The corporation is not exactly enjoying a surge of popularity right now. Rising inequality, tax dodging, slavery in supply chains, environmental damage, excessive CEO pay – this recipe makes for a pungent soup of popular, or indeed, populist, discontent with the business world.

Many companies are trying to do something about it, but not always in a helpful way. For every firm that’s actually trying to change the way it operates so that it returns value to society and its various stakeholders, there’s another hiding behind a shimmer of spin.

"If you go to any oil and gas website right now, they’ll look like Greenpeace," says George Serafeim, Associate Professor at Harvard Business School, and keynote at the upcoming Palladium Positive Impact Summit 2019. "Of course they’re not, but that’s how they look. There’s an unbelievable amount of greenwashing."

Greenwashing may sound like a slightly ludicrous new skincare fad, but it is in fact the dishonest corporate practice of presenting green or ethical credentials that either aren’t there or are highly exaggerated.

Very often, it involves real sustainability programmes that don’t reflect the main impact that the business is having on society.

"If a bank has changed its lightbulbs and has more energy efficiency, that’s well meaning but at the same time it’s not a big impact. It’s saying nothing about its loan exposure. The same thing applies to pharmaceutical companies saying very little about access to affordable products and so forth," says Serafeim.

That greenwashing is so prevalent is hardly surprising: it’s easier to revamp your corporate messaging than it is to reimagine your business strategy, after all. What is perhaps less obvious is the harm it does.

Greenwashing vs Sustainable Investment

At the 2018 Palladium Summit, Serafeim and his fellow speakers Robert Kaplan and Eduardo Tugendhat argued that there are huge opportunities for businesses to create social good while pursuing sustainable profit. The crux is creating new ecosystems in the most impoverished places, something that requires boldness of ambition, a willingness to collaborate, proper governance so the ecosystem can scale and, of course, money.

It is in this crucial need for capital that greenwashing causes such a problem.

"We need to engage the capital markets, but to do that you need to eliminate greenwashing, otherwise those capital allocations won’t happen," argues Serafeim. "But part of the problem is it’s really hard for many people to tell the difference."

This includes investors, hence the problem – if they can’t tell whether companies are genuinely pursuing sustainable growth, they won’t be able to invest sustainably, even if they wanted to.

What is needed is a method of independently assessing the social, environmental and sustainability impact of a company. Fortunately, there are two: the GRI global reporting standards and the Sustainability Accounting Standards Board (SABS) framework.

Companies hoping to showcase their genuine commitments can submit to these measures, or at the very least, take a fully transparent approach to their sustainability goals and progress (or lack thereof).

Those who’d prefer to continue pulling the wool over investors’ eyes will in any case face a bigger problem: their employees will surely know whether the CEO is being sincere or not. "I’m not sure what company he thinks he’s running," a friend of MT once remarked about a speech their chief exec gave, "but it’s not the one he’s actually got."

And as Serafeim argues, this bad reputation among employees and customers is causing real problems for businesses that are struggling to find growth opportunities.

"Look at organisations like Shell or VW. Fundamentally, societies have given them not only a license to operate but also to grow. To preserve that, you need to build trust in communities you’re operating in," Serafeim says.

"Expectations have risen. If you were talking about sustainability 10 years ago the CSO (chief sustainability officer) would attend, but I can tell you now it’s the CEOs that attend. They understand that without it they don’t have that licence to grow."

Sustainability, shared value and creating a positive impact by building new ecosystems are no longer just nice-to-haves. They’re serious business, and if corporations want to be able to profit from them, it’s in their interest to make sure they’re honest, not least to hold their dishonest competitors to account.

George Serafeim is a Palladium Thought Leader and co-author of the Harvard Business Review article Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality, with Robert Kaplan and Eduardo Tugendhat. All three will be speakers at Palladium’s upcoming Positive Impact Summit: Impact at Scale in New York City, 25 June 2019.

This article was original published in Management Today.