There has been a flood of articles on greenwashing since ASIC launched its prosecution of Mercer Superannuation and the ACCC announced its sweep to identify companies undertaking greenwashing. This has no doubt caused many directors to ask questions about how rigorously their organisation’s green claims are being verified before being made public.
But is there a connection between organisational culture and behavioural biases and the risk of greenwashing?
STSG Founder, Kim Daire, believes there is.
“Becoming sustainable is about recognising that the way we do things now is not suitable to meet our future needs. It requires a willingness to look at what is not being done well today and a willingness to change,” says Kim Daire. “If this is about a positive and industrious journey from the business practices of yesterday to the business of the future then you and your organisation are probably in a good place. If this is about image, beating the competition and showing that your organisation is the best then you might be off track.”
When it comes to understanding why your strategy should focus more on your customers than on the competition. There is an excellent presentation from Prof. Cynthia Montgomery (Harvard Comes to Adelaide) on the subject. It is not our intent to duplicate those arguments here. Instead it is the intent of this article to focus on how culture influences behaviour.
“It has been my observation that organisations that are most successful at implementing sustainable initiatives are the one who can say:
This is where we are today
This is where we want to get to and why we want to get there
Here are the hurdles that we face
This is why we are starting with … action
By contrast, organisations that try to create the self-impression that they are doing brilliantly, or that they are better than the competition, tend to struggle to truly integrate sustainability into their organisations,” says Kim Daire.
There are a number of natural human behaviours and biases that increase the likelihood of falling into the trap of over estimating how well your organisation is doing and underestimating the risks associated with the transition to net zero and adapting to the physical impacts of climate change.
The first of these bias are the base rate bias and the over confidence bias.
The base rate bias is where we make a quick decision based on part of the information available instead of critically analysing all of the relevant information. The busier we are, the less time we have to stop and think, the more likely we are to make an assumption about the best course of action based on gut feel or the first piece of information at hand.
When we do this in sustainability, we run the risk of making inaccurate assumptions about how well we are performing. If we overestimate and over report our performance, then we end up greenwashing.
If your organisation has over estimated its performance due to the base rate bias then this fuels overconfidence.
Organisations that don’t like dealing with uncertainty and encourage a culture of rewarding staff who display a high level of outward confidence may already be prone to the overconfidence bias. Having some knowledge, but not enough knowledge, may also be a driver for overconfidence.
Climate change is often described as a wicked problem due to its extreme complexity. There are many uncertainties when it comes to predicting how quickly the global community will allow the climate to warm and what green technologies will come to dominate markets. The ability to acknowledge, discuss and manage uncertainty is essential to being successful at managing climate risk and becoming sustainable. Confidently predicting and preparing for only one future while ignoring all other possibilities can leave your organisation unprepared.
Here is STSG Founder, Kim Daire, with an example of over confidence in practice:
“Many years ago I was part of a team running a program aimed at building the capacity of local governments to manage water sustainably. One measure of success for the program was a bi-annual survey of local government capacity to implement sustainable water initiatives. We found an interesting trend. Local governments started with the knowledge that they didn’t know much. As they gained some experience, they became very confident. As they became very knowledgeable their confidence in their ability to implement sustainable solutions waned slightly. After some probing we realised that the very knowledgeable and capable local governments had a greater understanding of their limitations. These local governments were the most ambitious, the most capable, with the best projects, but they had ceased to be over confident and become simply confident,” says Kim Daire.
Both the experts and the organisations that are the most competent and capable at managing climate risk know the limitations of the recommendations they are making and the actions they are taking. This understanding has a tendency to make them more guarded in the language that they are using and reduces the likelihood of making statement that could be seen as greenwashing.
The second set of cultural factors that we will explore is the belief held by staff about consequences for their actions or inactions. What would your answer be if you were asked, “How well is bad news received in your organisation? Is bad news a poor reflection on the bearer of that news?” Or, “Is bad news simply a problem searching for a solution?” How your organisation responds to bad news is likely to influence how prone they are to several biases, including:
Social desirability – people are more inclined to report socially desirable information than undesirable information
The Omission Bias – people are more inclined to act more strongly to harmful action than harmful inaction
Loss aversion – people have a greater fear of losing what they have than a desire for obtaining a new gain (e.g. hoping that people keep on buying fuel instead of positioning for a market full of electric vehicles)
From the perspective of your organisation’s sustainability champion, trying to have a conversation about the organisations most difficult scope 1 emission to mitigate might be a challenge. After all, doing nothing about it (Omissions bias) can’t be as bad as costing the organisation money (Loss aversion) to manage it can it?
A GHG reduction task that can be achieved quickly, preferably while saving the organisation money, is much easier to generate support and funds for. It enables the sustainable champion, senior management, and the organisation to show what a great job they are all doing. However, if your organisation is focusing on the easy tasks at the expense of the difficult challenges then you run the risk of not managing the difficult GHG emissions in a timely and financially viable manor. Some GHG emissions are simply more costly and require greater planning to manage. It is therefore important to have a conversation about these difficult challenges early so that they can be managed in a financially mature manner.
A practical example might be to quickly implement a solar project at the same time that a long term budget plan is produced to reduce emissions from refrigerants. The solar project will reduce scope 2 GHG emissions quickly and is likely to have a return on investment of four to six years. The planned reduction in GHG from refrigerants may not show a promising return on investment. However, what it will do is prevent later challenges such as needing to spend a lot of money suddenly when regulations tighten.
The refrigeration example has been chosen because there is some anecdotal evidence that if industries were suddenly to ramp up their conversion of refrigerants to low GHG producing refrigerants then there would be skills shortage which could impact prices. Details like this make planning all the more important. Without planning, future budgets may be at risk.
The people who are most knowledgeable about climate change and sustainability know that there are considerable and complex challenges that all organisations, private, public and NFP have to face to get to net zero. Climate savy investors know that the risk of delaying complex and challenging planning about hard to mitigate scope 1 emissions can have an impact on future budgets, investor returns and financial viability of an organisation. As can a failure to plan for and manage physical climate risks. That is why tools such as the TCFD are increasing their focus on planning and why investors are increasingly weary of greenwashing.
“While biases are real, they are often far from the conscious drivers influencing decision makers. That’s what makes them biases. Having spent many years as an inhouse sustainability champion, I have worked hard to build organisational support to tackle the complex climate challenges. I’ve also made the most of any opportunity to implement any sustainability solution I could get organisational support and funding for. After all, it doesn’t make sense to waste an opportunity. The organisations that I have always had the most success with are those with the most constructive organisational culture. These are the organisations that get the balance right between planning for the difficult challenges while quickly mobilising to realise the quick wins,” says Kim Daire.
Your organisations greenwashing risk may be influenced by several normal human biases. It may not even be intentional, but it does have to be carefully managed. Some simple solutions for boards and management to think about when they examine how their culture influences the risk of greenwashing are:
Give staff the time to critically analysing all the information available to determine how well placed your organisation truly is to overcome the challenges of getting to zero emissions. This will reduce risks associated with the base rate bias.
Create a culture that recognises that the sustainability journey is just part and parcel of a modern organisation’s continuous journey from the practices of yesterday to the practices of tomorrow.
Make it safe for staff to talk about the difficult challenges associated with managing climate risks. This will help you overcome biases associated with belief about consequences.
When your organisation is mature enough to discuss both the things it is doing well and the areas where it needs to improve then you can be confident, instead of falling victim to the over confidence bias.
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