Anjali: You know, Rajat, I have been reading a lot about ESG (environmental, social, and governance) from the last couple of days. As per what I observed, every company is claiming to be eco-friendly these days but honestly, this is not the reality. I believe ESG has become a PR stunt to frame yourself better in the competitive market

Rajat: I 100% agree with what you believe. It’s like everyone is jumping on the ESG bandwagon. But if you dig deeper into it, you understand how many companies are only using it as a PR stunt and how many are genuinely investing in it. Honestly, it’s hard to say who is right or wrong, here!

Anjali: Absolutely! It feels like actions don’t match the words. Companies, nowadays, seem more interested in labels rather than making the actual impact. It’s frustrating at times.

Rajat: Yeah, for sure. But do you know what are the challenges involved in following ESG? How can we solve this issue? Let’s try to dig deeper into it.

ESG stands for Environmental, Social and Governance. This concept evolved in the mid-2000s and traces back to many factors ranging from growing awareness of climate change, social inequality, and the importance of good governance. All these factors have put pressure on companies to act responsibly. Nowadays, consumers are more inclined to buy products from companies that value sustainability. Similarly, investors are more interested in investing in companies with strong ESG performance.

But why should businesses care about ESG? Well, it’s not just about altruism, there are real financial incentives involved. A business with a strong ESG record attracts more investment, fosters consumer loyalty, improves the brand’s reputation and reduces costs.

When Greenwashing Enters!

As vital as ESG sounds, it has led to the rise of Greenwashing, a concerning phenomenon. It refers to a scenario when businesses mislead consumers and investors about their ESG efforts with the prime purpose of uplifting themselves and improving their image in society. Rather than making an actual impact, they pretend to be investing in ESG policies.

For instance, in the early 2000s, British Petroleum rebranded itself as ‘Beyond Petroleum’ to present itself as an environmentally conscious company. While the rebranding, as the name suggests, would hint at it being environmentally safe for society, it continued its focus on fossil fuels, and its investments in renewable energy remained relatively minimal. Then, what’s the point of calling oneself environmentally conscious? This difference between rebranding and actual business practices helps us understand greenwashing in a deeper sense.

Furthermore, many fast fashion blatantly brag about their “sustainable” collections, yet we know the reality. The vast majority of their operations contribute significantly to pollution and waste. For example, a brand might launch a “green” line of clothing made from recycled materials but continue to manufacture the majority of its products using harmful environmental practices. Then what’s the point of launching green fashion? This again falls into the classic example of greenwashing.

On one hand, greenwashing poses several questions about the credibility of ESG efforts. On the other hand, it compromises the customer’s trust and investor’s belief in the business. When customers realise they’ve been duped into believing a company is genuinely sustainable when it’s not, they may abandon the brand altogether. Moreover, many investors rely on ESG metrics to guide their decisions and invest in a business. If they learn about greenwashing, they could lose confidence in these ratings if companies continue to misrepresent their actions.

Who’s Actually Walking the ESG Talk?

While greenwashing may be uncontrolled, many companies are genuinely committed to ESG and have integrated sustainability and social responsibility into their core operations.

Unilever

One of the great examples of commitment towards ESG is Unilever which has made significant strides in improving its ESG performance. Unilever’s Sustainable Living Plan focuses on reducing the company’s carbon footprint, improving people’s livelihood in its supply chain and creating products that promote health and well-being. Brands like Dove, Ben & Jerry’s, and Seventh Generation focus on ethical sourcing and environmentally friendly packaging.

IKEA

By FY 2030, Ingvar Kamprad Elmtaryd Agunnaryd (IKEA) plans to halve its emissions from its value chain. IKEA is on its way towards net zero by FY 2050. In its strong attempt to transition towards a circular business, the brand plans to follow a systemic approach that would impact every aspect of the business; right from how and what products and services it develops, how and what materials are sourced, to how and where it meets the customers. Furthermore, IKEA has invested heavily in solar and wind energy and has also phased out single-use plastics. It is committed to developing furniture that can be repurposed or recycled instead of ending up in landfills.

Starbucks

In its ESG report, Starbucks has set three specific 2030 goals for customer-facing packaging: 100% reusable, compostable or recyclable packaging, sourced from 50% recycled materials and made using 50% less virgin fossil fuel-derived sources. The brand also invests in sustainable farming, offers eco-friendly packaging, and provides employee benefits such as tuition assistance and mental health programs.

Coca-Cola

Coca-Cola has also taken steps towards sustainability with its World Without Waste initiative. The company aims to collect and recycle the equivalent of every bottle it sells by 2030. Coca-Cola is also reducing the use of virgin plastic and increasing the amount of recycled content in its packaging. It has invested in plant-based bottles and refillable packaging while also working to improve water efficiency across its operations. In social responsibility, Coca-Cola funds global clean water projects and women’s empowerment programs.

Nike

Nike has also invested in ESG. Its Move to Zero initiative aims for zero carbon emissions and zero waste. The brand uses recycled materials, like Flyknit fabric, which reduces waste by 60% as compared to traditional manufacturing methods. Nike has also dedicated itself to powering its global facilities with 100% renewable energy by the year 2025. By committing to reducing water usage in production, Nike has gone one step closer to ESG. It also focuses on social responsibility by following fair labour practices in its supply chain and supporting diversity through initiatives like the Nike Black Community Commitment.

Google (Alphabet)

Google has been carbon neutral since 2007 and aims to run entirely on carbon-free energy by 2030. It was the first major company to match its total energy consumption with renewable energy purchases, and it now invests in wind and solar projects worldwide. Google also works on reducing water consumption in data centres and improving AI-driven sustainability solutions.

Apple

Apple has also taken the lead by setting a goal in 2023 to use 100% recycled cobalt in batteries by 2025. The company also focuses on using recycled materials in its products, like the aluminium in MacBooks and rare earth elements in iPhones.

In 2023, Tim Cook said, “At Apple, we’re carbon neutral for our own operations and innovating every day to go even further in the urgent work to address climate change. With partners around the world, we’re adding even more renewable energy to power our global supply chain and investing in next-generation green technologies. The scale of this challenge is immense — but so is our determination to meet it.”

ACTIONS VS. WORDS

Despite many positive examples, there is still a significant and visible gap between ESG claims and the reality of implementation. While some businesses genuinely invest in ESG goals, other companies struggle to balance these goals with profit-making demands.

The primary challenge is the short-term profit motive. As many businesses face the pressure of delivering immediate financial results to investors and stakeholders, their ESG initiatives take a back seat due to cost-cutting measures. For example, transitioning to renewable energy sources can be a costly and time-consuming affair.

Another major issue is the lack of consistent ESG standards. While there are frameworks like the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), these guidelines are voluntary and not all companies follow them. This lack of standardisation makes it easy for companies to make vague ESG claims, thus leading to nowhere.

What Lies Ahead

So, where does ESG go from here? Will it continue to be just a marketing buzzword or can it evolve into a true force for change? The reality is that the future of ESG depends on whether companies are willing to go beyond superficial commitments and make real and lasting changes in how they operate and function.

Furthermore, consumers can play a major role here. If they choose brands that promote environmental and social justice, it can push companies to act responsibly and judicially. On the other hand, investors can also act on their part by increasingly focusing on ESG criteria and encouraging businesses to invest in ESG initiatives.

The future of ESG depends on the ability of companies to go beyond empty promises and deliver measurable outcomes.

A report by responsible investment group ShareAction revealed that among 279 ESG shareholder resolutions proposed at UK, Europe, and US annual meetings last year, only four, just 1.4%, gained majority approval.
In 2024, 71% of corporate leaders agreed or strongly agreed that ESG investments provide a competitive advantage, up from 60% in 2023.
Since 2020, there has been a 40% increase in ESG data points collected. This indicates a growing emphasis on transparency and reporting among businesses.
US businesses are spending nearly $700,000 annually on climate-related disclosure activities.

In 2024, 54% of CEOs in India recognised that addressing ESG challenges is a critical component of their business operations and long-term corporate strategy.