Emerging Regulations Could Make Sustainability Comms Even Tougher

Regulations have long had their corner of the ESG landscape. Regardless of industry, sector or region, the vast majority of brands are required to adhere to some legislation at some level. And where it was once a concern for the Board and key senior leaders, ESG policies are now a shared responsibility across a business.

But alongside the emissions reduction targets, Plastic Packaging Tax, and sustainable investment initiatives that have dominated business operations for decades, new regulations are emerging that could drastically shift how brands communicate their ESG efforts. And arguably, make it much tougher.

What you need to know about the changing tide of sustainability communications, and how to prepare for the road ahead.

The final say on greenwashing?

Sustainability sells. And there's no shortage of data to demonstrate just how large an impact it can have on a brand's commercials.

One McKinsey study found that products making ESG-related claims accounted for 56% of growth over the past 5 years, and a similar study from 2020 found that around 60% of consumers are willing to pay more for a product with sustainable packaging.

A survey conducted by Octopus Investments reported that renewable energy investments are set to rise exponentially in the coming years, with ESG factors serving as the main motivation. And if you're looking for even more evidence of relevancy, a company's ESG activity is rising on talent priority lists, too.

Sustainability's rising purchase value has resulted in a paradox: businesses are as motivated to make inroads in ESG efforts as they are to promote those efforts. Terms like "eco", "green" and "environmentally-friendly" are commonly used brand speak that's impactful in the market, but to date, extremely challenging to substantiate.

Combatting vague, inaccurate or inflated claims is precisely where regulatory bodies are setting their sights. If it passes, the EU's Green Claims Directive will require companies to provide evidence of assertions made about the environmental impact of their products or brand. Themes that are echoing further afield.

The UK's Financial Conduct Authority is readying itself to publish anti-greenwashing rules and the country's Sustainability Disclosure Requirements are expected to come into effect by 2025. Additionally, the US' Federal Trade Commission has updated its Green Guides in a bid to reduce falsified claims in marketing.

And these are a drop in the ocean.

The double-edged sword of regulations

There's little doubt that increasing oversight of how brands go to market with their sustainability efforts will help tackle inaccurate claims. But it will also pose new difficulties.

Increased regulation may seem like little more than a vernacular adjustment; avoid saying something is "friendly for the planet" and the rest is BAU, right? The reality is, legislation will fundamentally change businesses' strategic approach to ESG, and likely in ways we're not fully clear on yet.

ESG has never been so closely integrated with a brand's reputation, and even insinuations of greenwashing or falsifying a claim can be difficult to recover from. Accusations often result in a vicious circle where reputational harm limits an organisation's capabilities, leading to further criticism.

It's not a new challenge for communications professionals, but the risk will almost certainly increase, particularly where public perception is concerned. Tighter parameters could lead to increased scrutiny from an already hyperaware, hyperconscious audience base, or stir retrospective reputational damage from historic claims made by brands.

Regulations may also have a ripple effect further down your supply chain. Should these become more stringent claims may not merely require evidence from your own operations, but from your partners' and vendors' operations too. Irrespective of their region.

Much of the concern surrounding proposals like the EU's Green Claims Directive is how it could shift focus from proactivity to paperwork, making it tougher to succeed commercially and steer action. KPMG recently reported that three-quarters of firms globally aren't ready for new ESG rules, and unsurprisingly, smaller organisations aren't as equipped to manage new mandates. Rising ESG reporting requirements isn't only a significant administrative labour for organisations, it also calls for increased resources to manage. Resources that could be used to accelerate objectives.

"Coulds" and "what ifs" aside, it's impossible to predict how emerging regulations will impact brands' sustainability communications and action - and how much. But it's not impossible to get ahead of a potentially steep curve, and set your organisation up for success, even in an unknown landscape.

Preparing your communications for change

Regardless of what legislation passes, when or where, increased governance is on the horizon. On a fundamental level, brands will need to more closely monitor the channels and terminology it uses, and have greater oversight of the proof points and data behind claims.

On a more granular level, this will require a much more stringent approach to a business' operations. Critically examining the partners that make up a supply chain and the investment funds that form a value chain - movements we're already seeing - will steadily become more important. The way data is managed and communicated will also take greater precedence.

To say brands will need talent to fulfil green skills and drive sustainability action from within an organisation is a given. But at the helm, the likes of a Chief Communications Officer will forge that path.

CCOs are becoming more and more in-demand - and it's a strategic powerplay for brands. Implementing communications into your C-Suite will create internal buy-in from the Board to the ground floor. They'll manage a brand's climate reputation with one eye on current urgencies and one eye on future projections. And importantly, keep close watch on regulatory changes before they spiral into crises.

Author: Allyson Kurian, Senior Consultant

Posted on 07.12.2023

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