CSR: Global strategyor greenwashing?

04/08/2023

7mn

The term Corporate Social Responsibility is now almost a household brand. Businesses who wish to have a positive impact on society are well aware of the concept and have learned to use it. But are all companies really serious about CSR? How reliable are their statements, non-financial results and engagements?

Pauline Roulleau, former non-financial analyst (VIGEO), CSR consultant-auditor (EY), and founder of the sustainability agency Ici & demain, gives us some answers.

Driven by their commitment to sustainable development and the challenges of climate change, numerous companies now appear to choose responsibility over profit. From consumers, to employees, and investors, stakeholders expect and follow such engagements. 86% of consumers think that companies should lean more into ESG practices, 86% of employees are more likely to support and work for companies that have the same goals as them, and 91% of CEOs believe that their own company has to take responsibility regarding ESG^[1]. WTW’s 2022 global report shows that 90% of companies in the main European markets now include environmental, social and governance (ESG) criteria in executives’ variable compensation. Europe is leading the way when it comes to ESG.

^[1] PWC Survey, Beyond compliance: Consumers and employees want business to do more on ESG – How business can close the expectations gap, 2021

CSR transparency and hollow promises: a fool’s game?

How can one be sure that companies’ ambitions in terms of CSR are actually translated into genuinely sustainable and responsible practices? “Regarding stakeholders, it’s difficult to check. When a company promotes a CSR goal or argument, it appears to be greener. That’s when we need to look out for greenwashing: overpromises, misleading wording, lack of evidence… Recently the DGCCRF investigated environmental claims: one out of four turned out to be misleading,” alerts Pauline Roulleau. This investigation led by the DGCCRF (the French anti-fraud unit) is the first of its kind. It focused on misleading environmental claims and tracked down the following mentions: “environmentally friendly”, “zero waste”, and “eco-responsible”.

Results showed that these claims were “generalizing”, “unwarranted”, “ambiguous” and even “contrary to legal requirements”. “An ecological and sustainable argument can also cover up negative impacts – whether it be intentional or not. For instance, the collective Follow the money recently exposed the human rights violations perpetrated by Patagonia’s suppliers.”

ESG/CSR: what’s the difference?

At first, the financial sector used the term “ESG” while companies called it “CSR”. Companies are now appropriating the terms “CSR” and “sustainability”.

ESG are non-financial environmental, social and corporate governance criteria that assess a company’s sustainable efforts in these areas within a detailed reporting integrated to the company’s CSR strategy.
CSR is a more global and conceptual approach. It cannot be measured as precisely as ESG criteria, as it encompasses values, corporate culture, goals and engagements, which are not easy to evaluate. It is a voluntary approach. CSR makes it possible to combine economic, social and environmental performance.

Fighting greenwashing and misleading environmental claims

“Environmental claims are first legally considered as business practices. We know misleading business practices can be punished with a fine of up to €300,000 and a two-year prison sentence under the French consumer code. It’s a strong deterrent! Regulations regarding misleading claims are also being strengthened at the European level with the Green Claims directive. In France, some claims such as ’environmentally friendly’ and any similar mentions have already been prohibited because they’re misleading and too generalizing for consumers.”

However, we must remain alert: “Beyond the claims that are put on products, there’s the company’s communication as a whole. As all the documentation they produce cannot be audited, some companies may be tempted to embellish their sustainability reports, or even their statements for specialized rating agencies. Let us not forget that Orpea was at the top of the ESG lists, and ranked on the fifth place (out of 113) at Sustainalytics. Greenwashing definitely harmed CSR, but it also made us more alert: consumers and investors alike are aware and pay more attention to the actual achievement of stated goals, some comparators rate products according to their CSR performance… And as for companies, I am now witnessing them backtracking. Many of them refuse to communicate around sustainability until they are irreproachable on every subject.

I encourage these companies to stop being overcautious. Communicating as you’re taking action is both positive and inspirational for the internal collective and the value chain – as long as it’s done in good faith and with full transparency.” The behaviors of companies are very different.

There are two levers for change: the consumers’ expectations, both in terms of CSR and legislation: “Today, the majority of French people^[2] (58%) think that there are too few committed companies. The hesitant trust in corporate social and environmental engagement in France naturally puts pressure on the players.”

^[2] Survey “Les Français et les entreprises engagées”, Harris Interactive for Mouvement Impact France, February 2022.

The CSRD, a directive that transforms non-financial reporting

Only a regulatory framework can make a real difference with regards to enforceability – and one is coming soon. To address the ambiguity around ESG statements, the European Union has a new tool, the CSRD (Corporate Sustainability Reporting Directive), an ambitious new directive that aims to enhance financial flows towards sustainable activities within the European Union.

Today, only companies that have more than 500 employees are required to submit a non-financial report under the NFRD (Non-Financial Reporting Directive): “With the CSRD, the scale completely changes. More than 50,000 companies will have to publish a sustainability report. It’s a true revolution. The CSRD is standardizing the concepts and definitions around sustainability, creating a common language and norms about published information: politics, actions, indicators and goals. The CSRD is also asking companies to consider their value chain in its entirety and is extending its obligation to audit sustainability reports to Europe as a whole,” adds Pauline Roulleau.

The CSR reporting scope of the CSRD

Following the principle of double materiality, companies must report on the impact of their activities on the environment and the stakeholders as well as on the impact of the ESG subjects on their financial performance.
The following subjects are covered by the CSRD:
- Environment: climate, pollution, biodiversity, circular economy
- Society: the company’s workforce, workers on the value chain, impacted communities, consumers and users
- Governance: risk management, anti-corruption, business ethics

CSR: Inequalities between small and large companies

The CSRD is excellent news in terms of sustainability reporting at the European level. In line with the pursuit of hyper-performance, it includes the best sustainability standards in the world. However, these new requirements may harm small businesses, whose discourse and actions related to CSR are less developed than bigger companies. 36% of SMEs declare not having defined a CSR/ESG strategy. 47% of VSBs do not have any CSR/ESG project^[3] in sight. “Companies lack time, money and human resources to meet the requirements of the CSRD reporting.

And they know the resources allocated to reporting are less available to operationally implement sustainable change across professions. That’s what’s paradoxical about transparency. Reporting efforts must be measured to remain reasonable. CSR must not become a second job sheet, but be included in the operations.” Fortunately, smaller structures will have adjusted norms and a little more time to prepare (first declaration for 2026). Our expert gives us advice for a successful transition: plan a CSR roadmap to meet the requirements of the CSDR with transparency and measure, but especially to transform your company for present and future challenges.

CSRD: Who and when?

January 1, 2024 > for companies already subject to a non-financial reporting obligation under the NFRD (large listed companies with more than 500 employees);
January 1, 2025 > for large companies that were not yet under the NFRD and that meet at least two of the three following criteria: 250 employees, €40 million in turnover, or €20 million in balance sheet total;
January 1, 2026 > for listed SMEs (10 to 250 employees), except micro-businesses. SMEs will have to implement lighter reporting standards and will be able to postpone their obligations by two more years;
January 1, 2028 > for European subsidiaries of non-European parent companies that generate more than €150 million in turnover in Europe (non-listed subsidiaries may be exempt if their parent companies already provide a sustainability report compliant with the CSRD)