With the high level of scrutiny being applied to corporate environmental claims, it’s not surprising that many organizations have gone into stealth mode with their sustainability messaging, aptly termed “green hushing.”
Greenwashing is a tag that represents a failure on behalf of the marketing department and sustainability committee, all the way up to the C-suite and board of directors. It hurts the bottom line and can destroy a brand’s reputation.
Staying mum about sustainability commitments, however, can come across as indifferent to the climate crisis and misses out on the business opportunities presented by the growing number of sustainable-minded consumers.
So, what do you do?
Take a deep breath. By the end of this article, you’ll have a strong understanding of exactly what greenwashing is, how you might be at risk, measures you can take to avoid it, and some of the legal frameworks that provide clarity on definitions and expectations for making sustainability claims.
What is Greenwashing?
“Greenwashing is the act of providing the public or investors with misleading or outright false information about the environmental impact of a company’s products and operations,” according to Investopedia’s succinct definition.
Greenwashing can be done with malintent, but it can also be accidental or inadvertent. Unintentional greenwashing is a source of anxiety for a lot of sustainability communications teams and a risk that organizations need to account for.
Inaccurate data, miscalculated projections, misunderstood regulations, overambitious targets, or a lack of transparency are all factors that contribute to inadvertent greenwashing.
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Consequences of Being Labeled a Greenwasher
Businesses accused of making misleading sustainability claims have a difficult time retaining consumer trust, salvaging brand reputation, and can even end up fighting lawsuits.
“Data shows that consumers, particularly younger consumers who are growing in purchasing power, simply will not buy from companies they perceive as dishonest or unserious about sustainability,” says Antoine Halff, co-founder of satellite climate data company Kayrros.
Research in the UK by research consultancy Sensu found that 59 percent of consumers change their shopping behavior due to perceived instances of greenwashing, and a further 15 percent say that they have boycotted a brand entirely as a result. Popular brands such as H&M, Starbucks, and Coca-Cola have all had to battle turbulence related to greenwashing.
Depending on the circumstances and the country, financial regulators can slap severe fines on companies. For example, the infamous Volkswagen emissions scandal led to lawsuits, public backlash, and legal troubles after the German car manufacturer rigged emissions tests on particular diesel models. The scandal has cost the company more than $30 billion so far.
Data shows that consumers, particularly younger consumers who are growing in purchasing power, simply will not buy from companies they perceive as dishonest or unserious about sustainability.Antoine Halff, Co-founder
How Companies Can Avoid Greenwashing
In order to avoid the multitude of risks that accompany greenwashing, companies should develop clearly defined sustainability strategies. Identifying material sustainability issues and then collecting data on those target areas will give companies a baseline from where they can begin to develop sustainability goals and targets.
Data, however, presents one of the inadvertent greenwashing risks. “The issues with data access and reliability are one of the key drivers of the risk of greenwashing,” says Cvete Koneska, head of advisory at geopolitical and security intelligence firm Dragonfly, a FiscalNote company. “Businesses don't necessarily have access to enough data, to the right data, or to reliable data to be able to report against their targets.”
It is the organizations’ responsibility to upgrade to more reliable methodologies for capturing data. “In some instances, companies may simply be relying on antiquated reporting methodologies such as the use of emissions factors that have been proven to dramatically understate actual emissions,” Halff says.
Even with accurate, reliable data and methodologies, organizations are not yet home free. Companies must understand the laws and regulations in each jurisdiction they operate.
“Different regulators measure success differently,” explains Koneska. “For example, if you are two-thirds of your way to reaching the EU’s expectations, that doesn’t necessarily translate to the U.S. or Canada. You might only be halfway in those markets because of how regulations are designed and how indicators are measured.”
Accurate data and regulatory insights form part of a company’s ESG intelligence and are vital to any company’s sustainability strategy.
Finally, transparency is paramount to everything sustainability. Avoid ambiguous terminology like “natural,” or “green” and instead stick to clear, direct communications. Setting targets and missing them isn’t greenwashing per se, but a pattern of this behavior will put consumers, and regulatory bodies, on high alert. Focus on communicating your activities rather than the outputs you expect them to have.
The issues with data access and reliability are one of the key drivers of the risk of greenwashing. Businesses don't necessarily have access to enough data, to the right data, or to reliable data to be able to report against their targets.Cvete Koneska, Head of Advisory
Greenwashing Policies and Regulations
If we look at North American and European markets, we can see that there are regulations in place, as well as others being developed, to protect consumers from greenwashing. The UK already has a Green Claims Code and Canada has updated its Consumer Packaging and Labelling Act to include guidelines regarding sustainability claims. More specifically, the U.S. and European Union are ramping up widespread regulations that could impact your organization. Let’s take a look.
United States: The FTC and Green Guides
American commerce is regulated by the Federal Trade Commission (FTC) and the FTC Act outlaws unfair practices. In conjunction with the Environmental Protection Agency (EPA), the FTC developed the Green Guides, most recently revised in 2012.
The guides provide an overview of the principles that apply to all environmental marketing claims. It involves how consumers are likely to perceive certain claims and how companies can qualify their claims to avoid greenwashing.
Companies found to be in violation of the FTC Act can face significant penalties. Volkswagen, as mentioned above, faced legal prosecution in the U.S. from the FTC for its emissions scandal.
European Union: The EU Taxonomy and Green Claims Directive
The EU has similar guidelines for its market participants called the EU taxonomy. The EU taxonomy provides common definitions of which economic activities can be considered sustainable based on environmental criteria and qualifying conditions.
The EU is also in the process of developing specific anti-greenwashing legislation, called the Green Claims Directive. The proposed law will make it mandatory for companies to provide evidence that their sustainability claims have been independently verified. They also aim to make sustainability claims comparable between products across the EU in a targeted effort to protect consumers from greenwashing.
Avoid Greenwashing with ESG Intelligence
Having the right ESG intelligence is the foundation of all confident environmental messaging. Tracking and measuring data in the right way, understanding the differences between regulatory environments, and having knowledgeable experts removes the fear and anxiety of making sustainability claims. FiscalNote ESG Solutions helps companies develop the ESG intelligence needed to become confident about their sustainability messaging.
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