Supply Chain Due Diligence Requirements Coming to Canada
by Peter Polanowski, Megan Leahy Wright, Armin Buijs
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Five sustainability trends to help companies set ambitious and achievable targets
- Post Date
- 20 March 2024
- Read Time
- 8 minutes
The pressures
Navigating the balance between greenwashing and greenhushing
2025 will mark an important milestone when it comes to companies’ sustainability goals. Many targets set by companies at the start of the decade will have a 2025 completion date. 2025 also marks the point at which the world will have five years left to achieve the 2030 Global Goals.
Corporate ESG target-setting has been evolving over the past 30 years, but the context within which targets are being set could not be more different from the early years of corporate sustainability.
Today, environmental and social impacts are much more closely intertwined into the business agenda, with much greater recognition of the risks and opportunities these topics pose on business trategy. And with employee expectations and conscious consumerism on the rise, as well as endless procurement demands from clients and customers, companies have been keen to vaunt their sustainability credentials. Some corporate communications have not always been well-conceived, leading to accusations of greenwashing, and even litigation and fines. H&M for example faced lawsuits for ‘misleading’ sustainability marketing and false labelling of 'sustainable' clothing lines in 2022 [1]. Big oil companies like BP and Shell also faced backlash for not only misrepresenting the scale of investments in green energy but also overstating their sustainable claims in their advertising [2]. The EU is cracking down on the ‘generic’ use of sustainability claims like 'environmentally-friendly' or 'green' without verifications or substantial evidence, through the 'Greenwashing Directive' [3].
As a result, we now see a more cautious approach to target setting emerging, and what some are calling 'greenhushing', i.e. companies becoming less vocal about the progress they are making on social and environmental issues. While this certainly reduces the risk of greenwashing accusations, remaining silent can suggest inaction or even indifference.
Getting the balance right between over-inflating and understating your sustainability ambitions, goals and achievements is one of the central tensions companies face as they look to set new targets in 2024 and beyond.
A call for increased transparency from regulators
Another key shift is the rise of mandatory requirements. The last few years have seen arguably the most significant regulatory developments in ESG disclosures, with the EU leading the charge. The EU’s Corporate Sustainability Reporting Directive (CSRD), which will be transposed into national laws this year, is already on the top of the agenda for large EU companies who will be required to disclose a wide range of ESG information [4]. The combined force of the EU taxonomy and the SFDR (Sustainable Finance Disclosures Regulation) are pushing investors and financial institutions to walk the talk, requiring them to transparently disclose their sustainable activities and reducing the risk of misleading the public/market [5]. The hotly debated Corporate Sustainability Due Diligence Directive (with a caveat that the final draft is yet to be approved by the EU) and EU Deforestation Regulation aim to increase supply chain transparency and traceability, expanding the scope of responsibility and accountability of businesses [6].
This growing set of regulatory pressures is influencing companies' attitudes towards setting and communicating targets. It's not just about setting targets that sound compelling; it's about setting targets that are underpinned by datasets that meet much higher thresholds of quality, consistency, and accuracy.
Where does this leave the 'big hairy audacious goals' or BHAGs of yesteryear? Have they seen their day? Are loosely-defined visionary ambitions likely to lose favour with external audiences? Or will the increased scrutiny and regulations lead to more undifferentiated 'cookie-cutter' approaches where companies prefer to play safe at the expense of inspiration and innovation?
The trends
This may not necessarily be the outcome. Recent cross-sector research we conducted painted an increasingly nuanced and divergent landscape, with some interesting trends that differentiate the most leading and forward-thinking ESG targets from others.
1. Increased scrutiny doesn’t always mean a standardised way to target-setting:
The landscape of target setting is certainly diverse. Despite the trends outlined above, we still see an overhang of companies setting ambitious long-term goals with fairly loosely defined terms like ‘100% circular’, without being able to define what '100% circular' means. As we noted above, while these attention-grabbing goals often create excitement, they risk leaving stakeholders at best confused, and at worst, deeply sceptical.
At the other end of the spectrum are long rafts of very specific, well-defined targets, fairly short-term, incremental performance improvements. Inevitably these can come across as un-ambitious and un-inspiring!
Yet a few stand out that strive for a balanced approach, setting out ambitious, long-term goals that are substantiated by a combination of concrete plans, innovative solutions andmeasurable interim targets. This seems to show a strong middle ground.
2. Growing demand for "context-based" and "science-based" approaches:
Sustainability leaders are increasingly adopting 'context-based' and 'science-based' approaches to set their targets. These approaches consider the specific environmental and social contexts in which companies operate, ensuring targets are relevant and impactful. Goals are set in line with credible frameworks and methodologies and are more easily comparable. The Science-Based Targets Initiatives (SBTi) for decarbonisation goals is the one that stands out, while a growing number of leading companies are also demonstrating strong interest toward aligning with emerging nature-related frameworks such as SBTN and TNFD.
3. Integration of sustainability goals with business goals: Leading companies are embedding their sustainability goals with their broader business goals and purpose. As businesses identify how ESG can deliver commercial value, we are seeing sustainability no longer sit in a silo but an integral part of core business strategy.
4. Shift towards 'regenerative' and 'restorative' approaches: Sustainability is evolving from a negative stance of 'do less harm' to a more proactive stance. Companies are looking beyond negating the negative impacts of their business to enhancing the positive impacts, for example through regenerative and restorative practices that aim to repair and revitalise ecosystems.
5. Thinking beyond your direct impact: Leading companies are extending their target ambitions beyond their direct operations. They are considering their entire value chain and even their impact beyond it, recognising the interconnectedness of global sustainability challenges.
What practical steps can companies take to set cutting-edge targets?
Recognising trends within the target setting space is one thing, but implementing them is another. But there are practical steps that companies can take to adopt a rigorous and transparent approach to set targets:
- Focus on what’s material by undertaking a materiality assessment to identify the most relevant environmental and social issues to establish credible and impactful sustainability targets.
- Gain insights from peers and best practices through landscape research and peer review that can provide valuable insights into industry best practices, emerging trends and opportunities to stand out.
- Align with stakeholder expectations by engaging with key stakeholders to build support for sustainability initiatives.
- Align with business strategy by identifying key drivers of commercial value, engaging senior management and integrating ESG into business strategy.
- Address broader challenges by mapping your value chain and identifying ESG hotspots to ensure that the targets you set are tackling parts of your value chain.
Are you looking to develop sustainability targets that are meaningful and credible? Or are you looking to refresh your current targets? Either way, understanding the broader context is the first step to setting ambitious yet achievable goals that are aligned with the wider business and resonate with wider stakeholders. If you’d like to find out more or if you have any questions, please get in touch.
This article was written by Rupali Patni, Waka Wang, and Emily Williams.
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