Too many companies make false claims about their social impact

In the realm of corporate messaging, the gap between stated intentions and observable actions is often wide. This crisis of authenticity raises stark questions about how best to define corporations’ social responsibility and their impacts.

For instance, Coca-Cola, Nestle, Unilever and PepsiCo all profess dedication to a sustainable future while at the same time having earned the dubious distinction of being among the world’s “worst plastic polluters,” according to the global movement Break Free from Plastic. Last year, Coca-Cola was again at the top of the environmental group's yearly ranking of which companies' products pollute the most countries with the most waste — a position it has held for six years in a row.

These corporations are not the only ones caught in this paradox. In 2023, there was a 40% rise in Forbes Global 2000 companies pledging to become net zero, yet many lack clear plans to achieve their stated goals and some have even backtracked on their commitments.

Regulators around the world are starting to crack down on greenwashing. In addition, several lawsuits against organizations falsely claiming or inflating positive environmental impacts have been won. Last year, for example, Deutsche Bank subsidiary DWS was fined $25 million for misstating its environmental, social and governance, or “ESG,” activities and, this year, Dutch airline KLM is in similar trouble for marketing its sustainability claims.

In parallel, companies that make misleading assertions about benefiting employees, society or other stakeholders are being accused of “value washing.” This gap between rhetoric and reality is not just deceptive advertising; it speaks to deeper issues as to what sustainability means and corporations’ ability — or lack thereof — to create genuine value.

In a landscape saturated with lofty promises, we need better leadership, reporting standards and oversight if we are to distinguish between genuine commitments and mere lip service by creating a more robust definition of effective corporate responsibility. True value creation leads to increased well-being that can be objectively measured — so that whatever claims a business makes they can be verified.

Is that not what the United Nations Sustainable Development Goals (SDGs) are for?

Yes, but despite eight years of international efforts, these 17 goals — designed to bolster the global economy, society and environment to achieve long-term resilience — are falling short. U.N. Secretary-General Antonio Guterres issued a global wake-up call last year, urging countries to take more serious action as only 12% of the SDGs are on track to being achieved by their 2030 deadline.

While the SDGs have been an important step in galvanizing action by all parts of society, including businesses, we need a new system for when the U.N. goals expire, one that allows stakeholders to address critical issues with clarity and consistency. These topics were raised during the Science Summit at the 78th session of the U.N. General Assembly in October 2023 and then expanded at the Global Innovation and Value Summit held in Osaka the following month.

A better understanding of what corporate responsibility is and how it can be measured will require a shift in philosophy.

Some answers can be found in the past, such as in centuries-old Japanese principles that define what a good business is and does. These include philosopher Ishida Baigan’s fair versus unfair profits, agriculturalist Kinjiro Ninomiya’s Hotoku philosophy for ethical business and the Ohmi merchants’ embrace of sanpo-yoshi — which emphasizes how commercial transactions should benefit businesses, customers and society alike — in 17th century Shiga Prefecture.

Together with their modern counterparts, these historical perspectives can help 21st-century firms redefine success by shaping their purpose and role in society beyond just profit generation.

Contemporary movements such as commitments by the Business Roundtable, an association of hundreds of CEOs from the United States’ leading companies, and the World Economic Forum’s Davos Manifesto 2020 are working to redefine corporate responsibility, in part echoing those older Japanese traditions. In these conceptions, business must create value for firms, customers, employees, partners, society and the planet, as well as — instead of primarily for — shareholders, leading to a multistakeholder view not unlike that of sanpo-yoshi.

This approach entails a long-term outlook with an ownership mindset where business leaders are also sustainability stewards. This means taking responsibly for decisions and outcomes along with practicing creative resilience, interdependence and collaboration.

Obstacles to this evolution include short-term thinking, resistance to change, resource constraints, complex stakeholder dynamics, lack of awareness and limited accountability. The challenge then becomes: How can we objectively, clearly and transparently measure a holistic path for such leaders to steward?

Translating lofty ideals into tangible gains means revolutionizing how we see and account for businesses' impacts on stakeholders. The current patchwork of standards, frameworks and models falls short of providing both a comprehensive view of firms’ true societal footprint and ways to manage current and future impacts strategically.

Changing our approach to reporting is immensely challenging. We need a rigorous, impartial system capable of assessing and disclosing both positive and negative results. Similar to annual health checkups, during which basic and important indicators are measured, we should work to understand what healthy business indicators are. With these, we can choose to take corrective actions instead of intervening only when conditions are worse.

Beyond measuring profits and returns for shareholders, most businesses have not yet been subjected to broader assessments of what value they create and — in some cases — undermine across all stakeholder groups.

In a new system, watchdogs could function like doctors and look out for red flags, such as companies that make vague pronouncements or do not set clear goals, or those that avoid letting their claims be checked, lack transparency or do not rely on independent verification mechanisms. If this information is then openly shared, customers, employees, partners and other parts of society can make informed decisions about how to interact with companies.

Value washing blurs the lines between what is real and what is not. Therefore, referees should pay special attention to companies and organizations that use complicated terms and systems, for example, when it comes to their carbon accounting.

Rather than vague promises or complicated jargon, having clear, measurable, transparent goals to define what well-being means for stakeholders can move us from talking about sustainability to achieving it.

The concept of creating value has been around for centuries, yet the call to embrace this approach and instigate change is more urgent than ever.