As the climate crisis intensifies, businesses are under increasing pressure to adopt sustainable practices. In the ever-evolving landscape of corporate responsibility and environmental sustainability, terms like "greenwashing" and "greenhushing" have become part of our everyday vocabulary.
But have you heard about "greenfreezing"? It's a new, insidious challenge that's creeping into the climate action scene, potentially more disruptive than greenwashing or greenhushing. Imagine this: unlike greenwashing, where businesses overstate their environmental impact, or greenhushing, where they play down their eco-efforts to fly under the radar, greenfreezing is when companies freeze up.
They're caught like a deer in headlights, terrified of the backlash from any slip-ups in their climate initiatives or just bewildered by the array of choices for climate action, leading to a standstill.
Why does this matter? It shows a complex landscape of environmental action, where fear and confusion can stall progress, at a time where we need all companies to be taking as much action as they can.
We cannot afford to sit around and wait for perfection, we need meaningful action now, not tomorrow.
Let's chat about this: How can we overcome the greenfreezing dilemma and confidently take steps towards meaningful climate action?
Greenwashing: Deceptive Environmental Claims
First, let's ensure we're on the same page. Greenwashing is a tactic used by companies to appear environmentally responsible without truly reducing their environmental impact. This involves marketing and PR strategies to overstate or make false claims about their products, services, or policies' eco-friendliness.
For example, a company may highlight the use of "sustainable" materials in one product line while engaging in harmful environmental practices elsewhere.
An investment fund might promote itself as an "ESG" fund, while still investing in fossil fuel companies. The goal is to attract eco-conscious consumers and investors, boosting their image and profits without real commitment to sustainability.
The issue with greenwashing is its ability to mislead and erode trust, hindering genuine progress in combating climate change. It also misdirects financial incentives meant for real climate action to undeserving organisations, leaving those who are genuinely making a difference without adequate support. Luckily, there is a global crackdown on greenwashing underway, with many high profile cases of companies now facing legal consequences for making misleading claims.
Greenhushing: Concealing Sustainability Efforts
Greenhushing represents a subtler, yet equally problematic approach that some companies adopt regarding their environmental initiatives. Unlike greenwashing, which involves misleading claims about sustainability, greenhushing occurs when companies deliberately underreport or entirely conceal their genuine sustainability efforts. This often stems from a fear of being scrutinised or criticised if their efforts are deemed inadequate or inconsistent.
Consequently, though these companies may be engaging in significant environmentally friendly practices, they choose to remain silent about them, preventing the sharing of valuable information that could inspire others and contribute to broader industry standards.
The primary issue with greenhushing is that it stifles transparency and hampers the dissemination of best practices, which is crucial for collective progress in combating climate change. By not communicating their sustainability endeavours, companies miss the opportunity to lead by example and drive systemic change within their sectors.
A term first coined at the 2024 Impact Investment Summit Asia Pacific.
Greenfreezing: The Danger of Total Inaction
While "greenhushing" refers to companies quietly implementing climate actions without publicising them, "greenfreezing" takes this issue to a more dangerous extreme by doing nothing about climate change, avoiding any commitments or actions altogether.
Greenfreezing is particularly sinister because the problem occurs behind the scenes, resulting in complete inaction with no accountability or progress.
At least with greenhushing, companies are taking some steps to address climate issues, even if they aren't widely broadcast. Greenfreezing, however, stalls any advancement on environmental fronts and silently perpetuates the status quo, worsening the climate crisis without drawing any attention or pressure for change.
Why Greenfreezing Happens
Fear of Media Backlash
Navigating the decarbonisation journey is fraught with challenges, particularly the fear of making mistakes. In our hyper-connected world, a single misstep in climate action can spark a media storm, leading to a backlash that no company wants to face. The concern? That sustainability efforts might be seen as not enough or, worse, insincere, drawing severe criticism. Meanwhile, those companies quietly doing nothing manage to fly under the radar, avoiding the spotlight altogether.
Choosing to act on climate change means opening your company up to public scrutiny. The media tends to focus on the slip-ups rather than the silence, making it a risky endeavour for businesses.
Take Microsoft, for example. In 2021, they made a groundbreaking carbon removal purchase of 1.4 million tonnes and committed a whopping $1 billion USD to their climate innovation fund, aiming to enhance carbon reduction and removal technologies. Despite these significant efforts, they've faced intense scrutiny and negative press, while competitors lagging in climate action haven't attracted the same attention.
This situation puts businesses in a tough spot. Many opt to stay quiet, believing inaction to be safer than risking potential pitfalls. It's a logical response for company directors trying to navigate this minefield: hold off on investing in climate action, perhaps saving funds for when public or shareholder pressure becomes unavoidable.
Overwhelming Standards and Jargon
Understanding the world of sustainability can feel like trying to speak a foreign language — one filled with standards, guidelines, acronyms, and jargon that might leave even the most seasoned Board Director scratching their head. Ever felt lost in this maze of sustainability speak? You're not alone. The complexity can sometimes lead to confusion, making it tricky to pinpoint the right steps toward becoming more sustainable.
It's like being stuck at a crossroads without a map, unsure of which path leads to progress.
The landscape of sustainability frameworks and guidelines is vast, with each framework offering its own unique set of rules and metrics. From the Global Reporting Initiative (GRI), or the International Sustainability Standards Board (ISSB), to the Science Based Targets initiative , it's like a buffet of options. However, the diversity can be overwhelming, leading to head-scratching over which standards to adopt and how to weave them seamlessly into existing business operations. Plus, let's not forget the challenge of deciphering the industry-specific jargon and acronyms without a translator.
Ever played a game where the rules keep changing? That's what keeping up with sustainability standards feels like. They evolve, reflecting new scientific discoveries and regulatory shifts, meaning Board Directors must stay on their toes, constantly learning and adapting. It's a journey without a fixed destination, as the markers of sustainability success continually move.
The Result: Paralysis and inaction
The Impact on Investors and Portfolios
Companies dragging their feet on climate action could really suffer in the long run—think regulatory fines, losing customer trust, losing access to capital, facing shareholder revolts, and falling behind in the market. This isn’t just a short-term hiccup; we’re talking about a potentially big hit to company valuations over time.
And here’s the thing: companies that are slow to embrace climate change actions could find themselves in an even tougher spot the longer they wait.
Starting early with proactive measures, like identifying ways to cut emissions affordably, is smart. For instance, investing in projects that generate carbon credits can pay off, but it takes time for the credits to start flowing. Wait too long, and you might be stuck paying steep prices on the spot market for carbon credits, especially as prices climb in a market short on supply.
So, what’s the takeaway? Jumping into action now, whether through investments, scooping up carbon credits, or direct efforts to reduce your carbon footprint, isn’t just good for the planet—it makes solid business sense. Think of it as setting your company up for a more sustainable, competitive future.
So what can we do?
Investors, asset managers, and super funds can combat greenfreezing by engaging with companies to pursue genuine climate action. Here are six ideas:
Direct Capital to Genuine Efforts: Prioritise investments in companies, projects and funds that are making real efforts to address climate change. Support those leading in innovation, setting ambitious goals, and reporting their progress transparently. Even if not perfect, these companies are crucial for driving change and creating a market that values climate action.
Encourage Transparency and Honesty: Demand clear reporting and honesty from companies about their sustainability efforts. Consider adopting a high integrity reporting standard like Principles for Responsible Investment (PRI) or setting a credible decarbonisation plan in alignment with The Science Based Targets Initiative.
Support Skills Development and Capacity Building: Encourage portfolio companies to invest in their capability to navigate the challenging decarbonisation landscape. This includes allocating budgets towards enhancing their skills and knowledge.
Encourage Investments in Carbon Markets and Decarbonisation: Motivate companies to invest in carbon markets and decarbonisation activities, preparing them for a low-carbon future and ensuring they have access to a future supply of carbon credits. As an investor or investment manager, you can fund meaningful climate action while also hedging your portfolios carbon exposure risk, via investments into carbon projects that stand to benefit from an increasing carbon price.
Incentivise Progress: Link financial incentives to climate action outcomes. This could involve tying executive compensation to environmental performance or offering better financing for companies prioritising sustainability.
Promote Collaboration and Knowledge Sharing: Create a culture of collaboration and innovation among companies, industry groups, and other stakeholders. Sharing best practices and developing common sustainability frameworks can empower companies to take bold, effective steps towards climate action. This includes learning from mistakes and creating a business culture that accepts imperfection in climate action. We are all learning!
Where to from here?
It's pretty clear that the concept of greenfreezing poses a significant challenge to both our environment and investment portfolios. It's a step beyond greenwashing or greenhushing, as it can lead to companies freezing up, caught in a web of fear and confusion, resulting in total inaction.
Ignoring the urgent need for climate action and decarbonisation is not an option, given its dire consequences not just for our planet but also for business performance.
It's up to us to hold companies to account and push for sustainable action. And for those of us in roles like investors, asset managers, and superannuation fund operators, we carry an extra layer of responsibility to nurture a culture that values and rewards decarbonisation efforts (even imperfect ones).
For the sake of shareholders and the planet, we need action now, not tomorrow.
Enter Kakariki Capital. We're a specialist carbon investment manager offering an array of carbon investment opportunities that span the risk-return spectrum, assisting businesses and individuals in making informed investments to secure long-term supply of carbon credits or to profit from carbon markets.
So, let’s chat. We'd love to explore how Kakariki can help you to navigate the carbon investment landscape.
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