With the backlash
against ESG, particularly the S and the G, the E has likewise been muted by more
and more companies that are backtracking some of their sustainability commitments.
For some, these are political decisions, but for others, they are likely realizations
that some of these aspirational and quite bold emissions pledges and goals will
not be easily attainable. Cutting emissions is simply not cheap and can add significantly
to the costs of doing business. We are quite aware of the idea of ‘greenwashing,’
which is painting a rosy picture of your green credentials and
emissions-reduction efforts when the reality is not so impressive. It is a kind
of hype or exaggeration. Renewable energy companies are well aware of hype and
readily use it to promote their industries. From the widespread use of misleading
metrics like capacity vs. actual energy production and not fully accounted levelized
costs of electricity metrics, wind, and solar companies can be accused of their own
form of greenwashing by overstating the capabilities and understating the
limitations of green energy.
Backtracking
on sustainability and emissions reduction goals has been deemed ‘greenhushing.’
Quietly lowering expectations may not be as bad as it sounds. Sure, part of it
is breaking free from mandates and peer pressure expectations, but some of it
is no doubt, worries about cost and reliability. Many entities, states,
companies, communities, etc, are lowering their decarbonization expectations a
little, adjusting them, if you will. This does not have to be a bad thing. It
is better to adhere to goals that are realistic and feasible. My own
perspective is that this is the most legitimate form of greenhushing. Political
greenhushing, such as Ron DeSantis-style rejection of ESG ‘wokism’ seems to be
less legitimate, but some adjustment due to overbearing political pressure may
be warranted as well. Keeping things like emissions reduction and
sustainability as voluntary measures rather than mandatory measures as much as
possible is a net good, I think. There are other ways, including corporate peer
pressure, investor demand and activism, and good benchmarking systems that can keep
the pressure on companies to decarbonize. As an example, I wrote in my 2022
book, Natural Gas and Decarbonization, about an energy analysis company that was
benchmarking the decarbonization efforts of natural gas producers, showing
which ones did and did not replace their natural gas pneumatic controllers with
compressed air or electric controllers. The benchmarkers could easily show
which companies were making efforts and which companies were not making efforts
and report on it. That exerts more peer pressure to conform to the trend of decarbonizing
in this way. Some companies may then be seen as emissions reduction pioneers
and others as emissions reduction laggards.
After states
like Texas, Florida, West Virginia, and others made rules to ban “local
entities from doing business with certain financial firms, due to their
declared intention to factor concerns about fossil fuels into investment
decisions,” a clear path to greenhushing was made. In late 2022,
consultancy company South Pole noted in late 2022 that “nearly a quarter of
the 1,200 firms it surveyed don’t plan to publicize their science-based
emissions targets.” Jason Jay of the World Economic Forum noted that since
a small number of companies like energy and mining companies, utilities, and
industries, are responsible for most emissions, the whole pool of those
companies is not large:
“Jay noted that only about 160 large companies are
believed to be responsible for 80% of global emissions. “They’re all under
heavy scrutiny,” he said, making a global outbreak of regressive greenhushing
unlikely.”
I think I agree. Many of those companies still want to reduce
their emissions but do not want to go broke doing it. With the Bipartisan
Infrastructure Bill and the Inflation Reduction Act providing significant
capital for several new technologies and first-of-a-kind emissions reduction
projects and even more matching capital promised from the private sector, there
is still plenty of momentum to reduce emissions. There is one well-known energy
CEO whose company participates in several important emissions reduction
projects, who also often speaks out against the whole idea of green energy and
emissions reduction. While I may often agree with him about the problem of
green energy hype and hypocrisy, I don’t agree with his bashing of the whole
idea approach. Clearly, emissions reduction is a desired public good and a goal
that should be pursued. I also think it should not be forced on us in such a way
that alienates and punishes companies. However, an argument can be made for
some low bar of mandates, just to make it fair to all companies to have the
same standards to meet. No one likes perceptions of unfairness.
Stricter
regulations enacted to counter greenwashing led to the deliberate hiding of climate
goals to comply with new regulations and avoid public scrutiny. Other reasons given
in the South Pole report include “heightened scrutiny from investors,
customers, and the media. Among all the companies that admitted to
greenhushing, well over half listed changing regulations as a reason why
they’re not talking about their climate pledges.”
“We really just cannot afford to not learn from each
other,” said Nadia Kähkönen, a deputy director at South Pole and the report’s
lead author. Companies should be sharing the lessons they’ve learned from
trying to cut their emissions, engaging one another in hard conversations about
“what is working and what is not, and how we can improve it,” she said.”
The state laws
mentioned above can certainly make greenhushing more common. Why state your sustainability
pledges and goals if you may be called out by those laws as complicit and be penalized
somehow? It gives an incentive to hush those goals. The laws can have negative effects
on business as well by increasing the cost of borrowing money. With costs to
borrow already maximized due to inflation and high interest rates that can
hurt. According to the World Economic Forum article:
“According to one study, the decision in Texas to
prohibit contracting with banks that have certain environmental, social, and
governance policies could cost local entities as much as $532 million in
additional interest – in just eight months.”
On that basis, one can certainly argue that anti-woke laws
can hurt local businesses.
There is
another term called ‘greenwishing,’ also known as unintentional greenwashing, that
refers to companies that make unrealistic emissions reduction and
sustainability goals. The state of New York’s overly ambitious climate
aspirations come to mind. They are quite far behind their trajectory as are
many others who made big commitments. According to an article in ESG Today:
“… greenwashing
erodes trust and can have significant repercussions. Importantly, greenwashing
is not a static concept – it occurs on a spectrum, ranging from outright deceit
to wishful thinking.”
The wishful thinking end of the spectrum counts as
greenwishing, Greenhushing may serve two opposite purposes: 1) Keeping those
who think the company is not doing enough to be green at bay, and 2) keeping
those who think the company is doing too much to be green at bay. I think that
in both cases, making laws is not the right approach. We don’t need woke laws
or anti-woke laws.
The ideas of
ESG reporting and climate disclosure is meant to minimize greenwashing but if a
company can keep silent about its emissions, at least to the public, any lack
of reporting requirements will certainly incentivize greenhushing.
None of us
should want companies to lie about their emissions and sustainability status. Greenwashing
is basically lying to look good as greenhushing is shutting up so as not to
look bad. The goal among regulators is to have such good data and analysis that
greenwashing won’t be possible. In contrast, a company’s goal in deciding to
greenhush may be to 1) avoid additional scrutiny and being called a laggard,
and 2) avoid triggering anti-woke laws.
How companies and
other entities achieve their E-goals is another important consideration, particularly
for how they may be perceived. If a company is overleveraged with carbon
offsets and renewable energy certificates, thus buying and trading their way to
emissions reduction credentials, they are more likely to be criticized. If ESG
reporting and climate disclosure become law, then both greenwashing and
greenhushing would be reduced. That may seem like a good thing at first glance
but when the green rhetoric exceeds feasibility, then deliberate greenhushing
may be a more realistic approach, albeit a voluntary one. In the case of anti-woke
laws, greenhushing becomes more of a mandatory activity motivated by the very
real desire not to be punished by the state. By incentivizing greenhushing with
anti-woke laws, decreasing transparency is also incentivized. That is probably
not a net good. A better approach would be to avoid both ESG/climate disclosure
mandates and anti-woke laws that are in essence mandates to avoid ESG. I am in
favor of keeping things voluntary, but I am also not against peer pressure or other
forms of ‘nudging’ to encourage emissions reduction. No companies should be encouraged
or incentivized to become emissions reduction laggards. Greenhushing, is one
cure for greenwishing, but it is one that treats the symptoms rather than the
disease. Nonetheless, it could also be helpful to those who overcompensated towards going green without considering the costs and technological challenges.
Fast forward
to mid-2024 and we can see that ESG is struggling to stay as relevant as it
was. In some ways, this is a good thing. While I am generally in favor of ESG as
a set of company goals to aim towards, and that will inevitably trigger benchmarking
that will improve through time, I also think that in some cases ESG can be seen
as overreach. In other words, I think it is important to collect all the data
but less important to exact punishment for having data that doesn’t meet
expectations, kind of like a non-binding agreement, where there is nudging but
not mandate.
Andrew Winston
writes in an article for Fortune Magazine:
“Stories of backtracking are accumulating. So far this
year, some big banks pulled back from sector-wide climate commitments, many
companies and countries are missing their targets, and some high-profile
leaders have laid off their sustainability people. Sustainability remains on
the agenda, but it’s clearly gotten less important.”
The article suggests that reporting requirements and
other regulations have become cumbersome and have ironically, slowed the adoption
of ESG policies. It also suggests that some laggards are just beginning their
reporting while others who have been reporting are finding ways to quietly slow
their enthusiasm for ESG. Perhaps ESG capital is being siphoned by new tech
opportunities like AI/machine learning, he suggests. He also thinks that the woke/anti-woke
tig-of-war has become a political football. The political right has been preaching
divestment from ESG funds, but ESG investment has remained high. Winston also
points out that sustainability spending is often a series of years-long
projects that require annual budgets and involve long-term agreements with
other companies. Thus, sustainability is not going away. Some say it is
currently in a kind of recession though. He also suggests that much of the “pullback
is for show—a reverse form of virtue signaling to demonstrate to investors that
the companies are serious about making money.”
The ubiquity
of regulations that tend toward tightening through time, the continued commitments
of influential executives to ESG goals, and the peer pressure particularly from
investors, means that sustainability will likely bounce back somewhat. We
should hope that it stays a little recessed, I believe, as a better balance between
future goals of sustainability and the present needs of profitability and being
able to provide affordable products and services to consumers.
South Poles 2023
report: Destination Zero concedes that greenhush is the new normal as both
green and non-green companies decide to just keep quiet and wait to see what will
happen. John Davis, South Pole’s Interim CEO says that greenhushing is holding
back climate action. While that may be true, we should consider whether this is
or is not a good thing at present. I have long advocated for a slowdown in decarbonization
in places where it could lead to hardships both for businesses and especially
for consumers. We need to balance costs and benefits. Thus, simply ‘more climate
action’ is not a given good as it must be balanced against the costs and
hardships.
The first graphic below is from South Pole's 2022 report and the next three ar from South Pole's 2023 report. The drops in some of the numbers seem to confirm the stay silent/wait-and-see approach.
References:
The
‘sustainability recession’ will end soon—and not by choice. Andrew Winston.
Fortune. August 14, 2024. The
‘sustainability recession’ will end soon—and not by choice (msn.com)
What
is ‘greenhushing’ and is it really a cause for concern? World Economic Forum. November
18, 2022. What
is ‘greenhushing’ and is it really a cause for concern? | World Economic Forum
(weforum.org)
Guest
Post: Greenwashing, greenhushing and greenwishing: Don’t fall victim to these
ESG reporting traps. Rob Fisher, Maura Hodge, and Bridget Beals. KPMG. ESG
Today. June 21, 2023. Guest
Post - Greenwashing, Greenhushing and Greenwishing: Don’t Fall Victim to These
ESG Reporting Traps - ESG Today
Net
Zero and Beyond: South Pole’s 2022 net zero report. South Pole. 2022. South_Pole_2022_Report___Net_Zero_and_Beyond_EN_web
(1).pdf
Destination Zero: A deep dive into the global state of
corporate climate action. South Pole. August 1, 2024. go.southpole.com/destination-zero-report-en?_gl=1*an252q*_gcl_au*MTc5Nzg4NzQ2NC4xNzIzNjY4Mzcy*_ga*MTA2NTk2ODA2Mi4xNzIzNjY4Mzg1*_ga_CJML96C07Q*MTcyMzY2ODM4NS4xLjEuMTcyMzY2OTQyNC4yLjAuMA..
Companies
are hiding their climate progress. A new report explains why. Kate Yoder.
Grist. January 17, 2024. Companies
are hiding their climate progress. A new report explains why. | Grist
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