It is emerging that not only is good corporate governance necessary in promoting corporate brand and performance, but it is also becoming critical to how corporations integrate environmental social governance into their operations. Therefore, the future success of a business is now more than ever based on embracing and reporting sustainability practices. Increasingly, some companies are failing to adopt ESG into their operations and are being accused of ‘greenwashing’ – that is, hiding the true picture of their operations’ impact on the environment and communities. In short, initiating and implementing sustainability policies requires strong Boards which have a strong corporate social responsibility mindset.
The Cambridge Dictionary defines greenwashing as “behaviour or activities that make people believe a company is doing more to protect the environment than it really is”. Consequently, there are concerns over a ‘governance bubble’, in which ‘expectations about ‘greenness’ are taking centre-stage in policy framing and advocacy. A critical review of some sustainability reports suggest that some organisations are struggling to keep up with sustainability, while others are fully committed and are transparently reporting on ESG and climate change – thanks to strong governance structures.
Role of Boards
Given the emerging issues, actions and inactions of Boards of Directors are crucial. In many cases across the globe, especially in developing countries, Boards are failing to recognise whether ESG risks and issues exist; particularly in challenging an organisation’s ESG communications and reporting. It appears lack of experience by some Boards of Directors has become one of the key evolving challenges and standards confronting companies. The key concern is whether corporate boards are well-equipped to make policies that guide management’s decision-making on climate change and ESG.
Global movement
Climate change is the umbrella for all issues ESG. As there is a global movement of reducing carbon emissions there can be no room for failure, as the latest Intergovernmental Panel on Climate Change report warned. But determining which businesses will successfully reduce their carbon emissions to net-zero is difficult. There are many examples of companies making commitments which are questioned by media and other stakeholders. Increasingly the media, as a key stakeholder in sustainability, has a key role to play in holding governments and corporations accountable. In practice, the lack of global agreement on standards in all areas of ESG makes it incumbent on the media and other stakeholders to expose corporate failure to promote diversity and inclusion, workplace safety and social justice. It is even more difficult to hold corporations accountable because there is an absence of clear metrics and global standards, which makes corporations construct their own reporting mechanisms.
Corporate reputations
Across the world, especially in Europe and America, corporate reputations and the careers of CEOs are quickly destroyed by public disclosures of failure to report a company’s ESG performance. Integrity thus becomes a key issue in reporting ESG. Devoid of an acceptable definition for ESG issues, integrity concerns transparency in terms of organisational culture and performance. In that regard, Board members need to be on top of the business’s ESG strategy as regulators in developed countries are becoming more proactive. Some regulators are already employing data science to ensure that the claims made in glossy CSR reports match official ESG accounts.
Weak regulation
The weak regulatory environment, combined with stakeholder demands around ethical and environmental performance, leaves organisations under huge pressure that results in the rise of so-called ‘greenhushing’. Corporates, fearful of being accused of ‘greenwashing’, instead opt for silence on their environmental and societal (diversity, equity and inclusion) ambitions. But silence can no longer be accepted a sound business practice.
In the case of sustainability, pressure is intensifying as investors, activists, customers, consumers, employees, suppliers and regulators have heightened expectations of corporate commitment to ESG. Due to stakeholder pressure, companies can no longer see ESG as purely voluntary but, rather, compulsory. However, accurate data on climate risk, greenhouse gas emissions, biodiversity impacts, employee treatment, human rights, tax transparency, anti-corruption, anti-bribery and Board-diversity are not readily available. This requires companies to collaborate and cooperate with stakeholders across the entire supply chain.
A recent report by The EY Global Integrity Report 2022 found ethical standards to be slipping in the aftermath of COVID-19. Among a list of fraudulent activities are falsifying financial records, taking or offering bribes, and misleading regulators or auditors. Furthermore, many companies often voluntarily publish reports data that do not reflect the real situation on the ground. There are fears that ESG data may be manipulated, with employees relying on the inherent weaknesses and ambiguity of sustainability reporting. This explains why there is a swath of regulations in the financial service sector to ensure organisations are held accountable for both their investments and the products they sell.
Furthermore, a regulatory framework is also tightening around green claims; including claims in relation to ESG topics like net-zero. In countries like the UK, large companies are now mandated to report on their climate-related risks in line with recommendations of the global Taskforce on Climate-related Financial Disclosures (TCFD). Also, the EU Corporate Sustainability Reporting Directive (CSRD) requires companies to publish detailed information on sustainability performance.
And in the US, the Securities and Exchange Commission has proposed rule changes that would require climate-related disclosures. Is that the case in Ghana? Are there any regulatory frameworks which ensure that high impact companies commit to ESG? In Ghana, Hanssen Global UK & Ghana Ltd. – a partner of Microsoft Network and Alliance Insurance of Germany led by Thomas Cook Jefferson Dankwah – is leading the campaign for good corporate practice in climate change and ESG. Mr. Dankwah is making a strong case for community engagement as well as media empowerment to educate stakeholders on ESG in Ghana.
Communications
It is expected that harmonised and mandatory reporting will help provide more transparency in reporting ESG. Organisations will increasingly need to communicate externally on key sustainability matters and metrics applicable to their activities – like greenhouse gas emissions, as environmental stakeholders are mounting pressure on corporations to be good stewards of the environment and host communities. Open and transparent communication is the foundation of an organisation’s social contract with all stakeholders, especially in host countries and communities. As indicated earlier, putting sustainability at the heart of company strategy yields both financial and social dividends. In a recent survey of more than 500 companies committed to improving their environmental performance, 69% reported that they captured higher financial value than expected from their climate initiatives.
Profit over people
Most importantly, many ESG reports are increasingly highlighting how people matter in the scheme of their operations. Thus, the initial notion of corporate profit over people is giving way to social responsibility to people and communities. However, not all companies are committed this ESG. It is not surprising that investors are accusing some businesses of greenwashing on sustainability activity. Hence, stakeholders are calling for “greater transparency” and harmonisation of ESG disclosures, especially in developing countries – where multinational companies often have more power than even governments.
But some companies recognise the people and communities as shared owners of corporate resources. For instance, in its 2022 Sustainability Report, Newmont Corporation notes that the essence of ESG is to create value and support the wellbeing of people and planet; contribute to an equitable, inclusive and diverse world; and ultimately improve lives and livelihoods in host communities. Newmont Corporation has at least reported its commitment to sustainability by underscoring the fact that the core of sustainable mining business should be a commitment to community health and safety.
Newmont has reported plans to proactively manage environmental risks through several corporate, regional and site-level activities. These plans include progress on the Path to Zero Cyanide Spills programme, which aims to eliminate spills containing high concentrations of cyanide at its operational sites in Ghana. At least, in Ghana cyanide spillage in mining communities has not been reported for some time – giving an indication that ESG measures are yielding fruit in the mining sector. According to Newmont, since announcing its 2030 climate targets it has taken steps to invest in climate change initiatives in host countries and communities. In 2021, Newmont announced a US$100 millionstrategic alliance with Caterpillar Inc. to plan, build, test and deploy early-learner, battery-powered electric trucks to improve safety and build pathways for emission reduction.
Critical compliance
Across business platforms – not only in the mining sector, it is the responsibility of Boards of Governors to enforce critical compliance to safety systems which are key to promoting behavioural changes in organisational performance.
Alliance Insurance, for instance, in its 2022 Sustainability Report indicated its readiness to create positive social and environmental impact through its insurance, investment and asset management expertise. “With our competence, expertise and global footprint, we have the ambition to be a catalyst for sustainable growth in the financial services industry and beyond. And we know that we cannot do it alone”, says Oliver Bäte, Chairman of the Board of Management-Alliance.
In its 2022 Sustainability Report, Alliance reports that it prioritises SDG 8, Decent Work and Economic Growth; SDG 13, Climate Action; and SDG 17, Partnerships. These SDGs align with Alliance’s insurance and financial expertise, and strategic business priorities. “We believe this strategic focus best leverages our strength and scale for maximum impact, for both our business and society. It says SDG 8 is in line with its aspiration to be a trusted partner for protecting and growing stakeholders’ most valuable assets. Similarly, SDG 13 is in line with its commitments to net-zero by 2050 while SDG 17 is in line with its belief that progress in reaching sustainability goals requires collaborative global action, beyond company boundaries.
According to the Alliance Report, all its decisions are made and measured with sustainability in mind to enhance how it manages risks and harnesses opportunities. Most importantly, the Sustainability policy drives the company to create new sustainable products and services, and collaborate with NGOs and governments. Perhaps both Alliance and Newmont will have to consider bringing the media on board their sustainability plans, helping to build the capacity of media and journalists to understand and educate public and policymakers on climate change, ESG and CSR – thus enabling them to demand corporate accountability. In sum, ESG should emanate from the top and be integrated into the business culture and strategy, which includes media development and advocacy on climate change and ESG.
Reference
Alliance Insurance. 2022. Sustainable Business. Enduring Value. Sustainability Report
Newmont Corporation. 2022. Building confidence in tomorrow. Sustainability Report
Weghmann, K. 2023. ‘How good governance can keep corporates clean from greenwashing’. EY Global ESG Leader, Forensic & Integrity Services; Partner, Assurance, Ernst & Young GmbH.
