Greenwashing the ASX 300: What and Why Companies Should be Talking About ESG
ASX-listed smaller companies aren't currently impacted by ESG regulations so why should they take on the risk of stating ESG goals and not achieving them?
In short, authenticity in ESG reporting and internal ESG credentials contribute to a lower cost of capital for companies, market differentiation, and stronger alignment with investor and stakeholder expectations, including current and prospective employees. Companies can achieve all of these advantages by understanding and following some practical steps when it comes to ESG compliance and communication.
WE’s Brand in Motion studies have focused on corporate stakeholder insights with respect to ESG and a Just Transition. The 2021 and 2022 studies – Making Net Zero Net Positive for Everyone and The Bravery Mandate have found that 42% of Australians want brands to take a stance and action on climate change and environmental sustainability. The studies also found that fund managers are wary of greenwashing and are looking for meaningful, action-oriented commitments. In fact, from the survey, 74% of people say that brands should be transparent when informing the public about the actions they are taking with respect to issues in society. Consistent, transparent reporting allows stakeholders to better understand strategy, risks and drivers of current and future performance, and ESG goals.
Greenwashing has some different applications and interpretations depending on the stakeholder and the market. ASIC’s definition of greenwashing is “the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical”.
Misrepresentation of plans regarding aspects of ESG can be seen as greenwashing, even while different aspects of ESG are considered more important in different sectors.
Certain sectors have considerations which may stand out with respect to greenwashing, in particular net zero goals, carbon-footprint, cyber-security and data-privacy. It is important for a company to develop policies and a roadmap to achieving goals in these areas and then communicate them effectively to the market.
Consistent progress updates and data reporting are vital to accountability, transparency and building reputation. For example, being able to show a path to net-zero through company policy and the assumptions needed to achieve the goals, helps when combatting scrutiny.
Clear policies and strategies regarding employee well-being (part of the S in ESG) also help to attract and retain talent, which has been shown by WE’s Brands in Motion – The Bravery Mandate survey to have an impact on employment decision-making, with employee well-being and personal needs rated as the most important issue across most sectors.
Transparency and accountability with respect to climate change and ESG strategies can contribute to lower financial risks associated with businesses. MSCI has said that companies with high ESG scores, on average, experienced lower costs of capital compared to companies with poor ESG scores in both developed and emerging markets during a four-year study period1. In fact, environmental accountability has been shown to have an impact on an up to 10% lower cost of capital across a number of studies2.
Companies can move toward ESG compliance in advance of regulation if a few steps are taken, including
- Do an internal audit to identify areas of ESG employees find important and that are already being addressed
- Create a set of ESG policies and roadmap
- Communicate intentions internally
- Get buy-in from stakeholders
- Communicate authentically ESG plans
Strong ESG programs and their effective communication can be a powerful differentiator to engage with shareholders, acquire new customers, attract and retain top talent and to lower the cost of capital for businesses. WE can help clients assess their current climate mitigation and ESG approaches and help them create a roadmap for possible adjustments to their approach and an effective communication plan and narrative to encapsulate a company’s holistic approach to ESG.
Aren’t sure where to start? Send us a message at [email protected] and let’s have a chat about how we can help your company navigate stakeholder expectations and communicate ESG plans effectively to the market.
1 Source: ESG and the cost of capital - MSCI accessed 12 /12/2020
2 Source: The Cost Of Ignoring ESG (forbes.com) accessed 12/12/2022
