A balanced communication of positive and negative footprints of a business’ impact on society is crucial to address critical concerns.
BUSINESSES have been made to believe that carbon offset schemes could help companies reduce emissions and balance out carbon footprints. From the viewpoint of detractors, offsetting is a form of greenwashing which allows companies to claim success in cutting emissions or achieving carbon neutrality.
Investigations and studies have questioned the efficacy of carbon offsets schemes being conducted by conglomerates and other corporations. These, they say, could worsen climate change, as there isn’t a standardised system for determining what counts as a carbon offset, or how to measure it.
Some even take the opportunity to make a substantial quick buck out of it - cue the infamous Vatican carbon offset fraud case where it was presented with offset certificates for millions of trees that were never planted in the Hungarian countryside. Meanwhile, there are proponents who opine that the carbon offset scheme is helpful in channeling funds towards conservation and sustainable development projects that reduce emissions when conducted transparently and correctly.
Similarly, businesses are convinced that disclosing only positive material environmental, social and governance (ESG) measures and impacts could “offset” the negative footprints left behind in addition to building the brand’s reputation, strengthen the trust of investors and other stakeholders - so much so that the businesses tend to omit disclosing the negative impacts in their annual sustainability reports—a move that is arguably considered greenwashing.
An honest sustainable report can help a business build trust with stakeholders as well as signpost the way towards a more sustainable and successful future.
Eradicating greenwashing
Companies’ outlook on matters revolving around sustainability are often painted in a positive and optimistic light when one looks into sustainability reports that have been published - but of course this is expected as those reports only disclose positive impacts, said Investment, Trade and Industry ministry (Miti) senior director Dr Meenachi Muniandy.
“A majority of companies would not share limitations or problems they face (in implementing ESG measures). They focus only on positive things - as if there are no problems in the world. Thus, this (sustainability reporting practice) is considered to be skewed towards greenwashing which is currently a pressing matter.
“When embarking on ESG practices, companies need to disclose negative impacts.
“One cannot say that because a positive deed was conducted in one element, it offsets another negative element - it does not work that way,” Meenachi told StarESG in an interview.
Investment, trade and Industry Ministry (Miti) senior director Dr Meenachi Muniandy says companies that discloses negative impacts and footprints should not be penalised, but commended instead.It is understandable that no company would want to be under attack for publishing information that it intentionally disclosed on its sustainability report.
Thus, businesses manage bad news by deflecting negative impacts and only focusing on areas where they shine.
We know all too well that it is nearly impossible to find a business that comes without a smidge of negative impact—which is why a balanced communication of positive and negative footprints of a business’ impact on society is crucial to address critical concerns as well as avoid backlash from investors, stakeholders and the general public.
PwC’s Global Investor Survey 2023 found that nearly 75% of investors globally say they want sustainability reporting to describe the impact a company has on the environment and society.
Other research such as The Effects of Negative Incidents in Sustainability Reporting on Investors’ Judgments indicates that self-reporting of negative incidents does not affect decision makers’ stock price estimates and investment decisions compared with judgments based on financial information only. It is also discovered that third party disclosure of these incidents by non-governmental organisations has an even more negative effect on investment related judgments.
Hence, disclosing negative information in a sustainability report can serve as a useful risk mitigation and crisis management tool.
Dispelling distrust and doubt
To circumvent the lack of balance and transparency in sustainability reporting, Meenachi says companies should be encouraged and commended for disclosing any negative impacts.
“Companies that practise transparency and expose the ‘negatives’ are being penalised instead of being commended for doing so. This should not be the case. Their efforts to produce balanced reports should be recognised.
“This way, solutions for sustainability issues can be created and they are not pressured or compelled to disclose only positive things.”
Indicating that companies might just be publishing the reports just to meet Bursa Malaysia’s requirement (to publish annual and integrated sustainability reports), Meenachi notes that it is the top management’s responsibility to steer the company towards transparency in sustainability reporting.
Given that the multitude of ESG requirements and sustainability reporting does contribute to pushing corporations towards greenwashing their reports, Meenachi shares that “green-racing”—whereby corporations keep moving the goalpost when they can’t achieve the targets that have been set—is another issue of concern.
Meanwhile, the Global Reporting Initiative (GRI) regional office for Hispanic America director Andrea Pradilla had also emphasised on the importance of corporate transparency.
In an opinion piece titled We don’t talk about Bruno: Disney’s surprising lessons for corporate transparency, she shares that reporting on negative impacts is a crucial step in order to present an accurate overview of the management of an organisation, and to demonstrate how sustainable practices are being integrated.
“A balanced sustainability report, as supported by the GRI Standards, reflects a solid relationship process with stakeholders and a deep understanding of the impacts that the company generates. It is also a commitment to ethics and coherence.
“If companies are to effectively reflect on and take accountability for their impacts on people and planet, they need to be prepared to accept and talk about the whole spectrum of their impacts, the good and the bad,” she opines.
She shares that companies should touch on these key points when publishing their integrated sustainability reports:
> Present information in an easy-to-follow and transparent way, which allows users to clearly track the positive and negative inter-annual impact trends of the company.
> Clearly distinguish between evidenced facts and stats, and where the organisation interprets and describes them.
> Do not omit relevant information, particularly challenging insights into negative impacts.
> Do not overemphasise only positive news and impacts. To be credible and believable, stakeholders are looking for balanced reporting.
> Avoid presenting information in a way that could inappropriately influence the conclusions or assessments of report users.
GRI Standards is a global best practice for reporting publicly on a range of economic, environmental and social impacts. GRI and the International Financial Reporting Standards (IFRS) Foundation are deepening their partnership to provide a seamless, global, and comprehensive sustainability reporting system.
Building upon a Memorandum of Understanding (MoU) signed in 2022, the two agencies will optimise the use of GRI and ISSB Standards to facilitate reporting on organisations’ impacts, risks, and opportunities, including those arising from the organisation’s impacts.
According to reports, this partnership will see the International Sustainability Standards Board (ISSB) and the Global Sustainability Standards Board (GSSB) identify and align common disclosures that address information needs under the distinct scopes and purposes of their respective standards.
This includes both thematic and sector-based standard-setting.
An initial outcome of this partnership involves a methodology pilot focused on biodiversity, leveraging the recently published GRI 101 Biodiversity Standard and the ISSB’s upcoming project on ‘Biodiversity, Ecosystems and Ecosystem Services’.
