SEC, Greenwashing, and Keeping Honest and Optimized in the Pursuit of Sustainability Goals

As companies and organizations establish ambitious goals and incorporate sustainability into their missions, the need for transparency and authenticity to support their claims becomes ever more important. When a business operation or product is advertised as “sustainable” or “environmentally-friendly,” there must be a method for quantification of that claim against an established standard of verification. Currently, consumers, regulators, and industry alike are struggling to understand what sustainability truly means.

“Greenwashing” is the act of misleading or falsely claiming that a company’s products or processes are more “environmentally friendly” or “sustainable” than they really are. In today’s world, greenwashing can be prevalent and go unchecked because uniform definitions of such terms and the methods for quantifying veracity have not been fully established. It’s this issue that the SEC has picked up on and has started to prioritize. In its 2022 Examination Priorities report, the SEC continues to target ESG issues as a top priority as it monitors for greenwashing while working to develop consistent guidance for ESG risks and opportunities disclosures/reporting.

When terms are not clearly defined or quantified, they lack significance and carry no influence on meaningful change. In order to support a claim that an action or product is sustainable, the impacts on degrees of sustainability must be well-defined and supported by targeted data that directs change towards long-term progress. With the SEC focused on sustainability and talk of coordinating regulatory standards with those established by EU regulatory bodies, the need for elastic, metrics driven sustainability systems is quickly becoming a must. Having a third-party assist in the creation of an organization’s sustainability program can help to ensure that systems align with and prepare for the demands of these changing industry standards. A third-party can perform independent audits to assure credibility in ESG efforts while highlighting points for improvement and optimization that will accurately report on environmental impacts.

It has been shown that a company with a successful sustainability program will need to have an integrated team of stakeholders and personnel that are actively involved in the planning, design, and implementation of projects to meet environmental goals. No two companies or organizations will have the same strategy, but the roadmap for meeting ESG goals will follow a similar path across an industry. Understanding what the particular industry standards are, and how an organization’s facilities stack up to others like them as well as opportunities to enhance competitive advantages, is effective for evaluating how ambitious internal goals should be and laying the necessary strategic foundation to get there.

The involvement of personnel across departments will allow for an amalgamation of diverse information to better evaluate where improvements would have the greatest impact toward the design of an efficient long-term solution. Reviewing products and processes to find ways to reduce environmental impacts during research and production are common talking points—but streamlining how a facility functions may have a greater effect on a company’s environmental footprint. Though including all key functional areas in the process is necessary, efforts toward upholding sustainability goals will not be divided equally, with some sectors and facilities carrying the largest potential impact on optimized change.

Organizations will need to use key performance indicators (KPIs) to organize and measure the data around their sustainability goals. Some of the common areas that companies will track KPIs are for usage and emissions of water, energy, materials, waste, and supply chains. After determining which areas are of greatest impact for a particular company structure, teams will be developed to track and moderate each category to evaluate the most effective improvements based on specific facilities with the ability to make real-time adjustments to drive efficiency.

To understand which projects will have the greatest impact towards meeting established goals, historical baselines need to first be established to compare changes against. Once baseline metrics are set and a full systems review has been completed to understand how a facility functions, projects can be reviewed and updated to quantify how their implementation would allow for reductions and in which areas. Only when a project has been appropriately quantified to show exactly how particular metrics will be measured and altered to improve sustainability data can a project be successfully implemented.

Once a project is established, regularly monitoring and tracking the applicable data to continually confirm and update the positive effects on sustainability goals is required. Using this process—from the granular work of separate facility usage to a high-level overview of organizational operations—will enable a company to meet its ESG targets, stay ahead of regulatory thresholds, and inform stakeholders of additional, quantified measures that will be needed in order to reach long-term goals, act responsibly, and drive growth.