Sustainable business practices have three facets – environmental, social, and governance.
There is a lot of research-based evidence that companies that are socially irresponsible and follow poor governance practices cannot compete with those with a cleaner image and a record of good governance standards and procedures. Sustainable business practices are needed, and good successful companies understand this. Companies, therefore, spend a lot of advertisement dollars and marketing efforts to present to their customers a brand image of a company that follows sustainable business practices. Its operations model is clean, trustworthy, and socially responsible. The concept of corporate social responsibility has emerged from such practices.
Most large companies now have public climate strategies and targets. Many have pledged to reduce or eliminate climate risks from their operations significantly. It isn’t easy to independently verify some of these claims. The issue is further complicated because regulatory oversight of climate risk abatement measures at national and sectoral levels is inadequate. Corporate Climate Responsibility Monitor, a not-for-profit body of the New Climate Institute, publishes evaluation reports on corporations’ claims on climate change actions.
The Corporate Climate Responsibility Monitor 2022 evaluated the transparency and integrity of 25 multinational companies’ climate pledges. The evaluation focused on four main areas of corporate climate action:
- Tracking and disclosure of emissions
- Setting emission reduction targets
- Reducing own emissions and
- Taking responsibility for unabated emissions through climate contributions or offsetting.
The 25 companies reported the GHG emission footprint in 2019 to be approximately 2.7 GtCO2e. It is equivalent to roughly 5 percent of global GHG emissions. The Corporate Climate Responsibility Monitor reported that headline pledges made by these companies are often ambiguous. Emission reduction commitments are limited. It was found that “just 3 of the 25 companies – Maersk, Vodafone, and Deutsche Telkom have committed to deep decarbonization of over 90 percent of their full value chain emissions.
The surveyed 25 companies have committed to achieving net-zero status and zero-emission targets by a certain date. The evaluation found that the actual achievement of the 25 companies is less than 20 percent of their 2.7 GtCO2e emission footprint of their respective headline target years. The monitor noted a gap between promises and achievements and pleaded with regulators to develop monitoring mechanisms. They ask for standard-setting initiatives that will help find ways to distinguish and segregate climate leadership from greenwashing.
Corporations and green regulators are aware of the challenges posed by greenwashing and are working toward building safeguards and developing credible monitoring systems. Science-Based Target Initiative (SBTi) is one of the credible target-setting and monitoring bodies set up to streamline and monitor climate mitigation measures monitoring.
The linkage between sustainable business practices and profitability is still not clear as one would hope. Social and governance components of ESG are as old as humanity, and businesses understand their value. Climate change is still a subject area that is not as clearly understood. Corporations professing sustainable business principles as fundamental to their business continue to follow environmentally responsive governance. In most cases, it is restricted to planting trees, ensuring new construction is not causing damage to the existing vegetation, etc.
There is a growing realization that the use of fossil fuels and the emission of greenhouse gases are leading to global warming, rising sea levels, melting glaciers, and an increased frequency of adverse weather events. The world has awoken to the danger posed by climate change. Climate change is impacting the lives of people directly. As the realization becomes more pervasive, customers expect companies to be environmentally responsible, switch to cleaner fuels, and adopt practices that will help slow down the rise in global temperatures. Companies are dependent on their customer for growth and survival. A company that does not adopt sustainable practices will lose customer trust and disappear.