An unfortunate consequence of the growing demand for environmentally progressive goods and services is “greenwashing.” Also called “green sheen,” greenwashing is deceitful marketing that exaggerates a business’s current or past practices in order for them to appear more environmentally friendly. It can range from misleading labels claiming the use of sustainable materials to exorbitant media campaigns touting the eco-friendliness of oil companies. Just one example is reflected in a recent Federal Trade Commission (FTC) complaint filed by activists against Chevron that accused the multi-national energy company of “egregiously misleading consumers.”
Greenwashing began in the 1960s when hotels asked guests to reuse their towels to “save the environment” when the primary motivation was actually for the hotels to reduce their laundry costs. The following decades are filled with companies rebranding, renaming and repackaging their products and services to appear more environmentally friendly without actually making any substantive beneficial changes. And it is too easy to deceive consumers since the end result of using a product may not be as environmentally positive as claimed. Calling a trash bag “recyclable” may be accurate on the surface, but since trash bags are unlikely to ever separated and reused before they end up in landfills, the claim is deceptive.
The FTC does provide guidelines that 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.
The International Financial Reporting Standards Foundation (IFRS) announced in November 2021 the formation of a new International Sustainability Standards Board that will develop a “global baseline of high-quality sustainability disclosure standards” that should greatly reduce corporate greenwashing.
But for many companies, it remains simple and relatively risk-free to make unsubstantiated and often deceptive claims of environmental friendliness and sustainability. Strengthening disclosure requirements is an important step, but consumers and investors must remain diligent to avoid being fooled by slick advertising and false claims.
