A target is a target. But what happens if the target is missed? Does it make sense that companies set their own targets or should governments play a role in imposing them?
“We’re aiming to become climate neutral by 2025.“ “By 2030, all our materials will be sourced sustainably.“ “We will ensure our workers are paid fairly.“ These are just some of the claims flooding corporate social responsibility reports and governance landing pages. Companies often set ambitious future targets without ever addressing whether they are on track to meet them. But are there actually any legal repercussions if they don’t achieve their goals? Should governments redirect their gentle parenting style towards the private sector and step in?
Get Back on Track
As of now, we are far off track from achieving the 1.5-degree climate goal: According to the International Energy Agency, the latest pledges still leave a significant gap in the reductions needed to keep 1.5 degrees within reach. Many climate goals of course compete with goals of business growth which is why the private sector can be slow at times to implement changes voluntarily. So far, no state has commanded businesses to set science-based carbon goals to mitigate their environmental impact.
What many governments did implement, however, is mandatory reporting about their sustainability and social efforts as a company, now even obligatory for small and medium enterprises (SMEs). Since January 2023, a total of 50.000 EU companies are required to report, showing a significant effort to create a culture of transparency. While most businesses presumably dreaded the idea of reporting on corporate social responsibility (CSR) measures at first, many executives have now understood that these initiatives create long-term value.
Why Mandatory Regulation?
A 2020 study came to the conclusion that mandatory regulation typically has a strong positive influence on businesses’ environmental performance while voluntary measures don’t lead to significant improvement. If we see such success from imposing mandatory guidelines, why don’t governments implement more mandatory climate rules? They would drive companies to put in the legwork and ensure that achieving carbon goals is not in conflict with private sector interests. Sustainability legislation should arguably limit the amount of carbon produced by certain industries or businesses.
On a positive note, it is worth pointing out that there is an increasing amount of mandatory climate regulation that governments impose on the private sector. One example is the EU’s proposal for mandatory Digital Product Passports (DPPs) as a way to increase transparency in supply chains and accelerate fair and eco-friendly production. What’s more, the EU just recently proposed the Green Claims Directive in an effort to minimize greenwashing. This directive would mandate scientific evidence for every environmental claim a company makes. Governments seem to notice that voluntary measures are not enough anymore to achieve our much-needed climate goals.
Lead By Example
Governments are expected to be the vanguards of environmental change, stemming from their responsibility as main policymakers. According to a 2020 study, however, national governments have much poorer environmental policies in place than the private sector. Despite pledging change, many politicians seem to prioritize short-term economic or political interests over environmental efforts. But what actually happens when governments don’t achieve their own carbon targets?
Experts surveyed in a 2020 study argue that national governments lack leadership on sustainable development with 61% of them claiming governments do a poor job and only 8% stating they do excellent. Concerning leadership by NGOs, however, the numbers were flipped: their leadership was rated excellent by 59% of experts while only 9% said they were doing poorly.
We Need Collaboration
Nothing distracts from the fact that no government or organization can solve climate change alone. The sheer scale and urgency of climate change require a combination of knowledge, people, and power. So it may come as no surprise that two-thirds of executives view sustainability as an area where collaboration is needed to achieve meaningful change. Another report showed that 73% of executives are even willing to collaborate with competitors toward a net-zero transition. Rather than seeing collaboration as a risk, many companies have understood it to be an opportunity to accelerate progress.
Not only does collaboration simplify combining resources, but it also creates more leverage for businesses to demand sustainable options from suppliers. A good example of that is Copenhagen Fashion Week (CPHFW) where brands need to meet sustainability standards set by the CPHFW organizers in order to partake in fashion week. Many brands first struggled to implement measures but are now glad to be part of a sustainable conglomerate that can demand eco-friendly products from their suppliers.
Ultimately, collaboration is vital – not only between businesses but between the private sector, governments and organizations down to individual citizens. Mandatory requirements, especially the disclosure of climate-related data alongside incentivizing green initiatives, can contribute to accelerating change across different industries and possibly help us get back on track.