Irish consumers have never been so targeted by companies using green claims to market their products. Land Rover has used celebrities such as Brian O’Driscoll and Diarmuid Gavin in sponsored content to promote its SUVs as better for the environment and AppleGreen, the fossil fuel retailer, has introduced “carbon neutral driving” to its diesel pumps and a biodiversity initiative for schools.
Consumers, investors and businesses themselves often struggle to determine which corporate green initiatives are merely marketing practices and which are truly environmental. A survey published last week by the Compliance Institute suggests that as the fight against climate change intensifies, the greenwashing efforts of some Irish companies have intensified: 43% of companies have seen evidence of greenwashing by companies, the institute comparing this practice to “the signal of virtue of the corporate world”.
Last year, the European Commission and EU consumer protection authorities revealed that at least 42% of companies had made exaggerated or false claims about their green credentials on their corporate websites. In November, Gabriel Makhlouf, the Governor of the Central Bank, said he was “particularly concerned” about greenwashing because “green market practices are currently almost exclusively based on voluntary principles and standards, which leaves a lot of room to different interpretations. .
But companies will face tougher scrutiny than ever before in how they address climate change and social issues under upcoming EU sustainability reporting standards and a new ‘taxonomy’ that will offer a list of environmentally sustainable economic activities. The growing barrage of complex regulations – complete with an alphabetical soup of acronyms – are designed to direct capital towards sustainable activities and to tackle greenwashing as the EU seeks to become a climate-neutral economy by 2050.
Maura Quinn, chief executive of the Institute of Directors (IoD) in Ireland, whose members include some of the country’s most senior executives and business leaders, noted that environmental, social and corporate governance (ESG) issues ) rose to the top of the corporate hierarchy. program during the pandemic and in the run-up to the UN Climate Change Conference (COP26) in November.
“None of us were there the last time there was a pandemic and it created a huge feeling that we live in a global community,” she says. “So we realized that the decisions we make locally have huge implications internationally. During the severe closures we could see clear skies and notice the return of wildlife and birds and there was a reduction in environmental pollution. Then the Cop26 arrived. And we are now seeing the reality of climate change, with three storms in one week in Ireland.
But there are signs that Irish companies may struggle to measure and report on ESG issues. Nearly half of business leaders surveyed by the IoD at the end of 2021 said their organization struggled to define realistic key performance indicators (KPIs) to measure ESG objectives. An analysis of Ireland’s top 50 listed and private companies published in December by KPMG found that 72% were “far from ready” for new EU sustainability reporting requirements.
Until recently, extra-financial reporting was largely the prerogative of listed entities. But all of that is about to change after the European Commission published proposals for sustainability reporting standards in its Corporate Sustainability Reporting Directive (CSRD) last year. The CSRD significantly expands the scope of companies that must provide sustainability-related information as part of their corporate reporting and defines in great detail the nature and extent of non-financial information that companies will be required to report.
The EU estimates that 49,000 businesses across the bloc will fall within the scope of the new directive, compared to 11,600 that currently have reporting obligations.
Companies will be required to sign up for sustainability reporting in 2024 for fiscal year 2023, with data collection beginning next January. The measure will be mandatory for large companies, defined as having at least 250 employees and having either 40 million euros in turnover or 20 million euros in total assets. Listed small and medium enterprises must comply with 2025.
Conor Holland, Head of ESG Reporting and Assurance at KPMG, says: “It’s like a whole new set of accounting standards being transposed. The whole genesis of all of this is that we are moving towards a place where there will be a balance between financial and non-financial reporting.
“They will also be insured, so an independent third party – most likely an auditor – will need to provide a limited assurance opinion on the reports to combat greenwashing.”
Along with the introduction of CSRD, the EU Taxonomy Regulation will require companies to report specific metrics – called Taxonomy KPIs – including the proportion of revenue, capital expenditure and expenses operational activities that can be qualified as sustainable economic activities.
Irish organizations are also encouraged to join the Task Force on Climate-Related Financial Disclosures (TCFD), a global framework which provides companies with guidance on disclosing climate-related topics in their financial reports and which has become a benchmark. regulations in the EU.
According to Colette Coogan of Sustainable Finance Ireland, a campaign in support of the TCFD launched in 2020 by Finance Minister Paschal Donohoe to improve the level of climate reporting among Irish businesses now has 35 Irish supporters. These include AIB, Bank of Ireland, CRH, Glenveagh, Hibernia Reit, Ryanair and Smurfit Kappa.
“The TCFD is a voluntary framework, but from a reputational perspective it’s important to adhere to the global benchmark in this area,” Coogan said.
Above all, boards of directors are under pressure from investors to adopt such reporting measures and fully sustainable practices.
Earlier this month, for example, it emerged that activist investor Carl Icahn, who owns just 200 shares of McDonald’s, launched a battle at the fast-food retailer’s board to demand changes in the how its pork suppliers treat the pigs. Icahn, who appointed two directors to the McDonald’s board, called on the company to require all of its U.S. pork suppliers to end the practice of keeping pregnant sows confined to small crates or “stalls.” gestation”.
Indeed, “investor sentiment is potentially moving faster than regulation,” says Laura Wadding, risk and sustainability advisory partner at Deloitte. “There are investor lobby groups that actively encourage companies to make additional disclosures, such as additional data on their carbon footprint, emissions, fossil fuel use or employment practices.”
Quinn says, “There’s a push-pull at play here. The driving force is the regulatory side, but the pull factor is that people take a closer look at businesses and how they operate. Historically, companies were there to make money and generate shareholder value. Now they have to make the world a better place.