Volkswagen has the dubious honour of presiding over the biggest greenwashing scandal in corporate history. In 2015, the German car manufacturer was found to have intentionally rigged its emissions testing to deliver greener results.
The most potent symbol of Germany’s powerhouse economy was caught with its fingers in the green till, as it were. The damage, not just reputationally but financially, was significant. The company’s share price nosedived, wiping €13 billion off its market value.
The episode heightened scepticism about corporates and their green agendas. Many well-intentioned firms got caught in the crossfire. Genuine sustainability pledges got smeared with the greenwashing tag. It was hard to tell who was trying to do the right thing and who was talking out the side of their mouth. This gave bad actors cover.
Fast forward 10 years and the climate, excuse the pun, has changed. Companies aren’t blowing hot air about their ESG (environmental, social, and governance) credentials any more, they’re actively resiling from them.
Last year, the Science Based Targets initiative (SBTi), one of the most respected frameworks for corporate decarbonisation, removed 238 big corporates from its list, claiming their climate ambitions were no longer consistent with the Paris climate accord. The list included Microsoft, Unilever, Marks & Spencer, X (formerly Twitter), Diageo, Procter & Gamble and Walmart.
UK oil giant BP is illustrative of the shift. Back in 2020, under Irishman Bernard Looney, the company did something entirely out of character for an oil and gas company, it pledged to produce less oil and gas.
Looney, cast as the white knight of the industry, said BP “would become a very different kind of energy company”. The aim, he said, was to make BP net-zero by 2050, an aspiration environmental campaigners never thought they would hear from an oil major.
Five years on and the company now declares its faith in the green transition “misplaced”.
Instead of shifting to renewables it has announced a major ramping up of fossil fuel production with plans to increase investment in oil and gas to $10 billion a year while slashing $5 billion from its previous green investment plan.
New boss Murray Auchincloss is fast dismantling Looney’s green agenda. There are company-specific reasons for BP’s volte-face. It has lost ground to rivals Shell and ExxonMobil which never made the same climate pledges and pursued greater oil and gas production. It is also being hunted down by activist investor Elliott Management which wants sweeping changes, including the potential break-up of the company.
Nonetheless BP’s decision to abandon its green ambitions is emblematic of the wider corporate space. Unilever, the world’s biggest consumer goods company, is similarly scaling back its environmental aims, having led the way a decade earlier.
There are two schools of thought as to why this is happening. The first explanation, the cynical one, suggests many self-serving companies are jumping on the populist backlash against the climate agenda personified most obviously by US president Donald Trump.
Trump’s climate scepticism has shifted from rhetoric to policy. His newly appointed Environmental Protection Agency (EPA) chief Lee Zeldin said recently he plans to rescind 31 key environmental rules on everything from clean air to clean water and climate change. The former EPA administrator Gina McCarthy called Zeldin’s announcement “the most disastrous day in EPA history”.
Significantly, Zeldin says the agency will revisit a 2009 determination that greenhouse gases endanger public health and welfare – a finding that underpins existing EPA rules for power plants, vehicles and other sources.
The second reason put forward for this corporate step back and one articulated by Mike Hayes, KPMG’s global leader for climate and decarbonisation, is that the emission-abatement standards set by the SBTi and others are “just too difficult”.
“Not all the technology solutions exist today to enable companies and their supply chains to get to net zero,” he says.
Hayes also argues the cost of the decarbonisation “is just a bridge too far for many companies – and could potentially result in an erosion of shareholder value”.
Sometimes reaching net zero requires actions beyond the control of individual corporates, he says. How do companies get to net zero if the country’s energy grid isn’t green enough or is too reliant on imported fossil fuels as in Ireland’s case.
Hayes also points the finger at NGOs (non-governmental organisations). “Those companies that have been trying to do the right thing, which have made strenuous efforts to achieve net zero” have, in many cases, faced criticism from external stakeholders, he says.
Under the weight of this criticism, many have stepped back.
Despite “these headwinds”, Hayes remains optimistic, suggesting companies are more cognisant of the need to make their businesses climate resilient and are increasingly seeing the issue not just as a risk but as an opportunity “to protect and create value”.
Companies with climate-smart strategies deliver better returns. That point will become more obvious when the EU’s Carbon Border Adjustment Mechanism (CBAM), a tax that will force foreign importers to cover the cost of embedded emissions, comes into force in 2026.
Whether Hayes’s optimism is warranted when global temperatures continue to rise and when the world’s largest economy is ripping up the environmental rule book is questionable but he represents perhaps the reasonable face of business and its attempts to grapple with the issues.
