholders to scrutinise and evaluate the claims made. The emphasis on independent auditing and data assurance further strengthens the credibility of sustainability action, ensuring the accuracy and reliability of the data.

So, this greater scrutiny and assurance of the data suggests what is true is true; undoubtedly this will reduce the risk of greenwash and help foster greater trust amongst stakeholders through authentic comms. In turn, it is hoped this will bring those companies fearful of scrutiny out from behind their green bushels. Perhaps more importantly, it may expose those laggards who are yet to see the importance and opportunities of sustainable transition.

Developments in regulation continues to be top of the ongoing agenda yet there is still much work to be done. With the existing globally fragmented regulatory landscape, there remains the likelihood of carbon leakage where companies look to move production from a country with stringent policies and reporting standards, to a country that is more lenient, to avoid associated costs, leading to an increase in carbon emissions.  This in turn makes it difficult for investors, customers, and other stakeholders to consistently evaluate and compare the sustainability performance of companies operating across different markets and clearly, such obscurity raises mistrust and reputational risk. Whilst the EU has a planned Carbon Border Adjustment Mechanism, essentially a carbon tax, which will remove the incentive for companies to shift production from one country to the next in this way, it won’t be operational until 2026.

To consider then, in order to preserve reputation, business leaders need to contemplate adopting consistent global sustainability standards that align with leading practices, even when not mandated everywhere. This will demonstrate an authentic commitment to sustainable transition and will help drive stakeholder trust. Remember, it wasn’t so long ago that we saw how the reputations of certain global companies that took advantage of corporation tax loopholes in various markets went southwards. As Mark Twain once said, “you’re never wrong for doing the right thing…”