- blog
- ESG
Corinne Graper, CEO, The Uplift Agency
This year has already seen major changes in corporate disclosure requirements for environmental, social, and governance (ESG) information and we are likely to see even more demand for information from investors and consumers alike. And, like many cross-cutting issues in business, these requirements lean heavily on communicators to be successful.
This quick reference guide is designed to help you understand the key terminology that will be coming at you in the year ahead, whether in the board room or in your company’s reporting.
Greenwashing
What it is: Greenwashing is the practice of inaccurately portraying an organization’s operations, products, or services as environmentally friendly or sustainable. It can involve vague, exaggerated, or false claims about environmental actions or benefits, omitting negative impacts, or misrepresenting data to appear more sustainable than reality. Many times it happens unintentionally due to a lack of subject matter expertise.
Why it Matters: By now, we should all be familiar with the term “greenwashing,” but it’s going to be more relevant this year than ever as regulators, activists, consumers, and investors look more carefully at how companies talk about their products, their impact on the environment, and the overall success of their sustainability initiatives. The consequences of getting this wrong are high, so prioritizing accuracy, even if it means the story is not as compelling is critical. Ensure that sustainability or product teams have accurate data to back up claims and that credible sustainability experts review every commitment, claim and data set before it goes public.
Social Washing
What it is: Social washing is when a company misrepresents or exaggerates the “social” side of ESG either intentionally or unintentionally. It can involve overstating the positive impacts or ignoring the negative impacts of a company's work, including in manufacturing, employment practices, product sourcing, or supply chain operations, in a way that creates the facade of social responsibility.
Why it Matters: Similar to greenwashing, consumers and regulators are becoming more interested in the impacts companies are having in their communities and with the people they employ both directly and up and down their supply chain. Ranging from diversity and gender equity to digital ethics and human rights, aligning how you talk about your work with how you actually operate is a risk issue communicators should look out for and track closely in 2024 and beyond.
Decarbonization:
What it is: Decarbonization is a catch-all term that refers to the actions a company takes to reduce or eliminate greenhouse gas emissions in its operations, products, and across its supply chain. This can include transitioning to renewable energy sources, improving energy efficiency, and implementing cleaner technologies.
Why it Matters: As communicators, you will almost certainly be asked to explain how your company’s environmental initiatives are helping to reach global and regional decarbonization targets set out by governments and the United Nations. With the Paris Agreement setting the broad goal to limit climate change to 1.5°C above pre-industrial levels, national governments are aligning their own commitments to these goals through laws and incentives to force corporate action. Companies should be able to talk about how their work fits into achieving these global and national goals.
Scope 1, 2, 3 Emissions:
What it is: Scope 1, 2, and 3 emissions categorize a company’s greenhouse gas emissions based on where they come from and who controls them. Scope 1 emissions are direct emissions from owned or controlled sources (think: building systems and fleet vehicles); Scope 2 emissions are indirect emissions that you purchase from someone else (think: utilities), and; Scope 3 emissions are indirect emissions from sources you don’t own or directly control but fall within your supply chain (think: sourced materials, leased buildings, transportation of products, etc.). When you combine all three of these, they comprise the entirety of your company’s emissions footprint.
Why It Matters: Most large companies have been working for years to measure and reduce their Scope 1 and Scope 2 emissions, but Scope 3 emissions are notoriously difficult for companies to get a handle on. As stakeholder interest in emissions reductions continues to mature and regulators continue to pass related disclosure laws, Scope 3 will increasingly be in focus because it can represent over 90% of a company’s overall emissions. If you haven’t been asked about your Scope 3 emissions yet, you will be.
Assurance:
What it is: Similar to other types of assurance, third-party assurance of a GHG emissions inventory is when you have an independent firm assume responsibility for assessing, verifying, and validating the accuracy and reliability of your company’s carbon accounting data and emissions reduction claims. Through this process, the GHG emissions inventory is validated by a third party, providing stakeholders with added confidence in its accuracy, reliability, and compliance with recognized reporting standards and guidelines, such as the GHG Protocol Corporate Standard.
Why It Matters: Regulators around the world are moving towards requiring companies to provide third-party assurance for their emissions inventory and data - including the SEC, California, and the EU all requiring varying levels of data assurance. As corporate communicators, you will need to be aware of whether or when your company will need to seek assurance for your emissions data and how to properly communicate that information.
Climate Risk:
What it is: Climate risk refers broadly to the potential adverse effects of climate change on a company’s operations, assets, supply chain, financial performance, and reputation. These risks include physical risks (e.g., extreme weather events, sea-level rise) and transition risks (e.g., policy changes, market shifts).
Why It Matters: Climate risk is at the heart of new requirements coming out of the SEC and other governing bodies including California and the EU’s CSRD. Since communicators are often asked to help identify, understand, and mitigate all sorts of risk - especially reputational risk - understanding how climate change impacts your company’s operations and profitability is essential. You’ll also need to be able to support your sustainability and investor teams to properly frame your company’s climate risk.
Materiality:
What it is: Similar to financial information, something that is “material” in the sustainability space refers to an ESG issue that has a financial or operational impact on a company or the company has a substantive impact on the issue. Something that is considered financially material may require disclosure under regulation, which is increasingly being extended to sustainability issues. Companies can identify what issues are material to them by conducting a materiality assessment, which identifies the issues most relevant to their core business.
Why It Matters: Materiality helps you to understand both how sustainability-related issues affect your company’s operations/profitability and, in turn, how your company’s operations affect the outside world, including people and the planet. By understanding and prioritizing the sustainability issues that are material to your company, you can gain a better understanding of emerging issues and stakeholders, and craft better strategies and messaging.
Human Rights & Business
What it is: This term refers to the responsibility of companies to respect and protect human rights and remediate any violations in their workplace operations, supply chains and business relationships. The United Nations Guiding Principles on Business and Human Rights (UNGPs) framework guides companies to identify, prevent and address human rights abuses and conduct human rights due diligence to identify and mitigate abuse.
Why it matters: The latest International Labour Organization report estimates that of the 27.6 million people in the world who are in forced labor, 17.3 million are exploited in the private sector. Younger consumers and employees are increasingly aware of this reality, as are governments. Canada, the U.S.,New Zealand, Germany, and Japan have all recently implemented new regulations to stop the import of goods suspected of being made with forced labor or require companies to conduct human rights due diligence. In the past decade, environmental sustainability has come to the forefront of every corporation. You can expect a similarly intense focus on human rights in the next few years.
Keeping these terms and concepts at your fingertips will help to reduce reputational risk and drive meaningful action across your company and throughout the communities where you work. Knowing and focusing on these key terms and concepts will also help your organization advance it’s sustainability goals.
