Navigating the evolving landscape of corporate sustainability and communications in the US

In recent months, US companies that have publicized their sustainability efforts are seeing increasing backlash driven by accusations of greenwashing and a new political administration. In this context, it is vital for companies to focus on ensuring that their messaging is consistent with the company’s ethos and can be easily verified by an external source.

This article will detail the importance of understanding an organization’s most material issues, integrating this into overall corporate communications, and the instances where companies have been negatively impacted by poor or unclear communications of sustainability efforts.

Changing regulatory landscape in the face of a new administration

With the start of a new administration, we have seen a rise in anti-ESG sentiment, leading to the rollback of ESG related regulation, including DEI and certain climate requirements. Many companies, although not legally required to, have also rolled back DEI related targets or softened other ESG related initiatives.

However, it is important for companies to recognize that short-term political shifts do not change the existence of sustainability-related risks and stakeholder pressure to address those risks, particularly for global organizations. Although the current climate appears to be a step backwards for corporate sustainability, it is an opportunity to identify true issues and determine how to mitigate negative harm towards people and the environment.

How materiality assessments can support corporate sustainability communications

In order to achieve accurate and authentic communications the source of your sustainability strategy must always be data driven and rooted in an understanding of business risks and value drivers. This can be completed through materiality and double materiality assessments, which will allow for an opportunity to assess the importance of certain sustainability related topics such as climate change, employee attraction and retention, or water stewardship. Internal and external stakeholders can assess the importance of these topics to the organization, aiding in a well-rounded view of which material issues require the most effort and concern (“outside-in” perspective). Further landscape analysis and benchmarking of the industry can also support the assessment of topics.

A double materiality assessment takes this information a step further and also assesses the impact of an organization’s activities on wider society and the environment (“inside-out” perspective). The results of these assessments will allow a company to have a better understanding of what is important to prioritize based on stakeholder engagement and value chain analysis. Resulting in messaging that is authentic to their brand.

Recent legal ramifications of overexaggerated messaging

Legislation related to preventing greenwashing has begun to appear in both the U.S. and abroad. At the federal and state levels the landscape of greenwashing legislation is rapidly changing. In 2022, the FTC began making updates to the Green Guides, a set of principles related to environmental marketing claims. However, momentum has waned, and priorities have shifted under the new administration.[1] In recent years, class action lawsuits in the U.S. have targeted companies accused of operating against their own environmental claims. Meanwhile, in the EU, companies have faced lawsuits for failing to align their definitions of sustainability with external standards.

These lawsuits aim to protect consumers from unethical practices, such as being charged excessively for “green” products or using products that are falsely marked as free of harmful chemicals. Class action lawsuits have recently been filed against companies for concealing the use of harmful chemicals in products, for setting ambiguous or overly ambitious climate-related targets, and for claiming that the company is environmentally conscious while continuing to use harmful practices in operations.

In March 2024, the European Union adopted the Green Claims Directive, which will work with the Empowering Consumers Directive by requesting specific evidence that a company’s claims are backed by science-based assessments and approaches. The GCD also requires third party assessments that will verify those claims.[2] While we do not anticipate similar moves in the US, this can have an impact on global companies with significant operations in the EU.

Ensuring that materiality assessments are completed, and strategy development takes place is crucial. This process provides organizations an opportunity to evaluate, through strategic working groups, which material topics are most important and create an action plan to set and achieve sustainability goals. Additionally, incorporating the results of the materiality assessments into the overall strategy helps to strengthen the credibility of sustainability claims.

Integration of materiality / sustainability policy into overall corporate strategy

When companies develop a sustainability strategy that appears separate from its core business strategy or as a one-off initiative it is apparent to consumers, investors, and other relevant stakeholders that it is not a major priority to the organization. This is why integrating sustainability into overall corporate strategy is an important part of communicating corporate sustainability.

In a recent publication from MIT Technology Review, researchers found that to ensure competitive advantages and growth opportunities, organizations should integrate sustainability across the entire enterprise.

“Organizations need to treat sustainability with the same rigor as they do their finances… ESG data should be measured at a high level of granularity and managed in a centralized system like enterprise resource planning (ERP).”

Remy Bos, Oracle’s Sustainability Director

This approach provides a clearer view of sustainability impacts and opportunities across the entire organization and with the help of technology, it can ensure accurate data.

So, what’s next?

A new political climate is changing how companies communicate their corporate sustainability efforts. However, companies will continue to face greater scrutiny from stakeholders regarding their environmental and social impacts.

To efficiently navigate a rapidly changing political and legal landscape, companies should prioritize completing sustainability materiality assessments incorporating the financial impacts of key material issues. The results of this assessment should inform the development of a corporate sustainability strategy, which can then be integrated into the broader corporate framework.

References:

[1] https://www.ftc.gov/news-events/news/press-releases/2022/12/ftc-seeks-public-comment-potential-updates-its-green-guides-use-environmental-marketing-claims

[2] https://www.crowell.com/en/insights/client-alerts/the-green-claims-directive