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Spin or substance? Why greenwashing your company’s ESG response is a risky strategy

Companies can’t simply rely on public relations to demonstrate good business practices, writes INX Software CEO Marcus Ashby — it must be backed by data.

Your employees want to work for a good corporate citizen, your stakeholders want to know you’re up to the ESG task, and your investors think anything less than exceptional performance is risky business.

So how does your company demonstrate that it can meet the environmental, social and governance challenges you face?

This is a question that is increasingly being asked by business leaders and boards of directors as evidence mounts on the importance of sustainable corporate practices.

Being able to demonstrate a commitment to ESG is a key factor in attracting, retaining and motivating staff, while investors are wary of any company that does not have ESG as a strategic priority.

For companies exposed to a potentially disgruntled community or militant shareholders, poor performance can mean the loss of social license or reputation.

And for financial performance, research from the NYU Stern Center for Sustainable Business and Rockefeller Asset Management has shown that companies with long-term ESG strategies fare better and have more downside protection during crises. social or economic.

But for many companies, the history of reporting on these areas has been limited to statements designed to satisfy siled regulators within a narrow definition of performance.

Over time, that just won’t be enough.

To detect the vagaries of ESG reporting, it is necessary to examine the behavior of the largest Australian companies.

A recent analysis of the ASX200 by PwC Australia shows that 87% report on their ESG initiatives – but a large proportion of these reports appear to be token efforts.

Almost two-thirds of these companies (62%) do not publish short, medium or long-term ESG goals, while PwC found that only 36% of the ASX200 had a net zero goal by 2050.

Only one in four boards have or seek to have more than one ESG-related skill as a requirement for directors.

If this is the performance of large publicly traded companies, you can only imagine the level of “greenwashing” taking place in those that do not have the same ASX requirements, and the number of companies using glossy images and spins to exaggerate their environmental impact, sustainability or ethical credentials.

But in addition to being questionable behavior, misuse of substance risks putting the corporate regulator offside – ASIC considers that misrepresentation on ESG issues can distort the market for current or potential investors.

Lack of monitoring and authentic reporting can also damage reputation when actual performance comes to light.

So how can companies stand out from their competitors in this space?

The answer lies in how they track, measure and report actual performance.

As a company that works at the crossroads of ESG areas, from protecting the planet to traffic and people’s safety, we speak daily with clients who do the real work of measuring business performance.

Our environmental software customers often come to us because they see real-time monitoring as essential to meeting regulators’ requirements, using tracking, measuring and reporting to meet obligations and provide early warning of any change that may exceed the limits of their license. .

But many also have other stakeholders interested in their performance, in areas beyond what a regulator might currently ask.

Companies that have never been subject to environmental licensing requirements have administrators interested in their carbon footprint and offset activity. People and culture teams want to be able to see in real time the activities that promote the safety, health and well-being of staff. Investors want measurable and reliable data on good governance for due diligence and to reduce risk.

Without the technological framework in place to support this increased transparency, you cannot meet expectations.

The demand for companies to be more transparent about their behavior will only grow, so being able to measure baseline performance and track improvement will become a ticket to play.

Ideally, all Australian businesses should already be able to share the results of their environmental, social and governance performance with the stakeholders who hold them to account.

If this isn’t your reality yet, it’s time to act.