Don’t greenwash by accident

Currently, many regulatory bodies, such as the EU, are slated to require organizations to disclose their greenhouse gas emissions on a tiered system: Scope 1 comprises emissions directly produced by the organization’s operations; Scope 2 covers indirect emissions from purchasing oil, gas, and other forms of energy; and Scope 3 consists of any emissions produced throughout the organization’s supply chain.

Tracking Scope 1 and 2 emissions may seem easy enough, but in reality, it’s a complex challenge that many companies struggle with. All too often, vital information is collected manually and stored in systems that can’t communicate. Technology can help break down these barriers within organizations. By their nature, however, Scope 3 emissions are often much more difficult to account for.

Supply chain emissions are on average 11 times higher than operational emissions; they make up over 90% of an organization’s total greenhouse gas emissions, according to the 2020 CDP Global Supply Chain Report. That total includes not only a company’s direct suppliers, but also the vendors in suppliers’ own supply chains as well. To capture such a high volume of data, and to affirm its veracity, is a massive and expensive undertaking. 

That’s one of the reasons why requirements to disclose Scope 3 emissions have sometimes been controversial. When the SEC released its proposed climate change disclosure guidelines, for example, the regulator received a record-breaking 15,000 comments on the new directive. 

But companies that do not or cannot gather this data also cannot definitively avoid greenwashing. How can they claim to be carbon neutral if they don’t know their suppliers’ carbon emissions?

Even companies that don’t have a large supplier network might be unintentionally greenwashing. Regardless of the organization’s size, measuring and tracking greenhouse gas emissions is extremely difficult. Fewer than 10% of organizations report being able to comprehensively and accurately measure their total greenhouse gas emissions, according to a survey from Boston Consulting Group. 

Here are two questions confronting both executives and regulators: If a company claims to be carbon neutral but has only an approximate idea of its own carbon footprint—let alone that of its suppliers—is it possible to know how carbon neutral it actually is? And what are the liabilities and potential consequences?

To avoid such unintentional greenwashing, companies need better visibility into their systems and their supply chains. Fortunately, there are steps organizations can take to more accurately measure their ESG efforts.

Organizations can start by establishing explicit structures, standards, and objectives around ESG. In other words, what do they want to achieve? What story do they want to tell with their data? What do they want to be able to tell their customers and shareholders? That’s step one.

Next, they need to digitize and centralize data analytics and reporting. Too often, companies are already gathering much of the data they need, but it’s distributed across teams, locations, and departments. Further, it takes a lot of resources and time to consolidate the data to gain a full and accurate picture. To break down those silos, businesses must invest in platforms and ESG Management systems that can consolidate their data. From there, they can start to streamline processes around data gathering and reporting through automation, which can help shape business decisions that reduce their impact on the environment.

This is an issue that people really care about. Building a sustainable business is a long process, and it pays to be transparent. The water bottle might not be sustainable today, but it could be sustainable tomorrow—and it’s important to bring customers along on that journey.