Immy Mobley, Graduate Intern - Environmental researcher, ESG Foundation

ESG reporting eliminates the possibility of greenwashing and improves a business’s profile

By June 2, 2021No Comments

There is a growing feeling that the world is currently unravelling before our eyes, whether this be due to the global pandemic, the continued racial conflict or the progressively devastating consequences of climate change. It is unsurprising that, along with governments and non-profit organisations, an increasing expectation exists for companies to step up their commitments to social and environmental issues. In a survey conducted in 2020 it was found that almost 95% of millennials were interested in sustainable investing and since 2019 there has been an 85% increase in organisations expressing their support for Climate Disclosure Recommendations globally. Furthermore, the Dasgupta Review published in February this year describes in-depth how financial institutes are profoundly intertwined with nature and that the well-being of humanity relies heavily on biodiversity.

Therefore, it is unsurprising that there is a rising demand and expectation for effective sustainability reporting within companies. LUSH, the British cosmetics retailer, is well-known for displaying itself in the public eye as an environmental and ethical company through tireless campaigning and advertising. It publicly stands against animal testing and promises to use as little packaging and energy as possible. Yet, as a company that aims to set itself as the leader of sustainable cosmetics, it is discouraging that only a lack of clear evidence as to how LUSH is achieving their goals and a failure to provide quantifiable environmental targets for the future can be found online. The non-existent coherent report places the authenticity of the so-called ethical company immediately into question.

JD Sports has also failed to publish a substantiated sustainability report and recently the company has been interrogated regarding its principles. An article in the Sunday Times written by Oliver Shah stated: “JD Sports executive chairman Peter Cowgill has ‘’an instinctive knack for reading trends’’: and has built a global retail empire on the back of the ‘’athleisure’’ boom. He has, however, ‘’been unable or unwilling’’ to read the public mood during the pandemic. JD Sports has used the crisis to dump its Go Outdoors subsidiary into administration only to buy it back minus inflexible property leases. While telling the City JD’s finances were robust, he refused to pay rents, and took £86.1 million in furlough payments, £38 million in rates relief and £300 million of BoE emergency funding which was never used. Declaring profits of £324 million, Cowgill took bonuses of £4.3 million while JD paid £16.7 million in dividends. Cowgill feels no sense of obligation to the government that forced the closure of his non-essential stores. The ‘’self-interest and short-termism’’ displayed by Cowgill gainsays claims that the pandemic will re-write the social contract between business and the state: ‘’The FTSE’s more ruthless bosses will get back to doing what they’ve always done’’”. In the aftermath of the COVID crisis, people around the world are higher sensitised about society with 54% of consumers admitting to weighing purchase decisions on social purpose and honesty. It is therefore no surprise that businesses such as JD Sports will suffer in the long-term if they continue to overlook ethical values and do not take implementation of ESG initiatives seriously, because instead, customers will start to turn to organisations that dedicate themselves to tackling sensitive issues and strive to make a positive impact on the planet.

Brewdog is the craft beer company that is largely recognised for being a leader in terms of its green initiatives and in particular for being the world’s first carbon negative beer business. The company does have an easy-to-find sustainability report for 2020 which is well-written and eye-catching, however, there is little content relating to anything other than initiatives to reduce carbon use and strategies to decrease waste. Disappointingly, apart from these narrow environmental targets, no information is presented relating to Brewdog’s social values, the importance of the well-being of employees nor any diversity or inclusion objectives in place. Effectively, the report has completely ignored the social and corporate governance aspect of ESG.

Businesses, such as Brewdog, that focus heavily on the PR of environmental issues but do not generate an ESG report are left exposed to the potentially harsh criticism of greenwashing. Marcus Björksten, who manages one of Europe’s best-performing sustainable funds, said earlier this year that “greenwashing is a real problem” whereby companies promote ESG concerns as an advertising gimmick but are not as sustainable as they appear. Proper ESG reporting eliminates this possibility of this deceit. “The reporting will make it very difficult to have greenwashing” says Björksten, so why is the practise not more widespread?

Carlsberg’s 2020 sustainability report, which incorporates ESG disclosures throughout, is a great example of how to present transparent progress updates on achieving both environmental and social goals. It openly includes issues such as reducing carbon footprint, water waste, irresponsible drinking and accidents, allowing Carlsberg to appear authentic and trustworthy in their ambitious targets and recent campaign promoting its efforts to restore habitats in UK waters in partnership with WWF. Coincidently, Carlsberg’s shares are up 10% since the beginning of the year.

The ESG Foundation has constructed a showcase of sustainability reports, providing a tool for easy access to numerous published reports and permitting the contrast of frameworks and comparison of relevant reporting systems. One example listed is PepsiCo – the company won the best ESG reporting category at the Corporate Governance Awards last year and was praised for its innovative, interactive storytelling technique used to engage its audience. Furthermore, the extensive content clearly evidenced the fact that the business sought not only shareholders’ input, but external stakeholder’s perspectives on all of the six focus areas of the sustainability agenda.

The previous year, Microsoft won the same award. The company was commended for using a wide variety of platforms to communicate its actions on ESG issues, including an integrated CEO letter that provided insight into Microsoft’s business strategy, results, social purpose and corporate responsibility commitments.

Scotiabank’s ESG report is also posted on the Foundation’s Report Showcase which highlights the company’s ongoing commitment to building a more resilient, inclusive and sustainable world by highlighting its progress in diversity and inclusion, climate and sustainable finance. Additionally, Scotiabank’s Sustainable Finance group, launched in 2020, is assisting clients to identify opportunities of green financing by establishing methods of ESG reporting and data collection that will build robust ESG frameworks and governance structures.

Walmart has been condemned in the past for its massive carbon footprint, selling of assault-style rifles and low hourly minimum wage. The company’s huge workforce of over 2.2 million employees and 11,500 retail locations provides just one explanation for the scepticisms surrounding its recent sustainability efforts. Nevertheless, Walmart’s 140-page ESG report is helping to eliminate some of its previous stereotypes – namely a lack of consideration for people or the planet. The company has quietly rolled out ambitious environmental initiatives and introduced agendas to improve workplace equality and champion gun safety. As a result, Walmart has remained unquestionably resilient, with sales up 5.9% from the previous year, and has thrived throughout the entire pandemic whilst many traditional retailers have plummeted.

It is not only large companies that benefit from proper ESG reporting. In the past, small and medium sized enterprises (SMEs) may have viewed sustainability reporting not relevant to themselves, but now this could not be further from the truth. Millennials tend to turn to local brands with strong ideals and evidence shows that generation Z prioritise companies that reflect strong social justice, action against climate change and champion individuality. Furthermore, ESG reporting demonstrates to investors how a company mitigates risks and generates long-term financial returns. SMEs account for 90% of all businesses and so accumulatively have a momentous impact. It is therefore crucial that all companies, regardless of size, join the venture of incorporating sustainability and reporting their ESG practises effectively to achieve growth.

As emphasised in the Dasgupta Review, transformative change of the relationship between financial institutes and nature is essential for the future success of economies worldwide. For this to become a reality, businesses must measure their impacts on nature and provide full disclosure of their actions so that they can be held accountable if necessary and improve ensuing decision making.