Risk & Economy » Climate change » CFOs should take a greater role in policing greenwashing

CFOs should take a greater role in policing greenwashing

CFOs play a vital role in ensuring the accuracy and integrity of the organization's ESG reporting, which is crucial for attracting and retaining investors who value sustainability

CFOs should take a greater role in policing greenwashing

Unilever is often viewed as the poster child of sustainability.

Over the years, it’s chief executive has made claims of saving over $1.2 billion in costs by putting the environment at the heart of it’s operations. Today (December 12), the FMCG giant became the subject of an investigation over concerns consumers were being mis lead by it’s green claims on some household essential products.

In the wake of the global climate crisis, businesses – and consumers to some extent – are increasingly under pressure to demonstrate their commitment to sustainability. ESG practices have become a key business strategy, with companies like Unilever outwardly leading the way.

However, with the rise of ESG comes the risk of greenwashing – the practice of making misleading or unsubstantiated claims about a company’s environmental impact.

The UK’s Competition and Markets Authority (CMA) said Unilever may be overstating how green certain products are through the use of “vague and broad” claims, unclear statements about recyclability, and natural-looking images and logos such as green leaves.

“Essentials like detergent, kitchen spray, and toiletries are the kinds of items you put in your supermarket basket every time you shop,” says Sarah Cardell, the CMA chief executive.

“More and more people are trying to do their bit to help protect the environment, but we’re worried many are being misled by so-called ‘green’ products that aren’t what they seem.”

As the financial stewards of their organizations, CFOs have a crucial role to play in preventing greenwashing and ensuring their businesses meet their green strategies.

Financial stewards to green guardians

Greenwashing is a serious concern in the corporate world. The practice involves companies making exaggerated or false claims about their environmental credentials to mislead consumers and investors.

This can manifest in various ways, such as vague and broad statements about sustainability, unclear claims about recyclability, and the use of misleading imagery.

It erodes trust, damages reputation, and can lead to legal and financial consequences – the responsibility of ensuring a business does not involve itself in such practices should sit firmly within a CFO’s wheelhouse.

CFO’s  have a comprehensive understanding of their organisation’s financial and non-financial sources of capital, and they are involved in virtually every strategic initiative their company undertakes.

This perspective allows them to connect their organisation’s business model to its ESG practices and report this information in meaningful ways to internal and external stakeholders.

The road to prevention

CFOs are uniquely positioned to lead the charge against greenwashing. They have a comprehensive understanding of their organization’s financial and non-financial sources of capital, and they are involved in virtually every strategic initiative their company undertakes. This perspective allows them to connect their organization’s business model to its ESG practices and report this information in meaningful ways to internal and external stakeholders.

1. Understanding ESG

By understanding ESG principles, they can integrate sustainability into financial decision-making processes. ESG principles consider not only environmental factors but also social and governance aspects, providing a holistic approach to sustainability.

CFOs should familiarise themselves with various measurement standards and protocols related to ESG reporting. The GHG protocol is a widely recognized framework for measuring and reporting greenhouse gas emissions. CFOs need to understand this protocol to accurately quantify their organization’s carbon emissions and set reduction targets.

The new EU Taxonomy is another important framework that CFOs should be aware of. It classifies economic activities based on their environmental sustainability, aiding in the identification of sustainable practices.

Finance leads can then leverage their understanding of ESG principles to integrate sustainability into financial decision-making processes. This integration can involve considering the financial implications of sustainability initiatives, assessing risks and opportunities associated with ESG factors, and aligning financial strategies with long-term sustainability goals.

2. Integrating ESG into Financial Reporting

CFOs should ensure that their financial reports include sustainability-related disclosures. This includes quantifying ESG matters such as emissions or financially-driven sustainability information so investors and other stakeholders can grasp the scope of a particular issue.

This transparency allows investors to assess the company’s commitment to sustainability and make informed decisions about their investments. By building trust and credibility through accurate and transparent reporting, CFOs can foster stronger relationships with stakeholders and demonstrate their organisation’s commitment to long-term sustainability.

3. Developing ESG Strategies

CFOs are not only responsible for managing financial aspects of a company but also have a critical role in driving long-term business growth through the integration of ESG principles.

Today, stakeholders and investors demand more than just financial performance; they expect organisations to prioritise sustainability and corporate responsibility. As such, CFOs must develop innovative business models that not only meet market demands but also prioritise ESG and sustainability.

Most businesses are considering the circular business model which aims to minimise waste and maximise resource efficiency by designing products that can be recycled, repaired, or repurposed. This model not only addresses environmental concerns by reducing waste and carbon emissions but also aligns with social and governance principles by promoting fair treatment of employees and ethical business practices.

4. Collaborating with Cross-Functional Teams

CFOs should assemble cross-functional teams to lead data collection, analysis, and reporting initiatives. This will help to ensure that ESG data is accurate, reliable, and follows emerging global standards.

By working closely with teams from various departments, such as sustainability, operations, and marketing, CFOs can ensure that the organization’s ESG reporting is comprehensive and aligned with its overall business objectives.

5. Preparing for Mandatory Reporting Requirements

With new regulations on the horizon, CFOs should also prepare their organisations for mandatory ESG reporting. This includes securing third-party assurance of their reporting and enhancing data management processes.

Third-party assurance provides an independent validation of the organisation’s ESG data, enhancing its credibility and trustworthiness.

Additionally, CFOs should focus on enhancing data management processes to ensure the quality and integrity of ESG metrics. This includes prioritizing data collection, governance, and management [3]. By implementing robust data management processes, CFOs can ensure that the data feeding into their ESG reporting is trusted, accurate, complete, and well-defined.

Was this article helpful?

Comments are closed.

Subscribe to get your daily business insights