ESG and sustainability strategy
Environmental, Social and Governance (ESG) and sustainability strategies in businesses have changed radically in the last 5 years. With the increase in stakeholder expectations, companies are now finding their strategies are not meeting current requirements and are needing an update.
In the past, sustainability and Corporate Social Responsibility (CSR) strategies were considered an addition, a bolt-on to a business’s commercial strategy. In recent years, there has been a significant acknowledgement by stakeholders, regulators and the financial sector of the direct and indirect financial impact of ESG and sustainability and issues. This has been set out in the recent European Corporate Sustainability Reporting Directive (CSRD) and Task Force on Climate-related Financial Disclosures (TCFD).
Businesses are now looking to ensure their ESG and sustainability strategies are entirely intertwined with their commercial strategies and to maximise commercial opportunities and minimise financial and stakeholder risk. This often means using the old-fashioned approach of focus areas being people, planet, community – a box-ticking exercise – is now too simplistic. Rather companies are now developing strategies which are more sophisticated, tailored and refined to their specific needs, with a focus on the financial opportunities and alignment to the commercial strategy.
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Reporting for a new era
Simply Sustainable has been providing best practice guidance in ESG and sustainability reporting for over 12 years. We predict that 2023 will be the year that robust and credible nonfinancial reporting becomes the expected norm for global business.
In short, this is down to new Environmental, Social and Governance (ESG) and sustainability reporting requirements in the United Kingdom, the European Union and the United States that are set to fundamentally change the nonfinancial reporting landscape.
The Corporate Sustainability Reporting Directive (CSRD) is a new set of EU rules that will require ESG reporting on a level never seen before, capturing a whole host of companies that previously were not subject to mandatory nonfinancial reporting requirements, including public and private non-EU companies that meet certain EU-presence thresholds.
For US issuers, the new EU rules will result in mandatory reporting on a broader set of ESG topics than those required under current and proposed Securities and Exchange Commission (SEC) rules. It is important that the business community does not ignore the approaching tide of regulation on sustainability reporting that could entail significant financial and reputational damage if overlooked.
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At Simply Sustainable, we understand that sustainable growth is the only way to build a prosperous business that has a lasting positive impact on our environment and society.
The past few years have been pivotal for the ESG and sustainability revolution. It continues to be an area of focus for stakeholders at all levels – investors, regulators, businesses and consumers – despite the current backdrop of a turbulent economy and cost of living crisis.
In 2022, we saw a rise in important conversations and the development of global regulation aimed at improving sustainability, particularly across ESG and sustainability reporting and greenwashing.
The key sustainability trends for 2023, across various sectors, will remain focused on the credibility of claims and robust disclosure and reporting.
In addition, there will be greater attention on carbon reduction, a strategic focus on understanding what the transition to a low carbon economy means for business and its stakeholders, as well as moving away from using carbon offsets as a credible means to decarbonise.
Regulators have been exercising greater scrutiny of corporate sustainability efforts, fuelled by concerns that companies and asset managers may be using disclosures and sustainability-related labels on products and services as a marketing tool to appear more proactive on ESG issues than they truly are.
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Since 2010, Simply Sustainable has developed corporate sustainability strategies for some of the biggest brands in the world.
Over the years, we have learned a thing or two about what makes a robust sustainability strategy, and we have created this guide to share our learning with you.
Whether you’re starting with a blank page, refreshing your existing approach, or are just keen to see how your organisation measures up, here you will find what we have come to understand to be the hallmarks of a truly robust sustainability strategy.
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Business as usual cannot be sustained
Momentum towards sustainability has reached a tipping point. From a business context, it is now permanently on the majority of company agendas.
The path ahead will be far from ‘business as usual’.
Planning and delivering the required transformation and incorporating measures that will make a business more resilient, competitive and relevant, in a marketplace with increasingly demanding sustainable solutions. Companies that thrive will have fully embraced the need for transformative change, as a means to become ‘future-fit’.
In the document we detail why the need for transformation is now, at pace and at scale and how we at Simply Sustainable work with businesses to enable this change in all aspects of business; bringing together decades of transformational and sustainability expertise.
Business has a crucial part to play not just as economic engines, but in minimising negative environmental impact, maximising social benefits and in enabling a more sustainable world.
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Companies worldwide are experiencing mounting pressure from investors, regulators, the public and other stakeholders to take environmental, social and governance (ESG) matters seriously. In fact, the number of ESG reporting standards and regulations at a global level has almost doubled in the last 5 years.1 As there are more than 600 ESG reporting provisions currently available worldwide, with many having different interpretations of sustainability, the task of disclosing quality ESG information presents a major challenge for companies.1
The lack of a single, standardised framework for ESG reporting, coupled with low compliance to existing regulation, has unfortunately fuelled the disclosure of misleading and/or inaccurate information.2,3 Numerous international corporations, like Volkswagen and BP, have been exposed for greenwashing4 and a global review conducted by the Competition and Markets Authority (SMA) revealed that 40% of green claims made online by firms could be misleading consumers.5
While greenwashing appears to be rife and particularly problematic, companies are also starting to be exposed for misleading the public about how they treat their people. On International Women’s Day 2022, a day to celebrate the social, cultural, political and economic achievements of women, hundreds of British organisations posted to social media to show their support for the cause.6 However, on Twitter a bot was on the loose, which retweeted their posts but also shared the difference in median hourly pay between men and women at each firm.7 The Gender Pay Gap bot, which had the strapline ‘Deeds not words. Stop posting platitudes. Start fixing the problem’, highlighted the apparent hypocrisy between company posts and gender pay performance.7 In many instances, the gender pay disparity flagged by the bot was shocking, such as 68.6% difference at Ryanair.7 Companies in the public sector were not out of the firing line; Cancer Research UK, for instance, was revealed to have a 30.9% median gender pay gap in 2021.8
Consequently, and unsurprisingly, scepticism is high among investors with regards to ESG claims that companies make. Indeed, research conducted by Edelman in 2021 found that 86% of global investors believe companies exaggerate their ESG performance when disclosing results, and 72% do not think they will live up to their ESG commitments.9 Another recent survey of more than 4,600 individual investors across the UK, US, France and Germany obtained similar findings: 90% of respondents stated that they struggle to trust ESG claims made by businesses at face value.10
How can we rebuild trust and confidence among investors concerning ESG disclosures?
In response to growing calls from international investors for high quality, reliable, transparent and comparable reporting by companies worldwide on ESG issues, the International Financial Reporting Standards (IFRS) Foundation announced the formation of the International Sustainability Standards Board (ISSB) at COP26 in November 2021.11 The ISSB has been tasked with developing a comprehensive global baseline of sustainability-related disclosures standards, providing investors and other capital market participants with the information they need to make informed decisions.11 While a host of reporting standards already exist, there is optimism that the ISSB standards will be widely accepted and adopted – the IFRS sets financial accounting rules that companies in more than 140 countries adhere to, and because the standards build on existing ESG frameworks developed by other sustainability reporting initiatives, such as the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI).1,12 By creating a comprehensive and detailed corporate reporting standards framework, companies will be able to measure and report their ESG performance in a consistent manner.11 Ultimately, it will restore trust and confidence among investors and other key stakeholders in the ESG disclosures that companies make.
It is becoming more pertinent that companies need to transparently disclose their ESG performance to reduce the risk of reputational damage. Adherence to globally accepted standards, such as the GRI and SASB, can help companies to understand and effectively report their ESG performance; the imminent release of ISSB standards is anticipated to significantly ESG reporting worldwide.
At Simply Sustainable, we support an array of international organisations with their sustainability reporting, employing best-practice global standards (e.g., GRI) to ensure their disclosures meet the needs of key stakeholders. If you are looking for support with your sustainability reporting, please contact us using the details below.
1 EY. Future of sustainability reporting standards.
2 City AM. Better regulations, not more, are the answer to greenwashing controversies.
3 Carbon Market Watch. EU works to beef up regulations on green claims.
4 Earth Org. 10 companies and corporations called out for greenwashing.
5 UK Government. Global sweep finds 40% of firms’ green claims could be misleading.
6 Forbes. Twitter bot trolls organisations for hypocrisy on International Women’s Day.
7 Personnel Today. International Women’s Day.
8 Civil Society News. Cancer Research UK ‘disappointed’ by widening gender pay gap.
9 Edelman. 2021 trust barometer special report: institutional investors.
10 Edie. Survey.
11 IFRS. ISSB
12 The Globe and Mail. Is a reporting standard finally on the horizon
Much attention is being given to the environmental claims that businesses make when marketing their products and services. As demand for eco-friendly products skyrocket, in the UK alone, one third of consumers want to shop responsibly by choosing more environmentally friendly products and services.1 By exploiting consumer’s genuine ethical concerns, greenwashing impacts a consumer’s ability to make a sound environmentally friendly decision – generating confusion, scepticism and increased perceived risks around ‘green products.’ As stakeholders are increasingly exposed to the material risk of greenwashing, how are the businesses that are responsible held to account?
There are many statements made about the environmental and sustainable credentials – nicknamed green claims – of products in advertising, packaging, and other marketing materials. Getting these wrong is bad for business, bad for consumers and bad for the planet. That’s where we, whether consuming as an individual or on behalf of an organisation, need assistance to better understand and trust green claims. In September 2021, the Committee of Advertising Practice launched the Green Claims Code. The principles are designed to highlight the standards that businesses need to adhere to when making claims about their environmental impacts.
The rules are simple, claims must:
- Be truthful and accurate
- Be clear and unambiguous
- Not omit or hide important and relevant information
- Be fair and meaningful when comparing to competitor
- Consider full life cycle of product or service
- Be substantiated.
So, what do these six principles set out for businesses and who is affected?
The code helps businesses understand and comply with best practice around marketing and advertising. By supporting the Advertising Standards Agency (ASA), the code enforces new guidance on misleading and socially irresponsible environmental claims. By delivering clear and explicit instructions, the entire lifecycle of a product, service, process, or brand is covered by the code. A tough route for a business to navigate when faced with the current macroenvironment of supply chain issues, inflation and rising cost of living impacting a volatile labour market.
Beyond the legal penalties for failing to comply, neglecting these six principles risks separating a company from their customer base. And as informed public opinion and expectations rapidly evolve, a company’s reputation is increasingly exposed to this danger. Over a 12-month period, the ASA found 16 advertising campaigns had either exaggerated their company’s green credentials or made unsubstantiated environmental claims. 2 Major companies caught up in this scandal included Innocent Drinks, Oatly and Alpro.3 Other household names such as Amazon, Ikea and Unilever were among companies to be exposed to fall short of promises that reach net-zero by the middle of the century.3 Showcasing the increased stakes of marketing credibly, with action by regulators such as CMA set to grow.
As trust in green claims is fragile, the Green Claims Code is a welcomed intervention that will play a vital role in levelling the playing field. Bridging the gap between marketing and sustainability requires a big shift in mindset. Businesses that have been doing the work to mitigate their social and environmental impact – with data to support – will see the code as a golden opportunity to gain commercial advantage and improved performance.
At Simply Sustainable, we support the current trends of increased transparency in disclosures and can guide you to comply with existing obligations on environmental claims.
[1] Forbes. One third of UK consumers want to shop responsibly.
2 Independent. Number of adverts banned for ‘greenwashing’ triples in a year.
3 The Guardian. Biggest net zero claims.
The imperative for action on carbon is growing – the political and economic climate reflects this
The term ‘net-zero’ has saturated the business landscape prior to and post COP26; however, many businesses we encounter don’t fully understand what it means to be net-zero and the steps they need to take to decarbonise. Some organisations are deterred from attempting to explore the steps required because it is considered expensive and unattainable. Others perceive the net zero sustainability solution to be easily solved via carbon offsets, through means such as decarbonisation agriculture.
This document consolidates our knowledge in this area to make it simple for businesses to understand how they can achieve net-zero and how we can help navigate some tricky areas.
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The imperative for action on carbon is growing – the political and economic climate reflects this
The term ‘net-zero’ has saturated the business landscape since COP26; however, many businesses we encounter don’t fully understand what it means to be net-zero and the steps they need to take to decarbonise. Some organisations are deterred from attempting to explore the steps required because it is considered expensive and unattainable. Others perceive the issue to be easily solved via carbon offsets.
This document consolidates our knowledge in this area in order to make it simple for businesses to understand how they can achieve net-zero and how we can help navigate some tricky areas.
To download our updated in-depth analysis, please complete the form below:
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In its landmark report in October, the world’s leading climate scientists warned that there are only a dozen years for global warming to be kept to a maximum of 1.5C. Beyond this, even half a degree will significantly worsen the risks of drought, floods, extreme heat and poverty for hundreds of millions of people. Authors of this report, the UN Intergovernmental Panel on Climate Change, argue that urgent and unprecedented changes are needed.
And yet it seems this message has not hit home. Last week at COP24, the UN climate summit in Katowice, we were hit with the ‘brutal news’ by the Global Carbon Project that global carbon emissions are set to jump to an all-time high in 2018. The US, Saudi Arabia and Russia – albeit unsurprisingly, all refused to fully recognise the findings of the IPCC report. And on Monday, global investors managing over $32tn issued a stark warning to the governments present: without urgent cuts in emissions and the phasing out of carbon entirely, the world faces a financial crisis worse than 2008.
At the same time, we are facing social collapse in almost every aspect of society. New research by the Social Metrics Commission, for example, has found that more than 14 million people, including 4.5 million children, are living below the breadline in the UK. More than half of these are trapped in poverty for years.
Encouragingly, in the face of these mounting issues and pressures, we are seeing a consumer and business revolution. Increasingly, consumers are demanding action and businesses are taking a positive stand on these issues, filling the void left by insufficient regulatory and political will.
This year we have seen consumers boycott plastic on a huge scale, changing their spending habits and behaviours in response to widespread environmental concern. For instance, Ecoffee Cup, one of the UK’s leading providers of reusable coffee cups, reported that its January sales soared over 700 per cent year-on-year amid concern over single-use coffee cups. Similarly, we have seen a trend towards plant-based diets, with an increasing number of reports claiming that a reduction in meat-eating is ‘essential’ to avoid climate breakdown. Reportedly, Tesco has experienced a 40% increase in the sale of vegetarian food this year, and Mintel, a research agency, found that 28% of people in the UK reduced their meat consumption in 2017, even if they didn’t adopt full vegetarianism.
These shifts have been driven by a marked growth in consumer appetite for brands that support a social and/or environmental purpose. The 2018 Edelman Earned Brand study revealed that nearly two-thirds (64 per cent) of customers around the world now buy on belief, a remarkable increase of 13 points since 2017. These belief-driven buyers will choose, switch, avoid or boycott a brand based on where it stands on the political or social issues they care about. This belief-driven mindset is now the majority in every market surveyed, across all age groups and all income levels. Similarly, research by Unilever has found that a that one in five would choose a brand if its sustainability credentials were made clear on packaging or marketing – which could be an indicator for where things are going.
In the face of stagnant regulatory and political action, there is a huge opportunity for business to take the initiative. The 2018 Edelman Earned Brand study also found that 64% believe CEOs should take the lead on change rather than waiting for governments to impose it, and 53% believe brands do more to solve societal ills than governments. Indeed, taking a stand is good for business – companies that put purpose on a parallel with profits grow much faster than their peers. Unilever’s Sustainable Living Brands are a well-used example but rightly so, having grown 46% faster than others in its portfolio, delivering 70% of turnover growth in 2017. Similarly, recent research has shown that B-Corporations, businesses that meet the highest standards of verified social and environmental performance, grow 28 times faster than the national average.
Opting out of taking a stand is no longer an option for brands. A brand can choose its stand from across a spectrum of actions – for instance, by defining a clear purpose or engaging in activism. From Unilever’s Sustainable Living Brands and Lloyd’s ‘Helping Britain Prosper’, to Patagonia’s environmental activism, and more recently Iceland’s stand on Palm Oil (I’m sure you will have seen their recently banned Christmas advert), brands everywhere are taking a position on the issues that matter to them and their stakeholders.
Needless to say, it is not enough to say one thing but do another. It is crucial that a business’ sense of purpose is genuine. It should be the ‘North Star’ that drives business decisions and everyday actions. Patagonia are a great example here. Not only does it operate a circular business model, but their actions consistently align with their activism. For example, the company was recently poised to save $10 million due to a federal tax cut. Rather than investing this back into the company, Patagonia pledged $10 million to different non-profit environmental groups “committed to protecting air, land and water and finding solutions to the climate crisis.”
Companies that neglect to embrace these changes and new expectations may ultimately find that their products become less relevant to consumers. Further still, people’s belief in brands as a force for good provides a unique opportunity to help consumers live their best lives and drive mainstream sustainability.
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