Enough greenwashing: How companies can drive value by establishing legitimate environmental practices

As Earth Day 2024 approaches, our Head of Social Responsibility Cindy Godwin spoke with our ESG Director Deborah Praga on how companies can improve their environmental footprint while also boosting business.
 

Responsible business operations may not seem a ripe ground for controversy, yet anti-ESG backlash continues to spread. For political and economic reasons, we’re witnessing a global decline in adoption as funds reject the concept as an investment philosophy. According to LSEG Lipper, investing in “responsible” funds dropped from $558 billion worldwide in 2021 to $158 billion in 2022 and just $68 billion in 2023. 

Despite the negative headlines, we believe this will have positive effects for ESG long term. For years, rampant greenwashing and questionable metrics have allowed certain companies to promote ESG efforts without moving the needle. It’s time we refine our perspectives on ESG to clear out the fluff and embed value-additive ESG measures throughout organizations to bring meaningful change. 

AlixPartners’ ESG Director Deborah Praga is focused on helping companies do exactly that. After almost a decade as a turnaround and restructuring consultant, Praga’s passion for ESG—specifically the environment—motivated her to get a master’s degree in sustainability to drive actionable results in the space. 

“As a consulting firm, our environmental footprint is relatively low,” Praga said. “But our clients are some of the biggest companies in the world, with footprints to match. Our ability to influence and guide them towards innovative and responsible solutions is how we can amplify our positive impact.”

Following the historic Paris Agreement in 2015, there has been an increased focus to reduce carbon emissions. Lenders, investors, customers, and employees are increasingly making decisions based on green credentials, and rising energy costs force efficiency to the forefront of operations. 

This mobilization is evident when looking at the number of companies entering the climate commitment foray. Climate Impact Partners reported that two-thirds of Fortune 500 companies have made significant climate commitments (39% with a net-zero target). However, recent surveys conducted by AlixPartners, Mondra, and the BRC Climate Action Roadmap Pathway highlight that many of these companies are not confident they will reach their carbon goals.
 

This Earth Day, Praga believes companies can do more to adopt sustainable practices that help the planet while crucially supporting bottom lines. As government regulations and disclosure requirements proliferate globally, ESG initiatives become a financial imperative, no longer a “nice to have.” These regulations and reporting standards also present considerable reputational risks for companies that fail to comply. 

According to Praga, companies can adapt to these shifting measures and position themselves for new or continued success by:

• Enacting a business adaptation mindset: “Closely study the trends around environmental disruption to understand where tides are shifting and how businesses plan to address elevated future concerns and regulations. With this information, companies they can pivot away from less effective business models towards growth.”
• Carefully planning risk mitigation: “What happens if climate change causes a decrease in the ability to grow crops, but your business relies on those crops? Environmental disruption can cause a number of business risks, both structurally and across physical assets. It is imperative that companies start proactively thinking through how to bake in strategic practices that mitigate potential pain points.”
• Building resilient communities: “Environmental disruption tends to disproportionately affect underprivileged populations. When considering the ‘social’ aspect of ESG and your business reputation, it is crucial to help these communities grow their resiliency muscles by implementing measures that help counteract any adverse effects they may not be equipped to handle.”

Beyond adopting the right mindset, AlixPartners helps clients set frameworks for responsible business practices so they can further progress and drive measurable value. For companies that still struggle with environmental strategies, Praga suggests the following action plan:

• Conduct a materiality analysis: “In this reality, companies must discern the extent and magnitude to which various environmental factors are important to their stakeholders and to the business. It is a necessary reveal. With this knowledge, they can focus on efforts that definitely add value, rather than falling into the trap of trendy or insincere initiatives for the sake of box-checking.”
• Ensure efforts are brand-right: “There is no ‘one-size-fits-all’ approach. To find true value, businesses must identify attainable initiatives that make the most sense for the business and its particular circumstances. As an example, a business that utilizes a significant amount of water in its operations may focus its ESG efforts on water reclamation projects.”
• Avoid reporting for the sake of reporting: “Given the increasingly rigorous reporting landscape—with Europe leading the charge—companies have no shortage of ESG ratings bodies and credentials to choose from. This presents a daunting challenge for businesses that may feel pressured to report to every option or are unsure of where to begin. Reporting for the sake of reporting is neither practical nor indicative of meaningful ESG performance. Companies should select the most relevant reporting structures to enable and effectively communicate their metrics and progress.”

As financial incentives and environmental impacts become more intertwined, companies must take a more proactive approach to ESG strategies, particularly focusing on the “E.” To do so effectively, they’ll need to think through the “why” behind their approach to ensure tactical steps align with their specific business needs and are authentic to their internal brand ethos and external brand reputation. 

ESG skepticism has unfortunately arisen for valid reasons—the more companies greenwash with generic, ineffective measures, the more investors and the public at large will remain dubious of future efforts. But together, we can usher in a new and legitimized era of ESG efficacy and compliance that cuts through the fluff to assuage public concern, improve the planet, and drive tangible business value.