Greenwashing is an unethical strategy used by companies to attract environmentally conscious investors and consumers through deceptive or exaggerated marketing tactics. A common example is when a company claims it has reoriented its operations in a more sustainable direction, but never follows through. Consumers can be manipulated when it appears that a corporation is being truthful and sincere.
The issue of greenwashing emerged as a result of the growing demand for eco-friendly products and investments. Studies show that two thirds of Gen Z investors are willing to prioritize environmental benefits over financial performance when building an investment portfolio. Gen Zers and environmentalists are also willing to pay more for sustainable and eco-friendly products. With more consumer demand for sustainability, companies sometimes promote their goods and services as “green” to attract these young investors and consumers, but then make a half-hearted effort to implement their promises.
Real Life Case Studies
Greenwashing isn’t theoretical. In fact, many high-profile companies have been accused of it.
Volkswagen was found to have installed software in its vehicles that changed their carbon dioxide emission levels to appear lower than they were. The motor vehicle company’s misconduct contributed to the resignation of some high-level executives. Moreover, the company agreed to pay as much as $14.7 billion to settle the Justice Department complaint. Volkswagen has since publicly apologized for these transgressions under new leadership.
The giant Scandinavian furniture chain IKEA was connected a supply chain issue because of an illicit logging incident in a protected Russian forest. Trees were chopped down illegally and exported to furniture businesses across the globe, including IKEA who used these materials to produce home decor.
Nestlé, whose bottles have been found to be among the most common plastic in the ocean and beaches have also been accused of greenwashing. Their CEO announced a sustainability initiative which was subsequently criticized as “greenwashing baby steps.” since the company failed to include, “…clear targets or a timeline to reduce and eventually phase out single-use plastics.” As a result, the green initiative that Nestlé announced quickly fell apart.
Greenwashing Red Flags
Although greenwashing can be difficult to recognize, there are several ways to detect these misleading campaigns. According to Sustainalytics and BBC, consumers should look for these red flags to identify deceptive advertising and PR announcements:
- A lack of specific details and strategies about how the company plans to become more environmentally conscious.
- The use of nonspecific claims such as “organic” or “eco-friendly” in newly announced green initiatives.
- Improper certifications on “green” products and packaging.
The US Federal Trade Commission (FTC) guidelines are meant to protect consumers including:
• Packaging and advertising should explain the product’s green claims in plain language and readable type in close proximity to the claim.
• An environmental marketing claim should specify whether it refers to the product, the packaging, or just a portion of the product or package.
• A product’s marketing claim should not overstate, directly or by implication, an environmental attribute or benefit.
• If a product claims a benefit compared to the competition, the claim should be substantiated.
Another way to evaluate green claims is through evidence-based methodology systems such as ESG ratings or carbon emission level metrics. These allow comparison of a company’s announcements with its current practices to determine is their plans are realistic. Or you can let others do the comparison for you since there are several reputable organization, such as B Corps, that certify ethical and sustainable business behaviors.
There are plenty of publicly owned companies that have a genuine interest in sustainability. However, it is generally best to be suspicious of corporate environmental declarations. Many such claims are designed to be clickbait marketing for goods and services produced with little actual consideration of the environment. Consumer beware is the safest approach.
For more insights and guidance on greenwashing and other environmental issues, stay tuned to our blog for future updates and expert analyses.
And help us build a more sustainable and prosperous world through responsible investment practices by becoming a member of the Advance ESG community. It’s free to join and there are no future financial obligations. Together, we can make a difference in safeguarding our planet for future generations.
