No more greenwashing? | New rules proposed in crackdown on corporate climate claims

New rules proposed in crackdown on corporate climate claims

The UK is exploring adopting new regulations to curb corporate greenwashing practices.

The regulations, established by the International Sustainability Standards Board (ISSB) during Cop 27, will establish comprehensive guidelines on climate reporting and ensure accurate portrayal of sustainability efforts.

Under the proposed rules, companies would face increased scrutiny and would be required to disclose their environmental impact, including their Scope 3 emissions – encompassing the products or services they offer.

The ISSB’s objective is to establish a universal global language for companies to report their environmental impact, with ambitions that the initiative will enhance trust in climate reporting.

Emmanuel Faber, ISSB’s chair, emphasised that nations have the freedom to decide if they will adhere to the new standards. In addition to the UK, Canada, Japan, Singapore, Nigeria, Chile, Malaysia, Brazil, Egypt, Kenya, and South Africa are all amongst companies considering its implementation.

The London Stock Exchange and the Financial Conduct Authority (FCA) are amongst organisations that have expressed support for the rules, the FCA having collaborated with the ISSB in the development of the regulations. This collaborative effort demonstrates the commitment of bodies to combat greenwashing and promote accurate sustainability reporting.

The ISSB anticipates that the regulations could be incorporated into companies’ annual financial reports starting in 2024, a crucial step towards promoting transparency and holding companies accountable for their sustainability claims.

These rules have become increasingly important in the wake of the cost-of-living crisis, where companies have increasingly disregarded ESG promises, while many have scaled back on employee perks and other expenditures.

A solution to greenwashing?

In a study from KPMG, half of CEOs have said they are considering "pausing or reconsidering their existing or planned ESG efforts in the next six months," and a third of CEOs had already stopped. This could insinuate that organisations are continuing to portray climate efforts, despite having scaled back due to economic and other external pressures.

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The new rules will encourage organisations to accurately report their climate efforts, which can be complex. AstraZeneca, the drugmaker popularised for creating one of the first Covid vaccines, announced this week that it would be planting 200 million trees by 2030, costing £310m, in a bid to offset some the carbon emissions from its supply chain.

But spectators have scrutinised the move, as studies show that many off-setting projects rarely have a positive environmental impact and regulators are starting to ban companies from performing offsetting projects. Clearly, identifying and abolishing greenwashing is a nuanced and complicated process, but introduction of the new regulations might finally be the key to accurate reporting of climate efforts.

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