Purpose on Payday

By Andrew Adie

As communications advisers people might assume, we are all about talking the talk, but an equally important role we play is ensuring our clients understand that they need to walk the walk on the claims they make, or risk facing significant reputational damage.

I can recall many a meeting or call involving the need for “robust” advice to warn against the use of a spurious claim, unevidenced statement or message unrelated to reality.

Nowhere is there a greater need for this than in the area of ESG, most regularly around environmental factors.

Greenwashing – when organisations try to falsely persuade audiences of their environmental credentials or that of their products through deceptive marketing - has been around for decades, but it has become more evident again recently, no doubt fuelled by increasing demand for environmentally friendly products and services.

This month, the Competition and Markets Authority (CMA) set out recommendations on how companies could avoid greenwashing, after finding that four in ten corporates in the sectors analysed (consumer-facing industries including food and drinks; fashion; and home cleaning products) are providing information on environmental criteria that could be considered misleading and therefore break consumer law.

Disingenuous green claims are rife in many areas, including amongst UK electricity suppliers with over half of the electricity deals now available marketed as “100% renewable”. And misleading marketing is by no means limited to consumer industries. Another prime example is the marked rise in the number of investment funds that are labelled “sustainable”, “impact”, or “ESG” yet whose asset allocations in many cases bear little resemblance to these labels.

In May we have also seen a major focus on executive pay, one of the many ways in which companies can walk the walk on ESG.  Widespread rebellion from investors over executive pay saw investor protests hitting an all-time high in the US. On this side of the pond, even the chief executive of AstraZeneca, one of the pandemic heroes of the day, faced a shareholder rebellion, with 40 per cent of votes going against his pay rise.

In response, we are seeing growing trend for companies to link executive pay to ESG metrics. Boohoo is one company that has recently bowed to pressure on this, announcing this month that it would link a bonus scheme for its top executives to improvements in conditions in the factories it uses, after promising to improve working conditions in its supply chain last year.

However, simply linking pay to ESG targets is not necessarily enough. Challenges over measurement and a lack of transparency over how stretching targets are could simply mean incorporating ESG criteria leading to bigger pay packages, with little justification. In these circumstances it becomes just another form of greenwash in its own right.

This debate is still in its infancy. What is certain is that the scrutiny of executive compensation is not going to go away, and companies will increasingly be expected to justify in much greater detail and with more transparent metrics how pay packages align with their ESG performance.

Companies that truly walk the walk will be able to show that the boss has earned his or her pay package by delivering robust, measurable results on meaningful ESG targets.