Are voluntary ESG initiatives letting large firms off the hook?

We’ve all seen businesses making commitments to becoming net-zero, carbon neutral and more sustainable. But how often do these promises turn into action?

It’s a question brought into sharp focus in recent months as the sustainability targets of large firms have come under growing scrutiny, as they are based on voluntary ESG agendas that cannot be enforced.

Climate Action 100+  is an investor-led initiative to ensure that the world’s biggest carbon polluters clean up their act. It has a network of more than 700 investors, responsible for over US $68 trillion in assets, and it has a birds-eye view of ESG initiatives.

Its research suggests that while more than two-thirds of its network (69 per cent) have set commitments to achieve net zero emissions by 2050 or sooner, these firms have failed to show requisite progress to hit these targets. Often their targets don’t account for the aim of keeping global warming within the 1.5°C range set out by the United Nations.

 ‘Many businesses have failed to show requisite progress to hit targets on net zero emissions…’

There is a considerable gap between what companies are saying publicly and what they are doing in practice. Only 9 per cent have broad alignment between their climate policy and the Paris Agreement, an international treaty on climate change.

This suggests that whilst many companies are great at claiming to be committed to preventing climate change, a lot of their campaigning is designed to boost their image in the eyes of investors and clients while they drag their heels in terms of taking decisive action.

Banks on the run

The idea that the ESG movement could be running into trouble in its attempts to push through sustainable change has been given further credence by the threat by several major banks to leave a major financial network committed to supporting a net zero future.

The Financial Times reported that several prominent banks were considering leaving the Glasgow Financial Alliance for Net Zero  as a result of fears that they could be sued for not reaching sustainability targets.

‘Several prominent banks considered leaving the network over fears they could be sued for not reaching net zero targets …’

In an ideal world, companies would be willing to be held accountable for their ESG progress. In reality, it appears that some organisations want to be able to project a positive ESG message without facing any real consequences if targets are not met.

So what comes next?

Without increased government policy intervention which forces companies to measure their progress in comparable ways and prove that they are taking decisive action year on year, experts believe that we are unlikely to see businesses making a full contribution to decarbonisation.

This appears to be the direction in which governance is moving, with the European Commission adopting new laws which force companies to report their ESG initiatives and which aims to standardise reporting on these issues to make data more easily comparable across sectors.

This may become standard even outside the EU, with more regions adopting stricter reporting standards. Nobody disputes that achieving net-zero targets are tough for many businesses, which will be forced to change their working practices. But perhaps the days are numbered for big corporate promises on sustainability without follow-up action.

Toronto takes off

If you’re interested in the issues raised in this WORKTECH Wednesday Briefing, you might like to check out WORKTECH’s global events calendar.

The WORKTECH conference returned to Toronto in face-to-face format on Wednesday 25 October 2022. It was staged at the Deloitte office, Bay Adelaide East, and delegates heard how Deloitte is implementing a digital workplace strategy and smart building platform to create adaptable, efficient and engaging workplaces. There were also sessions with BCG, Zaha Hadid Architects, Scotiabank, Sun Life Financial, Government of Canada and more.