UNVEILING
GREENWASHING: NAVIGATING ESG IN A WORLD OF CORPORATE RESPONSIBILITY
In the recent years, there has been rise in Environmental, Social and Governance (ESG) investing which has indeed transformed the corporate landscape, encouraging businesses to adopt more sustainable and responsible practices. As stakeholders and investors prioritize ethical considerations, corporate are under pressure to commit to ESG principles. However amid this growing trend, a concerning phenomenon known as Greenwashing has emerged where companies falsify their environmental credentials to appear eco-friendly which they are definitely not.
Greenwashing not only undermines the integrity of genuine ESG efforts but also deceives well-meaning stakeholders, posing significant risks to both the environment and the market. Greenwashing is misleading but not always illegal; regulatory loopholes are sometimes used. It remains prevalent even after called out by media and regulators. It is necessary for the investors to remain vigilant from being misled.
Greenwashing And Its Types
Greenwashing is
a deceptive practice where a company presents an exaggerated or misleading
impression of its environmental efforts or benefits to appear more eco-friendly
than it actually is. This can mislead consumers, investors, and other
stakeholders who are looking to support genuinely sustainable businesses.
Greencrowding
Blending in with the group to evade attention is known as
"greencrowding," which relies on the notion of "safety in
numbers." The slowest member usually sets the pace when creating
sustainability policies. Various organizations, such as governments and
corporate alliances seeking to address environmental issues, employ this
strategy. For example, the American Chemistry Council, which opposed a Global
Plastic Pollution Treaty, is closely associated with the Alliance to End
Plastic Waste (AEPW). In its early years, the AEPW recycled a negligible
portion of the world's plastic waste, despite lofty claims. This is a clever
strategy because it can draw in investors and the media with large numbers, but
careful planning, meticulous monitoring, and due diligence are necessary.
Greenlighting
Greenlighting is the practice of businesses emphasizing a tiny,
environmentally friendly component of their operations or goods in order to
draw attention away from their more significant, harmful activities. For
instance, Total continued to increase its production of oil and gas while
promoting its new name and green initiatives when it rebranded as TotalEnergies
in 2021. Legal challenges to deceptive practices resulted from this tactic. The
UK's Advertising Standards Authority also chastised HSBC for their green ads
that hid their substantial business financing contributions to greenhouse gas
emissions. Another illustration would be a business that advertises the use of
recycled materials in a small range of products, but the majority of its
activities still involve significant pollution.
Greenshifting
Greenshifting is the practice of downplaying the company's own large
environmental impact while tactfully placing the blame for environmental
problems on customers and implying that individual actions are the main
solution. This strategy shifts the focus away from the corporate obligations
and puts the responsibility for making sustainable decisions on the customers.
Shell's 2020 campaign, which asked people what they would be willing to do to
reduce emissions, is a well-known example of greenshifting. This strategy was
criticized because it was thought that Shell, a significant polluter, was
shifting accountability from its own actions to those of specific customers.
Geoffrey Supran and Naomi Oreskes, researchers at Harvard University,
discovered that ExxonMobil frequently minimized the company's contribution to
global warming in its public statements, emphasizing instead consumer behavior
and energy efficiency.
Greenshifting can happen in a lot of ways. Businesses may advocate
for consumers to buy energy-efficient appliances, recycle more, or lower their
carbon footprints, all the while producing large quantities of single-use
plastics, expanding the extraction of fossil fuels, or participating in other
environmentally damaging practices. This not only draws attention away from corporate
responsibility but also develops the myth that it is the responsibility of the
individual to practice environmental stewardship.
Greenshifting can also be seen in business sustainability reports
and marketing materials that draw attention to small-scale environmental
efforts but downplay the bigger, more harmful parts of their
operations.Greenshifting obscures the systemic changes at the corporate and
industrial levels that are required to effectively address environmental issues
by concentrating on the actions of individual consumers . Greenshifting
ultimately undermines real sustainability efforts by shifting the blame for
environmental degradation onto customers, allowing businesses to carry on with
their destructive practices with little to no oversight. ecological methods.
Greenlabelling
Greenlabelling involves making misleading or exaggerated claims
about a product's environmental benefits. While these claims might be partially
true, they often present a skewed picture that makes a product seem more
eco-friendly than it is. SC Johnson's Windex Vinegar Ocean Plastic Bottle
Claimed to be made from 100% "ocean plastic," which was later
clarified to mean plastic collected near oceans, not from the ocean itself.
- Ambiguous Labels: Terms
like "eco-friendly" and "green" are often used without
clear definitions or standards.
- Partial Truths: A product
might contain some recycled materials but still be largely harmful to the
environment.
- Hidden Trade-offs: Companies
might highlight a specific eco-friendly aspect while ignoring broader
environmental costs.
- Misleading Campaigns: Marketing
often emphasizes minor sustainable efforts while overlooking significant
environmental impacts.
Greenlabelling is pervasive and exploits consumers' desire for
sustainable choices, misleading them and undermining genuine efforts. To combat
this, consumers should seek third-party certifications and do their own
research, while regulatory bodies need to enforce clear standards and
accountability.
Greenrinsing
Greenrinsing occurs when companies frequently adjust their
Environmental, Social, and Governance (ESG) targets before they are achieved,
creating an illusion of ongoing commitment to sustainability. Coca-Cola and
PepsiCo are notable examples, having shifted their recycling targets multiple
times over the past few years. This tactic allows companies to appear as though
they are dedicated to environmental goals without making significant progress.
By continually revising their targets, these companies can claim they are
updating their commitments to be more ambitious, when in reality, they are
avoiding accountability for failing to meet their original goals.
A broader examination by Net Zero Tracker reveals that many
companies' ESG targets are not substantiated or achievable. A significant
number of companies fail to cover their full emissions, particularly Scope 3
emissions, which include indirect emissions from their value chain. This lack
of comprehensive coverage and the frequent adjustments of targets can mislead
stakeholders into believing that companies are making more progress than they
are. Greenrinsing undermines genuine sustainability efforts and makes it
challenging for investors, consumers, and regulators to hold companies
accountable for their environmental impact.
Greenhushing
Greenhushing is when companies under-report or hide their
sustainability achievements to avoid scrutiny. Nearly a quarter of global
sustainability executives surveyed by South Pole admitted to not publicizing
their climate milestones beyond the minimum required. This can be a tactic to
gain a green valuation uplift without proper investor scrutiny. For instance,
asset management firms like HSBC, Amundi, and BlackRock downgraded funds to
avoid the stricter regulations of the EU’s Sustainable Finance Disclosure
Regulation, possibly to evade detailed examination of their ESG performance.
This strategy can also involve minimizing public communication about
sustainability initiatives to avoid potential backlash or pressure from
stakeholders.
These tactics highlight the sophisticated strategies companies use
to appear environmentally responsible while avoiding true accountability. As
consumers and investors become more aware of these practices, it's crucial to
critically evaluate corporate sustainability claims and demand transparency and
genuine action.
How to spot
Greenwashing
Greenwashing frequently uses ambiguous language and buzzwords. These
are a few typical pitfalls.
- Natural:
Can apply to anything found in nature, even dangerous elements like
arsenic and cyanide.
- Organic:
Doesn't guarantee complete environmental responsibility, but it does imply
the absence of pesticides and genetic modification.
- Green and
eco-friendly are nebulous terms with no clear definition.
- Sustainable:
Frequently overdone and useless in the absence of a thorough strategy.
- Biodegradable:
The term may be misleading because of the degree of variation.
An eco label report card is available through Consumer Reports
Greener Choices initiative, which assesses common green claims for their
veracity, significance, and potential conflicts of interest. The goal of
advertisements is to draw in consumers, not always to tell the truth. Keep an
eye out for these signs of greenwashing: The "lesser of two evils"
strategy, which presents a product as superior to an alternative without
addressing its own negative effects, hidden trade-offs, where eco-friendly
practices are emphasized while harmful practices are ignored, and misleading
labels that provide incomplete information—for example, labeling something
compostable without mentioning the kind of composting that is required—are some
examples of these tactics. Broad, unsubstantiated claims are frequently used in
vague marketing, and green imagery frequently combines natural landscapes with
items that have little to do with sustainability. The term "carbon
footprint" shifts the focus from industrial emissions to individual
responsibility, while claims of carbon neutrality or offsets are difficult to
verify due to a lack of oversight and standardization. Lastly, scorecards and
eco-ratings can be misleading without strict third-party accountability.
Understanding these tactics empowers consumers to make informed choices and
hold companies accountable for their environmental claims.
Regulation
Greenwashing, the practice of making misleading claims about the
environmental benefits of a product or service, is a significant concern for
consumers and regulators worldwide. The European Union leads with advanced
regulations to combat greenwashing, although the complexity can cause
compliance issues. Key regulations include the Sustainable Finance Disclosure
Regulation (SFDR), which categorizes funds into Articles 6, 8, and 9 based on
their sustainability efforts, and the EU Taxonomy, which sets criteria for
economic activities to be considered environmentally sustainable. Additionally,
the Corporate Sustainability Reporting Directive (CSRD) mandates third-party
assurance of sustainability claims, and the UK's Sustainability Disclosure
Requirements (SDR) ensure clarity and fairness in sustainability-related
claims.
Globally, different regions are developing their own frameworks to
tackle greenwashing. In the U.S., the Securities and Exchange Commission (SEC) has
taken steps towards regulating ESG-labeled investment products, launching the
Climate and ESG Enforcement Task Force to identify misconduct. In Asia Pacific,
countries like Singapore, Malaysia, Japan, Hong Kong, China, and India are
implementing various measures to ensure transparency and accountability in
sustainable finance. Singapore’s Monetary Authority, for example, mandates
climate reporting for listed issuers, while Japan’s Financial Services Agency
enforces stringent criteria for ESG-labeled funds. Understanding these
regulations helps consumers and investors navigate the complexities of
greenwashing and make more informed decisions about sustainable products and
practices.
Conclusion
Greenwashing is still a big problem because it deceives customers and undermines real sustainability initiatives. Even though laws are changing all over the world to stop dishonest business practices, it's important for everyone to be aware and cautious. Making more responsible decisions and holding businesses accountable can be facilitated by people being aware of the strategies and processes involved in greenwashing. Encouraging stringent regulatory measures and endorsing independent verification can help guarantee that environmental claims accurately reflect sincere efforts to protect the environment. Customers have the ability to hold companies to higher standards by rewarding those who give honest, transparent information about their environmental impact. Education also has a major impact. By educating people on the signs of greenwashing and increasing awareness of it, we can promote a more informed and conscientious society. Businesses must also take responsibility by adopting sustainable practices and communicating them honestly.
References
- How to spot
greenwashing – and how to stop it by World Economic forum https://www.weforum.org/agenda/2021/05/how-spot-greenwashing/
- Greenwashing
– the deceptive tactics behind environmental claims by United Nations
Climate Action.
https://www.un.org/en/climatechange/science/climate-issues/greenwashing
- What is
greenwashing and how to spot it in action By Leah Kirts, CNN Underscored. https://edition.cnn.com/cnn-underscored/home/what-is-greenwashing
- Greenwashing
And ESG: What You Need To Know by Kelly Anne Smith - https://www.forbes.com/advisor/investing/greenwashing-esg/
- Greenwashing:
Navigating the Risk by Peter Pears, Tim Baines, and Oliver Williams, Mayer
Brown LLP.
https://corpgov.law.harvard.edu/2023/07/24/greenwashing-navigating-the-risk/
- What Is
Greenwashing? By Laurel Tincher https://www.sofi.com/learn/content/greenwashing/
- Greenwashing
Hydra by John Willis Director of Research, Planet Tracker Thalia Bofiliou
Senior Investment Analyst (Plastics), Planet Tracker Arianna Manili Policy
Officer, Planet Tracker Isabella Reynolds. https://planet-tracker.org/wp-content/uploads/2023/01/Greenwashing-Hydra-3.pdf
- Greencrowding:
A New Form of Greenwashing by sustainable directory https://medium.com/sustainability-directory/greencrowding-a-new-form-of-greenwashing-1026e28f6427#:~:text=Greencrowding%20is%20a%20sneaky%20way%20of%20pretending%20to,means%20deception%20and%20misrepresentation%20of%20your%20environmental%20impact
- What is
‘greenhushing’ and is it really a cause for concern? By World Economic
Forum
https://www.weforum.org/agenda/2022/11/what-is-greenhushing-and-is-it-really-a-cause-for-concern/
- Global
Greenwashing Regulations: How the World Is Cracking Down on Misleading
Sustainability Claims by Curtis File , Editorial Manager, ESG and
Sustainable Finance
https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/global-greenwashing-regulations--how-the-world-is-cracking-down-on-misleading-sustainability-claims
- Stopping
greenwashing: how the EU regulates green claims by European Parliament https://www.europarl.europa.eu/topics/en/article/20240111STO16722/stopping-greenwashing-how-the-eu-regulates-green-claims
- Greenwashing:
Indian Regulatory Context by Taxguru https://taxguru.in/finance/greenwashingcindian-regulatory-context.html