Corporate greenwashing and how to avoid it

“The planet cannot afford delays, excuses or more greenwashing”, said The Hon Catherine McKenna, chair of the United Nations High-level Expert Group on the Net Zero Emissions Commitments of Non-State Entities in the UN report “Integrity matters”. This latest statement from the UN adds to the growing pressure pushing businesses from voluntary initiatives to regulatory compliance to ensure the integrity of any sustainability claims being made.

While sustainability is clearly in, greenwashing is definitely out. Across multiple jurisdictions and sectors, regulators and legislators alike are taking steps to prevent companies from making false or misleading claims about their green and sustainable credentials.

What is greenwashing?

Greenwashing was first coined in 1986 by environmentalist Jay Westerveld, commenting that claims by a hotel encouraging guests to reuse towels to help “save the environment” had more to do with saving money on laundry bills than saving the planet. Since first coined by Westerveld, the term Greenwashing has been used to describe the process of conveying false or misleading information in order to portray a company or its products as environmentally sound.

While many hotels still encourage the reuse of towels for environmental reasons, more and more companies are being held to account for their attempts to put what is also called a ‘green sheen’ on their products, services or activities. Greenwashing can take many forms, from adopting environmental imagery or designing misrepresentative labelling, through to the misuse of trade-offs to conceal more polluting activities or directing advertising to highlight ‘green’ products or services while other environmentally damaging operations continue in the background, unpromoted.

The penalties for greenwashing

As awareness of the urgent need to address climate change increases, regulators have become more stringent in their crackdown on greenwashing. In the UK, both the Advertising Standards Agency (ASA) and the Competition and Markets Authority (CMA) have been taking a firm approach to tackling misleading claims. In recent months, the ASA has banned ‘green’ adverts by leading oil majors, claiming that campaigns promoting green offers on renewable energy and net zero goals failed to take account of the fact that in every case, their business model depended on the extraction and production of polluting products, ruling that their campaigns failed to give a sufficiently balanced account of their journey towards decarbonisation.

Other examples of greenwashing include a hydrogen-powered car manufacturer that claimed it ‘purifies the air as it goes’ and an airline that claimed it was taking a ‘louder, bolder approach to sustainable aviation’. Both were charged with exaggerating the impact they had on the environment by failing to take account of the emissions they were producing elsewhere in their operation.

And it’s not just the obvious big polluters that have come under scrutiny; a drinks manufacturer has had to pull a campaign that promoted recycling, while using single-use plastics for the bottles it encouraged others to recycle, and a plant-based milk brand was accused of misusing data when advertising how much less CO2 it produced than cow’s milk. Even the finance sector has come into the firing line with adverts from a high street bank banned for making misleading claims about the company’s work to tackle climate change.

Possibly in response to this, the Financial Conduct Authority (FCA) is proposing new rules to tackle greenwashing. Under the new proposal, which is expected to come into force later this year, firms will be required to ensure that any sustainability claims or references to the sustainable characteristics of a product or service must be clear, fair and not misleading. Claims must also be consistent with the overall sustainability profile of the product or service.

Equally firm is the UK’s Competition and Markets Authority (CMA). Back in 2021, the CMA warned that businesses had until January 2022 to ensure their environmental claims complied with the law, publishing its “Green Claims Code” and accompanying checklist to make compliance requirements clear. Like the ASA, it is also taking enforcement seriously. In January of this year, it announced that investigations had been opened into three fashion brands, scrutinising their eco-friendly claims, raising concerns that the statements and language used created a misleading impression of their products’ sustainability.

Tougher sanctions for greenwashing

As regulators get tougher on sustainability claims, the likelihood of harsh financial penalties also increases. Laws are being introduced in the UK, the EU and elsewhere imposing strict fines that would extend to greenwashing.

Under the Digital Markets, Competition and Consumer Bill currently in the UK Parliament, companies breaching new consumer protection laws could face fines of up to 10% of global turnover. Under the EU’s proposed Green Claims Directive, companies found to be non-compliant face fines of up to 4% of global turnover, a confiscation of breach-related profits and a 12-month ban from public procurement processes.

Tougher still is the Economic Crime and Corporate Transparency Bill also making its way through the UK Parliament. This proposed legislation introduces the criminal offence of failing to prevent specified fraud offences, including false representation. In other words, false claims such as those associated with greenwashing could be prosecuted under this new legislation with the prospect of unlimited fines for those found to be in breach.

Key steps for understanding and preventing greenwashing in your organisation

To avoid falling foul of this labyrinth of new legislation, businesses can take a number of key steps to ensure greenwashing is avoided. In helping clients manage and mitigate the risk of greenwashing, GoodCorporation takes the following approach.

Step 1: Understand the risks of greenwashing.

To understand fully how and where your organisation might be at risk from greenwashing, it is essential to understand your company’s broader sustainability profile. This extends beyond the environmental impacts of its activities and into areas such as diversity and inclusion, human rights, data protection and corruption prevention. Companies need to be sure that their products and services stand up to scrutiny and be cognisant of how their relationships with suppliers and other third parties could also be affected.

Whether deliberate or inadvertent, greenwashing arises when a company shines a light on a single sustainable element of its operation, while leaving other more negative aspects unaddressed or unaccounted for. As such, companies need to understand what is and is not sustainable about their operation before making any claims or public statements that promote particular products or services as overtly sustainable.

Such a risk assessment should also identify the areas of the business that could be responsible for making sustainability claims such as sales and marketing, investor relations  or PR, and analyse the extent to which these functions are aware of the risks and the effectiveness of the policies and procedures in place to mitigate them.

When supporting clients in this area, GoodCorporation will develop a detailed risk map, liaising with all key functions across the business to ensure that every risk is identified and any potential exposure carefully flagged.

Step 2: Understand emerging greenwashing regulation.

With multiple jurisdictions adopting regulation to prevent businesses making misleading claims, it will be imperative to understand the extent to which your organisation is in scope, the nature of the possible offences and the penalties that could be faced if found to be in breach. Only by properly understanding the regulatory landscape can a robust compliance programme be effectively implemented.

Step 3: Governance and practice.

Successfully mitigating the risk of greenwashing requires coordination across the organisation as a whole. This should start at the top, with board-level and senior management engagement in the company’s sustainability risk management and governance strategies. Policies and procedures will also need to be reviewed to identify if and where greater sustainability controls are needed. This may result in the development of an overarching sustainability policy that sets out best practice as well as clear expectations.

Step 4: Create a roadmap for improvement.

Having identified the risks and any possible gaps in sustainability, a prioritised roadmap for improvement is needed. This should identify quick wins and include clear steps for implementation, an indication of any resources needed as well as tracking metrics to measure improvement over time and provide accurate and up-to-date evidence of any claims made.

Step 5: Avoid the ‘say do’ gap.

Any public statement, product or advertising claim needs to be made carefully, as declarations around sustainability are widely seen as invitations for further scrutiny, particularly when made by organisations not known for their sustainability credentials. No one expects companies to become fully sustainable overnight, but they do expect them to speak with authenticity and integrity. Avoid making impossible claims or setting targets where you are likely to fall short, but rather set achievable goals and measure improvement carefully.

Step 6: Communication and training.

Ensure that all staff are aware of the company’s sustainability goals, the risks from making misleading claims and the steps being taken to avoid falling into a greenwashing trap. This can form part of wider ESG training with the key messages also incorporated into other training modules in areas such as diversity and inclusion and human rights.

Step 7: External verification of ESG claims.

Investors and regulators require a genuine commitment to ESG values, particularly with regards to any claims made in relation to the sustainability of products and services. As such, independent verification of all ESG data is considered essential. This requires the development of appropriate metrics and KPIs to measure performance meaningfully and track improvement over time. And when it comes to greenwashing, it also pays to ensure that any claims made can be backed up with evidence and data that has been externally verified and that the wider business context has been taken into consideration.

For further information on GoodCorporation’s ESG services, including building an effective ESG strategy and developing appropriate KPI’s to track and measure improvement, visit our ESG webpage here.