In response to the changing values surrounding climate change, sustainability and ethical consumption, businesses have had to ensure they are environmentally friendly and understand the importance of corporate social responsibility (CSR).
A repercussion of businesses adapting to societal values surrounding environmentally friendly practices is the operation of greenwashing. Businesses who engage with greenwashing are disingenuous about caring for the environment whether or not their tokenistic practices are intentional or not. Businesses who are caught greenwashing face the possibility of being publicly shamed, boycotted and permanently tarnishing their reputation.
Developing an environmental, social and governance policy (ESG policy) is an effective way to ensure your business does not greenwash or face the potential of being seen as a business that greenwashes, as it sets out the environmental principles and promises the business has pledged to follow.
This article will explore what greenwashing is, and how to effectively construct an ESG policy to minimise the possibility of greenwashing occurring.
What Is Greenwashing?
Greenwashing refers to when businesses act in a tokenistic manner surrounding environmental activities. ASIC defines greenwashing as the practice of “misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.”
It is the act of overpromising environmental sustainability or being deceptive when it comes to ensuring environmental sustainability within your business. Never make a sustainable promise that you cannot fulfill to prevent being accused of greenwashing and legal action being sought against the business. Greenwashing can occur when businesses pledge to be sustainable or eco-friendly but lack the implementation of structural change or fulfilling such pledges.
Is Greenwashing Illegal?
Greenwashing itself is not illegal, however, greenwashing occurs with the act of being deceptive and misleading, which is illegal under Australian Consumer Law.
What Is An ESG Policy?
A environmental, social and governance policy, or an ESG policy, is a document of a business which represents a company’s statement of values regarding their stance of the environment and the measures they’re taking to be more eco-friendly. ESG policies are able to guide employees, contractors, commercial partners and consumers.
Developing a strong ESG policy is a great way to combat the act of greenwashing and ensuring businesses are diverse and sustainable in their short term and long term operations.
Unpacking ESG
Environmental aspects encompass factors such as a company’s carbon footprint, water and energy usage, waste management, and pollution levels.
Social elements include a company’s labour practices, human rights record, diversity and inclusion policies, and impact on local communities.
Governance relates to factors such as a company’s board diversity, executive compensation, transparency, and ethical business practices.
Key Components of An ESG Policy
Purpose
Dedicating a section to the purpose of your business’s ESG policy allows those reading the policy to understand why the business has one in the first place. It is likely the purpose will reference the business’s adherence to being sustainable and ecologically friendly. The policy purpose is also likely to provide information about what ESG encompasses and establish how the document does not form part of any contract or employment agreement.
Commitment and Pledges
A company’s ESG policy will state the commitments and pledges your business puts forth. The commitment and pledges section may state specific targets the business aims to achieve by a certain time or projects they aim on beginning, continuing or finishing which are centred around environmental, social or governance aspects.
The commitment and pledges section of your business’s ESG policy may also include commitments such as ethical procurement, carbon offsetting and advocacy to ensure equal employment opportunities.
Monitoring and Enforcements
An ESG policy will also establish the measures put in place by businesses to monitor and enforce their ESG pledges and commitments. This section of the ESG policy will also include potential consequences when the business is non compliant to such commitments, such as offsetting costs or compensating through donation. A good ESG policy will acknowledge how the business should hold themselves accountable if they fail to achieve their own goals.
Reputational Issues
ESG policies may also reference how central your business’s environmental, social and governance principles are to the business. This section may simply state the importance of interacting in a meaningful way with social corporate responsibility.
Conclusion
In conclusion, as businesses navigate the evolving landscape of societal values, it becomes imperative to adopt genuine environmental, social, and governance (ESG) practices rather than engaging in greenwashing. Greenwashing not only damages a company’s reputation but also undermines trust and credibility among consumers and stakeholders. By developing a robust ESG policy, businesses can align their operations with sustainable principles, fostering transparency, accountability, and long-term viability.
An effective ESG policy outlines the company’s commitment to environmental stewardship, social responsibility, and ethical governance. It sets measurable goals, defines clear actions, and establishes mechanisms for monitoring and enforcement. Moreover, it serves as a guide for employees, contractors, and partners, reinforcing a culture of sustainability and inclusivity.
Ultimately, a well-crafted ESG policy not only mitigates the risk of greenwashing but also positions businesses as responsible corporate citizens dedicated to positive societal and environmental impact. By prioritizing authenticity and integrity, companies can build resilience, enhance brand value, and contribute to a more sustainable future for all.
By Raja Abbas
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