Transparency and Sustainability: Beyond the Act of Reporting

Individuals are become more socially and environmentally conscious, and they expect companies to follow suit. Consumers are more receptive towards companies that engage with sustainable practices, with PwC reporting that consumers are willing to spend up to 9.7% more to support the cause. Notably, the European market has felt consistent pressure from investors to engage with sustainability practices due to social and environmental considerations.

With increasingly recognised climate-risk financial pressures and market interest, engaging with sustainability can be an attractive strategic decision for many companies. This has resulted in the implementation of ESG (Environmental, Social, and Corporate Governance) reporting across European companies. However, there are discrepancies on the implementation, intention, and reporting standards; sustainability is not just ESG reporting. Instances of greenwashing, or the practice of misleading consumers by using deceptive language to promote false information about an organisation’s environmental impact, are becoming commonplace. Such examples can include vague, blanket statements of environmental stewardship, messaging that does not adhere to the organisation’s strategic goals, or even lacklustre follow-through. Greenwashing exists in many forms, undermining other credible efforts and potentially illegitimising an organisation as consumers begin to prioritise transparency and honesty.

Consumers have retaliated against misleading reporting, using their market power to pack a punch. 54% of UK consumers report that they would boycott a company if they were caught promoting misleading sustainability claims. For example, fashion retailer H&M faced significant consumer backlash despite significant marketing on its green initiatives as 60% of their claims were considered misleading. Brand loyalty is paired with expectation; many consumers look past the initiatives themselves and investigate follow-through.

Such efforts are aided by the increased number of non-profit organisations and independent regulators who are calling out companies for sustainability inconsistencies. For example, the Advertising Standards Authority (ASA) called out Anglican Water for releasing a misleading advertisement that overlooked the company’s significant pollution activity. The utility company pulled the targeted advert and was fined nearly £4m in 2022 alone for its pollution.  

The importance of genuine sustainability practices is further supported by financial investors. According to Reuters, European investors are concerned with portfolio performance beyond simple ESG compliance. Investors have reported that climate risks pose negative financial implications, leading to increased climate and sustainability considerations within financial portfolios and reports.

To combat the discrepancies and volatility of reporting, multiple regulatory bodies are developing standards to support consistency. The International Sustainability Standards Board (ISSB) has taken the lead in standardising global reporting. In line with ISSB, the UK announced that it will be updating its Sustainability Reporting Standards (SRS) aimed at guiding climate-risk reporting. Such realignment efforts are important to making ESG reporting more accessible while also allowing for financial market comparison. Yet, reporting itself does not necessarily encourage sustainability accountability. Including defined, measured benchmarks, clear progression standards, and real deadlines would support action follow-through. Establishing accountability within reporting promotes action and transparency, building trust and encouraging consumer loyalty.

The European Commission is currently drafting an ‘omnibus simplification package’ to reduce multiple corporate reporting standards and EU Taxonomy in hopes of reducing redundancies. This legislation works to ameliorate administrative burdens, push back compliance deadlines, and reduce data requirements within reporting. Simplifying and streamlining reporting can make ESG reporting more accessible, allowing for standardised implementation. However, transitioning away from data-driven results could result in misleading messaging, reduced transparency, limited accountability, and possible abandonment.

The rise of reporting standardisation and heightened prioritisation of organisational transparency underscores the importance of messaging consistency. Organisational messaging not only needs to reflect the sustainability ambitions and goals of the organisation themselves, but it needs to be rooted in data and informed language to avoid circulating misleading materials. Doing so can promote sustainable practices while mitigating the negative financial, social, and regulatory implications associated with brand dishonesty.