Many companies are setting ambitious environmental targets and are confident about their understanding of the issues – but are lagging when it comes to key measurements, new research suggests.
Seventy-eight percent of respondents polled by Crowell & Moring say their organization has identified and adopted environmental performance goals that go beyond levels required by environmental laws. The most commonly cited reason for going beyond mere compliance, mentioned by 50 percent of those taking part in the survey, is ‘to improve brand image and reputation among customers.’
The next most frequently cited reasons are ‘to stay competitive in the market’ (34 percent of respondents), ‘increasing pressure from investors and shareholders’ (33 percent) and ‘changing consumer purchase behaviors’ (21 percent).
Crowell & Moring in July and August surveyed in-house counsel and professionals involved in compliance, ESG and sustainability matters, in addition to other business professionals.
‘Given what’s at stake, organizations should know they could soon be pressed to explain whether and how they’re meeting their goals – lest they hear internal and external complaints of greenwashing,’ the report’s authors write. They say it is possible such concerns are leading the in-house counsel surveyed to be more cautious in assessing their company’s efforts, with less than half (49 percent) saying their organization has identified and adopted environmental performance goals.
‘This may signal that organizations might be moving ahead with less involvement of their in-house lawyers. That could be problematic, as a legal perspective can help identify risks before they turn into problems – especially before companies end up in the crosshairs of shareholders, activists and regulators,’ the authors warn.
Large majorities of those taking part in the research express confidence about their company’s own efforts. For example, 85 percent agree or strongly agree that their organization has clearly defined environmental policies and practices in place.
Similarly, 84 percent agree or strongly agree that their organization ‘has an adequate understanding of the business value associated with its environmental goals.’ Eighty-two percent agree or strongly agree that their board ‘is adequately focused on environmental issues, such as sustainability and environmental justice.’
The report’s authors note that fewer in-house lawyers are optimistic than are others surveyed, with 67 percent of them saying they are up to speed on environmental issues and understand their impact on the future of their company’s business compared with 81 percent of all respondents.
Confidence without measurements
The generally high levels of confidence do not align with what companies say they are measuring, the report notes. More than half (56 percent) of respondents say their company does not measure its carbon footprint. Of those that do, less than half (42 percent) measure Scope 3 emissions, which include all indirect emissions from a company’s activities.
As SEC chair Gary Gensler noted this summer, investors are seeking Scope 3 data. The SEC is expected to release a mandatory climate risk disclosure rule proposal shortly. Earlier this year, the agency also created a climate and ESG enforcement task force, the initial focus of which it said ‘will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.’
‘The potential gap between setting environmental performance goals and measuring progress against those goals may not only hinder a company’s efforts but can also expose a company to increased risks from a rising tide of regulatory enforcement and litigation from advocacy groups, consumers and investors,’ the report authors write.
In a similar pattern, 73 percent of respondents agree or strongly agree that their organization has a meaningful understanding of how its environmental performance has impacted minority communities. But less than half (44 percent) say they have assessed their impact on racially and ethnically diverse communities and just 13 percent say it is something their company is currently measuring.
Investors this year filed proposals at several companies asking them to commission racial equity audits conducted by third parties. Such proposals are expected to be filed at other companies in the 2022 proxy season.
‘This difference between a company’s understanding and what it measures may speak to the challenges companies have with identifying appropriate metrics and means of tracking them, taking specific, targeted actions to deal with these challenges and preparing to fend off litigation and other risks down the line,’ the Crowell & Moring authors explain.
‘But organizations would be wise to at least begin data gathering, particularly given the Department of Justice and the Environmental Protection Agency’s current focus on environmental justice. It’s critical for companies to conduct self-audits in such areas as their impact on racially and ethnically diverse communities – and to do so under the direction of counsel.’