Don’t Let Your ESG Plan Get Greenwashed
Beware of companies who claim to be “green” but have no evidence to back it up because – despite your rigorous ESG Compliance efforts – you’ll look like the villians
In July, Hyundai Motor Company was named in a report of a supplier using underage workers in the United States. Workers were hired by an outside staffing firm hired by the supplier, so there were several layers between Hyundai and any violations. Nonetheless, Hyundai is the “face” of this situation as it unfolds.
This situation underscores the difficulty of managing Environmental, Social and Governance (ESG) compliance across layers of the supply chain. With so much focus on sustainable supply chains and ESG compliance, procurement pros are hunting for suppliers to help meet their goals. But not every supplier is transparent about their certifications and actual environmental impact.
It’s easy to be fooled by greenwashing, in which companies disguise or inflate their environmental credentials. Some industry groups use their influence to sway regulations to their favor, allowing them to continue to use fossil fuels at the same level or turn away from transforming industry practices.
Procurement pros should also be aware of “bluewashing,” which are false or unvalidated claims around supply chain working conditions, which is relevant in the Hyundai example. While green and blue washing affects different aspects of ESG, the underlying problem is the same — lack of authentic, empirical compliance with the relevant regulations and practices.
As procurement plays a leading role in ESG compliance, it’s critical to understand some of the pitfalls of greenwashing, signs to look for in sustainability certifications, and the importance of data transparency in the ESG realm. While ESG is a significant regulatory trend, specifically in the financial realm, it’s critical to take a more holistic approach to sustainability in procurement and the impact your decisions have on the world.
Room for Improvement with ESG Efforts
Currently, the ESG environment suffers from a lack of transparency and consistency in assessments and reporting. The Securities and Exchange Commission has proposed rules requiring publicly traded companies to disclose their climate-related risks in the US. ESG data is often fragmented and complex. While emerging technologies are helpful, companies that rely on machine learning and AI to calculate their climate impact may find critical gaps in their data that won’t withstand the rigor of SEC oversight.
There is a place for advanced technology. Machine learning can help model scenarios and benchmark potential outcomes against your ESG goals. But it’s not the most accurate tool for estimating current climate impact compared to real-time data-gathering.
As your organisation works to implement its ESG programs and avoid greenwashing and bluewashing, keep these considerations in mind.
Tips for ESG Success
Trust But Verify
“Sustainability attributes are often difficult to verify and quantify. If you buy into unverified claims (greenwashing), then you’re greenwashing too!” said Clare Hobby, Director, Purchaser Engagement, Global for TCO Development. Look for frameworks, tools and certifications that offer independent assessment, supply chain access and verification of claims. Ask any certifications or tools you use about whether independent verification is required. “Ask the tough questions!” she said.
Customers and related organisations expect transparency to enable them to understand the processes and information, manage relationships and evaluate every aspect of suppliers’ operations and compliance. However, many ESG leaders feel they do not vet their contractors thoroughly and rely on spreadsheets or paper to verify and manage information.
Look Behind the Label
Many eco certifications are operated by an industry or an independent part that may not be transparently rigorous to support their claims. The label should cover the entire lifecycle of the product and include social and governance aspects as well as environmental. A certification report should indicate proof of compliance with clear standards. Be aware of certifications and labels that demonstrate compliance, but the organisation can’t provide supporting information.
Seeking and evaluating more sustainable suppliers is essential. But it’s only part of your toolkit. It’s also critical to take a product category approach. Any large brand can supply various products that meet varying levels of sustainability. Making product procurement decisions based on an evaluation of the company is also leaving you at risk for greenwashing. Procurement should take a multi-dimensional approach by evaluating suppliers but also home in on individual products.
Don’t Forget the “S”
When thinking about ESG, the S (for social) can’t be left behind. Look for product certifications that also cover social impact, working conditions in the supply chain, and ethical practices. Be vigilant for “bluewashing” for false or unvalidated claims around supply chain working conditions.
As we’ve seen with some companies caught up in supplier misbehavior, greenwashing and blue washing can quickly become a hot-button issue. With less control over how subcontractors and supply chain companies operate, the risk of another company’s actions and how those actions can impact your organisation’s reputation is significant. Your ESG efforts must be embedded in the organisation to meet your company’s obligations for ethical operations.