Will compliance around green reporting mean the end of greenwashing?

Greenwashing, whereby companies present themselves as more environmentally friendly or sustainable than they are, is something of a problem. How can people know what is greenwashing, and how can companies be supported in ensuring that they do not – accidentally or otherwise – greenwash?

Going green-ish

Greenwashing essentially refers to activities that make people believe that a company is doing more to protect the environment than it is, says Aoife Connaughton, sustainability strategy and decarbonisation lead at Deloitte.

“It’s a huge concern for businesses and a very challenging area to navigate, and I think there is a lot of ‘accidental greenwashing’ taking place now due to companies not being fully aware of the complexity of the sustainability landscape.”

We have a serious problem with greenwashing and organisations that are not taking it seriously are tempted to put a badge or wrapper around a product or service to imply that it is more sustainable than it is, to sell, says Liam McKenna, a partner in Mazars.

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“Regulation is there already and developing, and in coming years you expect these companies to be called out publicly for greenwashing. Also, as we mature in our reporting, organisations won’t be able to get away with it,” he says.

Avoiding the accusations

Companies should have sustainability integrated into their core business strategy, with science-based targets and actionable plans to achieve those targets, says Connaughton. “This should be driven by leadership at the highest level, including the company’s board and senior executives,” she says.

“Established frameworks like the Sustainability Accounting Standards Board (SASB) and EU Taxonomy give businesses a clear reference point in terms of what they should be working towards. Also, broad stakeholder consultation is essential.

“When working through strategy development, companies should seek challenging voices to ensure that they are aligned with best practice. Having an expert external view can also be hugely valuable to identify any gaps or causes for concern.”

Businesses seeking to promote the environmental features or sustainability improvements of their products should follow best practice, ensuring all environmental claims are clear, specific, and backed up by robust and verifiable evidence which – importantly – considers the entire life cycle of the product or service, says Laura Mulleady, chair of the ESG and sustainability group, A&L Goodbody. “Companies need to avoid the use of vague or misleading information to describe the sustainability features of a product and ensure that any aspirational claims are accompanied by clear targets and timelines and updated as necessary,” Mulleady says.

“Legislation designed to enhance and strengthen protections for whistleblowers came into force on January 1st, 2023. Greenwashing allegations from whistleblowers within an organisation risk irreparably damaging its reputation. Having a culture that encourages employees to speak up about potential wrongdoings, coupled with robust procedures to appropriately investigate such reports can help to mitigate against this risk as employees are more likely to report issues internally rather than raising these concerns publicly.”

Regulating and reporting

The publication of the Corporate Sustainability Reporting Directive (CSRD) in December 2022 means that mandatory sustainability reporting obligations, including information on a company’s greenhouse gas (GHG) emissions, are coming down the track in the next few years for listed SMEs and those companies categorised as large, says Jill Shaw, ESG and sustainability lead at A&L Goodbody.

“The European Sustainability Reporting Standards set out the information that companies need to disclose in the directors’ report within their annual financial statements to satisfy the CSRD reporting obligations,” Shaw explains. “These standards require reporting companies to disclose information on GHG emissions with details of scope one, two and three emissions to be included in this mandatory disclosure.”

The key point around deciding to report is creating a virtuous circle that applies pressure to organisations to all act in a positive way and accelerate our progression, says McKenna.

Scoping out emissions for the supply chain

Scope one emissions are those from sources owned or controlled by the company, for example, company vehicles or running machinery to make products, explains Shaw. “Scope two emissions are indirect emissions that occur at sources owned or controlled by another company, but which are a consequence of the operations of the reporting company. For example, emissions from the generation of purchased or acquired electricity consumed by the reporting company,” Shaw says

“Scope three emissions are also indirect emissions that occur across the reporting company’s value chain rather than within the reporting company itself. For example, emissions from transport used to get products from the manufacturer to the end user.”