As global interest in sustainable investments grows, a new, subtle challenge is emerging: 'greenhushing'. This practice, where companies choose not to disclose their sustainability goals, even when they are plausible or well-intentioned, complicates the landscape for ESG-focused investments.
While the spotlight has long been on greenwashing — where firms make exaggerated sustainability claims — greenhushing remains elusive and difficult to regulate.
Where did it come from?
The greenhushing trend was highlighted in climate-focused consultancy South Pole’s 2022 Net Zero and Beyond report, which found 23% of companies surveyed decided not to publicise their science-based milestones beyond what was required to report.
While the exact reasons for withholding the milestones were not established in the report, it includes anecdotal testimonies of companies wishing to market their goals and achievements but increasingly wary of critique related to greenwashing, including by media and NGOs, and fearful of litigation based on false claims.
Corporations may also be wary of publishing milestones in the face of rising ‘anti-ESG’ sentiment in some parts of the world, most notably in the US.
Fears over green washing allegations
Regulators have cracked down on greenwashing in recent years. A study from LSE and Grantham Research Institute found there has been growth in ‘greenwashing’ cases, challenging the accuracy of green claims and commitments. A total of 81 climate-washing cases against companies were filed between 2015 and 2022, and of these, 27 were filed in 2021 and 26 were filed in 2022, compared with just 9 cases in 2020 and 6 cases in 2019.
The FCA published its Sustainability Disclosure Requirements (SDR) last November, which included a package of measures aimed at eradicating greenwashing, as part of the government’s plans for the UK to be the world leader for sustainable investing.
Rise in anti-ESG sentiment
Some companies have also faced a backlash against their ESG disclosures after a rise in anti-ESG sentiment in the US.
Several Republican states have moved to establish anti-ESG laws, including in North Carolina where a new law prohibits state agencies and state pension plan fiduciaries from considering ESG measures when making investment decisions.
Similarly, in April Florida Governor Ron DeSantis signed an anti-ESG bill to require the Florida State Board of Administration to make investment decisions based “solely on pecuniary factors”.
The legislation also obligates state-registered banks to offer loans to several non-ESG industries, such as fossil fuel power generation and firearms manufacturing.
What is the impact of greenhushing?
If companies do not publicly disclose all the actions they are taking or all the targets they have set to reduce their climate impact, it prevents climate-conscious investors from making informed decisions on where to invest their money.
It also means shareholders planning to hold companies to account over green promises may not have access to all the information they require.
Beyond the specific company, greenhushing has a wider impact on whole industries. Often, competition between companies is a major driving force behind climate progression, and if fewer companies publicise their sustainability goals and how they plan to achieve them, there will be less pressure on others to keep up with the industry standard, push to set ambitious goals or be seen as a leader.
Those taking bold action to meet sustainability targets can inspire others to do the same, but only if they disclose those actions.
What can be done to reduce greenhushing?
Legislative changes are already underway that will make many climate disclosures mandatory. The EU’s Corporate Sustainability Reporting Directive (CSRD) will require companies over a certain size to publish their first CSRD report in early 2025.
Similarly, in the US the Securities and Exchange Commission (SEC) is set to introduce stricter legislation to make corporate sustainability reporting more common, consistent and standardised. The ‘Enhancement and Standardization of Climate-Related Disclosures for Investors‘ has been modelled on the EU’s CSRD.
Crucially, attitudes towards sustainability goals will need to change for transparent disclosures to become the norm. “It’s important to remember that shifting systems starts with shifting mindsets,” Renat Heuberger, CEO at South Pole, said on the study’s findings.
“To achieve true climate impact, we must ‘crowd in’ the companies who are dramatically increasing the speed and scale of their climate action, and who feel comfortable talking about their net zero achievements in a science-based way, without exaggerating or misleading claims, to make net zero emissions desirable and acceptable among customers, media and legislators alike.”