Greenwashing at major US companies?

In the fight against climate change, there are increasing calls for clear commitment from companies to reduce their greenhouse gas emissions. Many companies, especially large corporations, therefore publish sustainability reports in which they set out their climate goals and take stock of their efforts. This allows stakeholders to understand companies’ climate commitments and assess their efforts against the stated goals. However, it has remained unclear to what extent companies actually maintain and implement their climate pledges over a longer period of time. 

Researchers at the University of St.Gallen in collaboration with Chatham University and Cornell University in the United States now show how often these promises are adjusted, fudged, abandoned or only set in retrospect. To this end, the researchers analysed sustainability reports from 105 companies listed in the S&P 500 from 2010 to 2021. The S&P 500 Index comprises the 500 largest publicly traded US companies. The results reveal how often companies make significant changes to their greenhouse gas (GHG) emission reduction targets without explanation. The researchers refer to this lack of transparency as “temporal inconsistency” in companies' reporting on climate targets. 

Retrospective adjustments and target changes are the norm

The majority of GHG emission reduction targets surveyed (55%) were inconsistent over time without any explanation. This trend was even more pronounced among companies in highly carbon-intensive industries. Here, 74% of the declared emission targets were inconsistent over the years. This finding appears particularly problematic considering that companies displaying such temporal inconsistency were almost three times less likely to achieve their targets: the probability of success for such companies was only 30%, compared to 86% for companies with consistent targets over time.

But what are the common patterns of inconsistency in GHG emissions reporting? Four problematic reporting practices emerged from the investigation:

• Goalpost shifting: Emission targets are changed without explanation before the target year is reached. While this may mean that the company sets even more ambitious targets in some circumstances, an opaque change can primarily be used to conceal the foreseeable, imminent failure to achieve a set target. Such changes are often made shortly before the deadline for emission reductions.
• Number fudging: Disclosures on emissions are changed from one year to the next without explanation. For example, actual emission numbers in a given year show a different value the following year.
• Target disbanding: Emission targets are abandoned before the planned target year. Often, a new target is set instead, without mentioning the old one or explaining the change, or a new year of target achievement is set. Alternatively, emission targets calculations are switched from intensity to absolute values without explanation, potentially disguising worsening climate performance.
• Hindsight target setting: Emissions targets are achieved in the same year or in the two years following the initial declaration, without explanation. This pattern of reporting suggests that targets are set retrospectively based on existing performance indicators rather than setting long-term climate targets that the company strategically aligns itself with and measures itself against.

Trust requires transparency and consistency

The results imply how stakeholder trust is undermined when climate targets are unreliable: if companies fudge their numbers, disband their target, or keep postponing them without transparency, it becomes difficult for stakeholders to track progress and hold companies accountable. This makes it almost impossible to distinguish between companies that make a genuine contribution to environmental protection and those that only pretend to be committed. 

Yet greenwashing may soon become a problem for the companies themselves as well. Judith Walls, HSG professor at the Institute of Responsible Innovation, Sustainability and Energy (RISE-HSG, formerly IWÖ-HSG) and one of the authors of the study, explains: “Laws that forbid greenwashing are starting to come into force, and thus inconsistent disclosure on climate pledges could soon become a source of risk for companies. They could become subject to legal action if they fail to consistently and transparently disclose information on carbon emissions.” As examples, she points to the new Swiss federal regulations that ban greenwashing on carbon emissions or the EU Green Claims Directive, which is expected to roll out in the next few years.

Of course, unexpected circumstances can derail emissions targets. “For example, if companies go through an acquisition, their climate targets may suddenly not be achievable any longer. Stakeholders can understand such situations”, says Prof. Walls. “But if companies are not being transparent about it, they erode the trustworthiness of their disclosures and engage in greenwashing—whether on purpose or inadvertently.”