As ESG Pledges Continue to Rise, Who is Keeping Track?

Climate-related pledges have been all the rage the last few years, with governments and corporate leaders publicly and emphatically stating their commitments to environmental, social and governance (ESG) practices. However admirable, these ambitious plans often yield ambiguous results that put companies at risk of making promises they cannot keep. With ESG pledges increasing, just how meaningful are promises to prioritize and implement climate-related plans?

Net Zero Tracker, an independent group that follows corporate and government pledges to achieve net-zero emissions of greenhouse gases, said in a November report that half of the world’s 2,000 largest publicly listed companies now have a net-zero target. The number of companies with net-zero goals increased from 702 in June 2022 to 1,003 in October 2023.

These gains mark a significant milestone in corporate net-zero efforts. Yet, a “major credibility gap” remains, according to Net Zero Tracker. The group suggested that the “integrity of company mitigation targets should urgently improve if they are to be achieved in line with the Paris Agreement’s temperature targets.” Net Zero Tracker also warned that one-third of the world’s largest publicly listed companies haven’t set targets for emissions reductions.

During the recent United Nations climate summit, COP28, in Dubai, both governments and business interests made additional environmental pledges. These mostly took the form of voluntary agreements, which are quicker and easier to make than official summit decisions that require the consensus of participating countries. The side deals emerging from COP28 involved initiatives to cut methane emissions, eliminate financing of international fossil fuel projects and halt deforestation.

As former European Union climate official Marc Vanheukelen pointed out in a Reuters article on COP28, voluntary agreements “go much further than what you can do multilaterally.” However, holding companies and governments to ESG pledges has proven difficult. Vanheukelen said such promises often turn into “exercises in what you could call ‘fire and forget.’” In other words, countries could issue a statement of support, but who is watching to ensure they’re living up to their promises?

Theoretically, regulatory agencies such as the U.S. Securities and Exchange Commission could take it upon themselves to make sure companies are keeping their word. In fact, the SEC has made a point of publicizing its efforts to take companies to task for ESG reporting misconduct, including the creation of a task force dedicated to climate and ESG in its enforcement division. The task force’s initiatives seem primarily focused on governance matters over environmental and social issues, though. Meanwhile, the SEC’s vigilance in pursing any ESG-related malfeasance appears to be waning.

In the end, the risk is that corporations and governments will continue to enjoy a reputational boost from issuing pledges to fight climate change without doing the actual work they require. Without anyone or anything to hold them accountable, they can keep on writing checks to cut emissions that their ESG programs don’t have to cash.