Empowering board oversight on nature and biodiversity related risks and opportunities.

Greenhushing: is it safer to keep quiet?

Climate and environmental issues continue to rank high on the list of governance issues for boards. As organisations face up to the material risks posed by climate, and biodiversity damage, it is increasingly clear how many parts of a business and supply chain can be affected. There are no doubt challenges involved in understanding and addressing these risks.

The most recent Climate Governance Study 2024, published by the Australian Institute of Company Directors (AICD), reported 80% of directors surveyed are concerned about climate as a material risk to their organisations. That survey also flagged increasing concern about allegations of greenwashing. As a director, the increase in lawsuits over environmental claims is undoubtedly alarming. With Australia’s corporate and consumer regulators also targeting greenwashing as an enforcement priority in 2024, boards are understandably anxious about what their companies say and do on climate.

Climate statements: where are organisations going wrong?

Some organisations seem to have been caught out by a significant shift in expectations. Previously ‘clean, green’ language in advertising was more likely to be treated as public relations ‘puffery’. Even in sustainability reporting, there was a certain freedom of reporting. Quantitative data was limited, terminology was amorphous, and references were less than robust. Reports tended to be heavy on soft focus images of people in lab coats holding plants. That has certainly changed. Over the last five years in particular, terminology has solidified, and and references have become more robust. Several recent cases show that fine print disclaimers or qualifications will not save claims about sustainable investments or product sourcing.

Organisations are also under pressure from investors and stakeholders who are concerned to understand their own impact. They are increasingly unwilling to accept organisations’ claims about how their money is being invested and the work their donations are supporting. They want to see metrics, evidence and records, in some cases going to court to seek access to these.

Talking about net zero and environmental targets can also catch organisations and directors out. While these necessarily involve an element of uncertainty, directors must have reasonable grounds to believe they are achievable. For example, there must be plans or strategies in place. Otherwise communications about targets are likely to be seen as misleading and deceptive.

Greenhushing: is silence the best strategy?

If acting on environmental issues were simply a reputational issue, downplaying or keeping quiet might be a natural response for a risk-averse board. But this approach, known as ‘greenhushing‘, brings its own risks.

Organisations are progressively being required to communicate about climate and environmental issues affecting them. Mandatory climate reporting against sustainability standards set by the Australian Accounting Standards Board (AASB) is due to start for the first tranche of companies from 1 January 2025. The Australian Securities and Investments Commission (ASIC) is advising companies to begin preparations to meet new climate reporting requirements.

For many organisations, climate and environmental damage are no longer hypothetical risks. Extreme weather events, supply chain disruptions and rising insurance costs are affecting operations and profitability. Conversely, acting on climate change could reduce costs or present new business opportunities. Engaging in natural capital markets could return financial benefits.

In this context, there is a growing view that directors’ duties of due care and diligence require them to turn their minds to their company’s public response to climate and sustainability risks. Not all companies may need to make net zero commitments, for example, but this needs to be a considered decision. Simply keeping quiet to avoid the issue will not be an option.

Bring the discussion to the board table

Having confidence in their climate impacts and positioning requires boards to have much greater oversight of the whole of the organisation’s operations and value chain. This may require deconstructing internal operational silos, for example, if sustainability and finance and procurement have all been operating as separate departments with limited ability to influence each other.

As discussions on environmental and sustainability issues start to take place around the board table, action does start to happen.

In Niche’s work, particularly in biodiversity offset markets, we have seen the positive effects of putting a value on nature to help protect it. Treating natural resources as ‘capital’ is focusing attention on the actual costs of our natural resources and drives the development of more robust metrics for measuring and comparing environmental costs. We’re seeing a real willingness, in some cases a greater sense of urgency, to do more in relation to nature. Along with that, clients are telling us they are feeling pressured and need help both to understand their impact and to identify opportunities. We have been considering how to support that.