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Under Reputational Pressure, Firms Must Keep Clear Of Climate Disclosure Traps
Despite ever-increasing net zero target setting and the mandated publishing of climate disclosures, some firms are still struggling to address key challenges. Faced with poor data availability and unreliable data quality, organizations can fall foul of two climate disclosure traps: greenwashing and green-hushing. Whether it’s overstating positive climate actions or omitting key details of environmental performance, both issues degrade the quality of corporate disclosures. Together, they can render disclosures nearly meaningless.
Nearly two-thirds of executives (59%) have admitted to overstating their sustainability activities, according to a survey conducted by The Harris Poll and Google. This exaggeration, in part, is fuelled by an environment of pervasive data challenges and growing customer demands for sustainable brands. Global corporate survey data from Verdantix reflects this motivation, showing that brand reputation is a significant driver of net zero strategies and target setting. Heightened pressure to address climate change is undoubtedly a positive shift, but it can lead business leaders – especially those without the adequate expertise – to cobble together haphazard targets and inaccurate disclosures. This may keep the wolves at bay for the short term, it opens the organization up to major reputational risks in the future.
So, too, does green-hushing. In first-hand interviews with senior sustainability executives, one participant stated that due to public backlash their annual TCFD report “moved down from a 12 to a 2-page disclosure”. This kind of ‘keep-quiet’ attitude is prevalent at a large scale: 300 respondents from South Pole’s 2022 Net Zero report indicated that they have set science-based targets but do not plan to disclose them. It’s not difficult to see why so many corporates are feeling tempted by this dangerous path. Analysis of 108 climate change lawsuits from LSEs Grantham Research Institute offers robust evidence that the frequency of climate litigation is increasing, and that even individual cases can negatively impact company value. But business leaders attempting to avoid the risks must remember that they won’t be able to hide in a more regulated world – and that this world is not far off.
No matter how seductive in the short-term, greenwashing climate targets and green-hushing details are incredibly damaging practices. Impending and existing regulatory developments will expose poorly set targets and penalize disclosures that lack essential information. The EU’s Directive on Green Claims and the European Sustainability Reporting Standards (ESRS) are key junctures in this evolution. To avoid falling for these climate disclosure traps – and ease their path along the straight and narrow – firms should ensure that they have a robust plan to enhance their climate adaptation and transition expertise, optimize organizational design, streamline data controls and adopt time-saving technologies.
Michael is an analyst in the Advisory team at Verdantix. He currently specializes in corporate climate disclosures and best practice, and leads research for the Verdantix Climate Benchmark. Michael joined Verdantix in 2021, where he first gained experience in Smart Buildings and ESG and Sustainability research sales. He holds an MSc in Environment, Politics and Society from UCL as well as a BSc in Geography from the University of Reading.