Why Greenwashing Is a Threat to Sustainability Goals
“We must have zero tolerance for net-zero greenwashing,” — António Guterres, Secretary-General of the United Nations.
What is meant by greenwashing?
Greenwashing has become a popular term nowadays, as sustainability and net-zero goals have been placed on the agenda of many businesses and organizations. This term originated in 1986 when the environmentalist Jay Westerveld exposed the real intentions of the hospitality industry. The industry promoted the reuse of towels to help conserve energy, when in fact, their primary motive was cost-saving.
Nowadays, we use ‘greenwashing’ to describe the misleading and untrue claims made by companies that aim to make people believe their environmental impact is more positive than it actually is. There are many types of greenwashing, including:
- Environmental Imagery: This occurs when companies attempt to appear environmentally conscious through images on their website, presentations, or business correspondence.
- Misleading Labeling: For example, adding a label like ‘no artificial ingredients’ when in reality there are some present.
- Hidden Trade-Off: This refers to claims that a product is green based solely on a few of its attributes while ignoring others that have a negative impact on the environment.
- Concealing Negative Information: This involves portraying only a positive ‘green’ image while hiding any negative information about the company.
These are just a few examples of the many strategies used in greenwashing.
Why do companies greenwash?
Today, environmentally friendly, green, bio, and similar products and services are in high demand. Many companies want to create the impression that their products are environmentally conscious and safe, but not all of them are capable of substantiating these claims. Additionally, businesses are required to meet ESG (Environmental, Social, and Governance) standards, and they sometimes struggle to fulfill all the necessary requirements.
However, no company wants to be seen as a polluter, especially when net-zero goals are on the agenda of nearly every international conference and meeting, particularly among major market players. To enhance their image and reputation, these companies often resort to greenwashing.
Through greenwashing, companies aim to create the impression that their products are eco-friendly and that they prioritize environmental concerns. According to their reports, they portray themselves as meeting all the necessary requirements to be labeled as green companies. This strategy allows them to gain reputation and attract clients who are eager to support environmentally friendly production.
How to recognise greenwashing?
Detecting misleading behavior by companies or recognizing deceptive labeling on products is not always easy. However, there are ways to protect yourself from greenwashed products:
- Carefully read the statements on the product packaging that claim the product is environmentally friendly. Pay attention to the language used; it should be clear and straightforward.
- If there are any logos from eco-labeling organizations on the product, conduct research to ensure the organization actually exists and that the product is genuinely approved by it.
- Verify that every public statement made by the company is supported by official data, is transparent, and can be validated.
- Any product comparisons should be based on evidence.
These steps can help consumers make more informed choices and avoid falling victim to greenwashing tactics.
Legal ways to prevent greenwashing
Europe: According to the Non-Financial Reporting Directive (Directive 2014/95/EU), companies are required to include information in their reports pertaining to environmental, social, and employee matters. This requirement was aimed at enhancing the quality and quantity of non-financial information and standardizing sustainability reporting. However, the expected results did not materialize.
Subsequently, the European Commission proposed a revision of the Non-Financial Reporting Directive as part of the European Green Deal and its 2020 Work Programme. The primary objective was to create an economy that benefits people. The proposal’s legal foundation is rooted in Articles 50 and 114 of the Treaty on the Functioning of the European Union (TFEU). According to the European Green Deal, companies making ‘green claims’ are obligated to substantiate these claims using standardized methodologies.
USA: On March 4, 2021, the U.S. Securities and Exchange Commission (SEC) unveiled the creation of their Climate and Environmental, Social, and Governance Task Force (Task Force). One of the main tasks of this Task Force is to identify and address ESG-related misconduct.
Subsequently, on March 21 and May 25, 2021, the SEC announced a series of proposed rules. The first pertains to mandatory climate risk disclosures for all public companies, while the second focuses on disclosures by specific investment advisers and companies regarding their ESG investment practices.
China: China’s green governance goal is to achieve peak carbon emissions by 2030 and carbon neutrality by 2060, as formally announced by Chinese President Xi Jinping. Several legal documents regulate the economic activities of both domestic and international companies operating in China.
In 2007, China’s State Environmental Protection Administration issued the ‘Measures for Disclosure of Environmental Information’. These measures provide information on new environmental protection policies, strategies, and plans.
In 2010, the ‘Guidelines for Environmental Information Disclosure of Listed Companies’ were released, mandating the disclosure of environmental information by listed companies.
In 2015, the ‘Environmental Protection Law’ was introduced, which imposed daily penalties to address persistent environmental violations and increase the costs of illegal greenwashing.
Africa: Currently, there are no laws or regulations concerning greenwashing in Africa. However, African countries are actively working towards establishing such regulations. Each year, an increasing number of countries in the region are incorporating ESG policies into their legislation.
In June 2022, the Johannesburg Stock Exchange (JSE) initiated the development of Sustainability Disclosure Guidance, alongside Climate Change Disclosure Guidance, specifically tailored to the South African context. These initiatives aim to assist companies, institutional investors, and other entities in transforming their operations to be more sustainable.
Future without greenwashing
To contribute to a future without greenwashing, companies should be mandated to provide accurate and transparent information about their environmental claims through more stringent regulations.
Establishing clear industry standards for environmental claims and certifications can assist consumers in identifying genuinely environmentally friendly products and services. Independent third-party certifications can lend credibility and assurance that products and practices meet specific environmental criteria.
Educating consumers about greenwashing tactics and how to critically evaluate environmental claims can empower them to make informed purchasing decisions. When consumers demand honesty and transparency, companies are more likely to adopt responsible practices.
