Recent analysis reveals a troubling pattern: apex companies in Business Groups usually promote sustainability with out substantial motion. Analyzing knowledge from 515 corporations in 35 nations, the authors discovered that apex companies, particularly these sharing a model with associates, engaged much less in sustainability initiatives than their lower-tier counterparts. This potential “greenwashing” may be tolerated because of the distinctive BG construction, the place apex companies play communicators and associates act as implementers. Despite market tolerance, such discrepancies may hurt long-term reputations. For real sustainability, companies should guarantee correct communication, encourage associates with shared values, diffuse greatest practices groupwide, and keep attuned to evolving stakeholder expectations. Sustainability isn’t just a symbolic gesture however a dedication requiring constant, substantive motion.
Sustainability has quickly change into an indispensable half of company governance. But as corporations decide to inexperienced practices, a worrying pattern can also be surfacing: Some firms are portray themselves as inexperienced whereas failing to again their claims with concrete actions. Numerous examples abound: The UK Advertising Standards Authority (ASA) has lately banned a quantity of advertisements from outstanding corporations, together with HSBC for being “misleading” about efforts to deal with local weather change. The ASA additionally banned the advertisements of Ryanair for the corporate’s unsubstantiated declare of being Europe’s lowest emissions airline.
In addition to regulators, corporations that challenge an unsubstantiated inexperienced picture are additionally being known as out by traders, and shoppers, who might punish such “greenwashing” by way of penalties, divestment, boycotts, and even protests. Yet, our latest analysis means that some corporations could also be participating in related habits whereas escaping, to a sure diploma, scrutiny and sanctions.
We discovered {that a} sure sort of agency — particularly, a agency that sits atop of what is named a Business Group (BG) — appears to largely keep away from scrutiny for greenwashing. BGs are prevalent but understudied entities throughout the globe in each creating and developed economies, accounting for a lot, if not the bulk, of financial exercise in nations as diverse as India, Korea, Turkey, and Chile. Each BG is basically an internet of affiliate corporations that usually span a number of industries, share sources, and are interconnected by way of each fairness holdings and social ties. The companies in a BG are usually coordinated by a core or apex agency that’s usually the highest company proprietor. Our analysis reveals a curious dynamic inside these preparations: we discovered that apex companies are in a position to report on the sustainability efforts of their lower-tier associates “for free,” i.e., with out substantiating them with their very own actions. And they will do that with out incurring the greenwashing label.
To make clear this phenomenon, we analyzed knowledge from 515 publicly listed corporations which are members of BGs throughout 35 completely different nations. Specifically, we obtained environmental, social, and governance (ESG) knowledge from Refinitiv (previously ASSET4) which measures every firm’s ESG efficiency relative to its business friends, counting on company-reported data. We used it to tell apart between an organization’s substantive sustainability actions (i.e., these associated to socially accountable insurance policies and packages) and symbolic ones (i.e., reporting, claims, or disclosures). The hole between these two units of actions was our measure of the extent to which corporations decouple “talk” from “action.”
We discovered that apex companies engaged in fewer substantive sustainability actions regardless of speaking sustainability at related ranges to their lower-tier associates. Put in another way, these companies systematically “advertised” greater than they really “did” relative to different group members. Adding one other layer to this dynamic, we noticed that apex companies sharing a model identify with their associates engaged in even fewer substantive sustainability actions in comparison with apex companies that didn’t have a shared identify. Unfortunately, the fairness markets seem to increase some tolerance in the direction of this specific sort of greenwashing by apex companies in comparison with their lower-tier associates.
What explains this discrepancy? It’s attainable that what may be perceived as blatant greenwashing elsewhere may very well be interpreted as a professional division of labor within the distinctive BG ecosystem. Apex companies, utilizing their influential function and symbolic energy, can act as “communicators,” that amplify the group’s total sustainability initiatives; lower-tier associates, in distinction, tackle the function of “implementers,” substantively implementing these initiatives.
This might present a short-term benefit to apex companies who basically try to free-ride on the worldwide sustainability motion. However, it’s very important to acknowledge that the markets’ tolerance of apex companies’ obvious greenwashing doesn’t absolve them of their obligations. Eventually, greenwashing might severely harm long-term fame and erode stakeholder belief. Leaders ought to seize upon this understanding as a possibility to bolster their sustainability practices and reporting. Indeed, our research has essential implications for managers, not simply inside BGs however, extra broadly, inside companies which are affiliated to others (e.g., by way of alliances and joint ventures).
Be sincere about sustainability efforts.
Overstating sustainability efforts can severely backfire if a spot between rhetoric and actuality is uncovered. Like the best way through which one affiliate’s good fame displays properly upon the entire group, so would a greenwashing scandal mirror poorly past the affected affiliate. Leaders ought to subsequently make sure that public communications about sustainability precisely mirror the group’s precise practices. They ought to report on and rectify potential discrepancies between sustainability actions and communications. Additionally, establishing complete monitoring by way of exterior assurance companies can promote transparency and accountability, lowering the possibility of perceived greenwashing.
Motivate sustainability amongst affiliated companies by way of a shared id.
Leaders of apex companies mustn’t solely depend on their coordination skills throughout the group to beat back perceptions of greenwashing. They additionally profit from being the supply of a bunch id — that features core values and rules — that may and ought to be used to mobilize group members in the direction of attaining long-term sustainability. In reality, many BGs do that by way of appeals to their historical past. For occasion, Japan’s Sumitomo group builds upon its 400-year-old founding rules (the “Sumitomo Spirit”) about mutual prosperity and respect for the general public good to encourage its sustainability efforts.
Share sustainability greatest practices and expertise.
Managers at apex companies mustn’t solely report on the sustainability efforts carried out by different associates, but additionally diffuse them throughout the group associates. Managers can leverage the well-developed inside HR networks inside BGs to recruit personnel adept at company sustainability practices or develop groups that may determine and diffuse sustainability actions all through the group. One instance of that is the Tata Sustainability Group (TSG), a group of the apex agency Tata Sons that has the “mission to guide, support and provide thought leadership to all Tata group companies in embedding sustainability in their business strategies.” In different phrases, extending the communication function of apex companies in the direction of inside stakeholders may help develop groupwide substantive sustainability methods.
Be aware of evolving stakeholder expectations.
The enterprise world is quickly shifting, and stakeholders’ expectations for sustainability are not any exception. Ignoring this evolution can pressure relationships with important stakeholders, together with prospects, workers, and traders. Leaders ought to attempt to remain in tune with their expectations and ensure their dedication to sustainability is clear and real.
In the tip, the pursuit of sustainability is just not a advertising gimmick, however a dedication that calls for substantive, long-term motion. A powerful group id might present some safety for apex companies inside BGs, however beneath it, the viewers, the stakeholders, and certainly the world, are demanding substantive, not simply symbolic, actions. Particularly within the context of BGs and related organizational setups, any reputational harm is more likely to spill over to all the group of companies, severely damaging all the organizational ecosystem. Therefore, over the long term, corporations will persistently profit solely by way of a honest dedication to sustainable practices.
