November 13, 2023

ESG greenwashing and its shadow

Businesses are being caught out for spreading ESG greenwashing messages. We consider the importance of living ESG values, and the shadow cast by not doing so.

ESG greenwashing and its shadow

The activist group Extinction Rebellion has, in recent months, held a series of protests outside various PR award ceremonies and institutions, including PRWeek UK Awards. They’ve targeted what’s been described as the ‘ghastly greenwashing activities of PR companies’.

The world increasingly expects businesses to live up to the ESG (Environmental, Social, Governance) values and practices they set for themselves — rather than hide a lack of action behind moral posturing, known as ESG greenwashing.

What many don’t consider beyond this, however, is what we refer to as the ‘ESG shadow' — the areas not immediately visible to us that may be vulnerable to ESG greenwashing.

The importance of living ESG values

The need for businesses to practice genuine ESG principles goes beyond mere optics. True ESG integration has several crucial benefits.

• It helps companies mitigate risks related to regulatory compliance, reputation damage, and operational disruptions.

• It enhances financial performance and access to capital — ESG-focused investors increasingly seek to align their investments with sustainable, ethical companies.

• It fosters innovation and competitiveness, as sustainable practices often lead to cost savings and new market opportunities.

• Responsible ESG practices are essential for retaining and attracting the best talent in an era where employee values and expectations are closely aligned with ESG and corporate social responsibility.

ESG greenwashing is when corporations claim to be acting on ESG values, while fully aware that they are engaging in practices that go against those values — and where an ESG claim becomes nothing more than a PR stunt.

There is another side to this problematic conversation, however, one that’s only just being considered. Companies are not only acting against ESG principles but casting an ‘ESG shadow’.

The ESG shadow

Here, we look at the areas not within our immediate circle or eyeline.

One of the first areas where corporations need to shine a light is their supply chain. Ensuring

suppliers adhere to ESG standards is a critical step. From a carbon perspective, this relates to Scope 3 emissions, but the impact of supply chain is far greater. Ethical sourcing, transparency, and responsible procurement practices are integral components of a robust ESG strategy. Organisations need to ask themselves whether their suppliers align with their values and if they’re committed to reducing their own environmental and social impacts in the same way the organisation has committed to. By holding their suppliers to the same high standards, organisations can have a more significant influence on the ESG landscape.

The ESG shadow also extends to the clients of a corporation. Engaging with clients who align with ESG principles can create a mutually beneficial relationship — not doing so, or simply accepting payment from clients who contribute to negative environmental or social impacts, is no better than actively harming ESG values within your own organisation’s remit.

Effectively addressing the ESG shadow requires robust measurement and reporting mechanisms. Just as organisations report their internal ESG metrics, they should also evaluate the ESG performance of their suppliers, partners, and clients — and the long shadow this casts through the choices and partnerships they choose to take and create. Transparent reporting creates a ripple effect, encouraging all stakeholders to improve their ESG practices and it is through this collaborative approach that real change can occur.

Embracing an ESG ecosystem

Corporations must not limit their ESG efforts to internal practices alone. Embracing the ESG ecosystem – which includes suppliers, partners, and clients – is an essential step towards creating a sustainable future. The concept of the ESG shadow reminds us that our impact extends far beyond our immediate operations or individual actions. By upholding and encouraging genuine ESG principles throughout the entire business network, corporations will collectively contribute to a brighter, more sustainable world. As Extinction Rebellion's protests have shown, the world is watching, and it's time for businesses to take responsibility not just for their own actions but also for the shadows they cast.