As nations, businesses, communities and stakeholders grapple with devastating effects of wildfires, unprecedented heat-waves, high flooding levels and other unusual climate impact effects, there is, and has been, concerted effort by private and public interest groups and regulators to adopt sustainable and conservative practices to preserve our environment from further degradation – particularly through ESG Commitments. Some companies, however, through dishonest means undermine the efforts and investment by interested parties with dubious practices. The writer of this article seeks to highlight the effects of Greenwashing on the drive for sustainability.
ESG, which stands for Environment, Social and Governance, is a set of criteria used to assess the sustainability and ethical impact of an organisation. These factors are considered by investors, analysts and stakeholders to evaluate the long-term viability of a company and its potential to create value while aligning with broader societal and environmental goals. ESG criteria encompass a range of issues, including carbon emissions, labour practices, board diversity and transparency, reflecting a company’s commitment to responsible business practices and its impact on various stakeholders.
ESG commitments are pledges made by companies to prioritise and improve their performance in the areas of environmental, social and governance responsibility. These commitments can include specific goals and targets related to reducing carbon emissions, promoting diversity and inclusion, ensuring ethical supply chain practices, enhancing board diversity and more. Companies make these commitments as a way to demonstrate their commitment to sustainability, ethical practices and responsible corporate behaviour, which can positively influence their reputation, stakeholder relationships and long-term success.
Significance of ESG
The significance of ESG lies in its ability to drive responsible and sustainable business practices while promoting positive societal and environmental impacts. ESG considerations have several key aspects of significance:
- Risk Management:ESG considerations enable organisations to identify and mitigate risks related to environmental, social and governance issues, minimising potential negative impacts on financial performance and reputation.
- Stakeholder Trust:Effective ESG management concerns building trust among customers, employees, investors and communities, enhancing brand reputation and customer loyalty.
- Long-Term value Creation:Prioritising ESG can lead to improved long-term financial performance by enhancing operational efficiency, attracting responsible investors, and fostering innovation that aligns with changing market trends.
- Regulatory Compliance:Companies that embrace ESG principles are better positioned to adapt and comply with changing requirements.
- Access to Capital:Many investors integrate ESG factors into their decision-making, making ESG conscious companies more attractive for investment and potentially lowering their cost of capital.
- Transparency and Accountability: ESG reporting promotes transparency and accountability, allowing stakeholders to assess a company’s progress toward its sustainability goals.
- Positive Impact: By focusing on ESG, companies contribute to positive societal change by reducing their carbon footprint, ensuring effective waste management and upholding ethical business practices.
- Innovation and Adaptability:ESG considerations encourage companies to develop innovative solutions that address societal and environmental challenges, fostering adaptability and future-proofing the business.
According to Simon-Kucher & Partners Global Sustainability Study 2021, consumers are key players for a sustainable future. Overall, 63% of consumers have made modest to significant shifts toward being more sustainable in the past five years (counting consumers that have also made minor changes, 85% have become ‘greener’ in their purchasing). However, this shift is not uniform across generations. 41% of Baby Boomers and 38% of Gen. X have not or only made minor changes to their behaviour, whereas 32% of Millennials have significantly changed their behaviour toward being more sustainable[1].
50% of consumers rank sustainability as a top-5 value driver, which demonstrates its increasing relative importance during the purchase process and role it plays as a key differentiator in the overall value proposition. Furthermore, those consumers that see themselves as drivers for change rank the importance of sustainability even higher than those who do not.
Greenwashing
Greenwashing refers to the practice of making false or exaggerated claims about the environmental friendliness of a product, service or company in order to appear more environmentally responsible than they actually are. It’s any sort of misleading, false or vague claim about the sustainable nature of a product, service or company. Some companies, for instance, now place green leaves or natural imagery on their products to make consumers believe they are environmentally sustainable.
Examples of Greenwashing;
- Natural Imagery: Using images of nature, leaves or other symbols of environmentalism in branding and marketing materials to create an ecofriendly image without real sustainability efforts.
- Comparative Claims: Making claims about products to appear more sustainable and better than competitors without providing adequate context or evidence. For instance, a food product that is naturally without gluten sporting a ‘gluten-free’ label.
- Vague Language:Using unregulated terms such as ‘Green “Eco’ or ‘sustainable’ without specific details about how the product or company is environmentally friendly.
- Irrelevant Information:Touting a minor environmentally friendly feature to distract from more significant environmental issues related to the product or company.
- Cherry-Picking Data:Selectively presenting data that paints a positive environmental picture while omitting less favourable information.
- Unsubstantiated Claims:There is a vast number of regulated official seals, including certified B Corp, LEED-certified buildings, USDA Organic and Energy Star. A company making a claim without a regulated third-party certification or other proof may be engaged in Greenwashing
- Misleading Labels: A product labeled as ‘natural’ or ‘eco-friendly’ without clear evidence to support those claims. Others include ‘recycled’, ‘made with recycled materials’ or ‘environmentally friendly’.
Greenwashing can and does mislead consumers among other stakeholders, undermines genuine efforts to promote sustainability, and harms the credibility of companies that are genuinely committed to environmentally responsible practices. It’s important for consumers to be critical and look for credible certifications and transparent information to distinguish between legitimate, environmentally-conscious products and deceptive marketing tactics.
A classic example of Greenwashing is when Volkswagen admitted to cheating emissions tests by fitting various vehicles with a ‘defect’ device – software that could detect when it was undergoing an emissions test and alter the performance to reduce emissions level[2].
This was going on while the company was touting the low-emissions and eco-friendly features of its vehicles to the public in marketing campaigns. In actuality, those engines were emitting up to 40 times the allowed limit for nitrogen oxide pollutants.
Starbucks
In 2018, Starbucks released a ‘strawless lid’ as part of its sustainability drive; however, this lid contained more plastic than the old lid and straw combination[3]. The company didn’t dispute this, but claimed it is made from polypropylene – a commonly-accepted recyclable plastic that “can be captured in recycling infrastructure”. Critics were quick to point out that only 9% of the world’s plastic is recycled, so the company shouldn’t assume all the lids would be recycled[i]. Further, the US exports about one-third of its recycling to developing countries, so it is simply passing its responsibility to poorer countries.
Major Banks
The past several years have seen major financial institutions talking a big game about combatting climate change – yet there are more examples of companies exercising Greenwashing strategies. JP Morgan, Citibank and Bank of America have issued new ‘green investment’ opportunities. However, a report released last year by the Rainforest Action Network showed that big banks – the ones mentioned above, but also including Wells Fargo, Barclays, Bank of China, HSBC, Goldman Sachs and Deutsche Bank – were still lending enormous sums to the industries that contribute most to global warming, like fossil fuels and deforestation, while boasting that they’re leaders of the green transition.[ii]
Greenwashing has several negative impacts on sustainability, including:
- Diminished Trust:Greenwashing erodes trust in companies’ claims and the broader concept of sustainability. Consumers and stakeholders become sceptical of genuine sustainability efforts, making it harder for responsible businesses to gain recognition.
- Reduced Accountability:When companies engage in greenwashing, they divert attention from addressing real sustainability issues – delaying meaningful change and progress.
- Misallocation of resources: Instead of investing resources in authentic sustainability initiatives, companies may spend resources on misleading marketing campaigns. This hinders the advancement of genuinely effective environmental and social programmes.
- Continued Harm:Companies that Greenwash can continue harmful practices while appearing environmentally responsible. This prolongs negative impacts on the environment, society and stakeholders.
- Missed Opportunities: Genuine sustainability initiatives can drive innovation, efficiency and long-term growth. Greenwashing prevents companies from capitalising on these benefits by focusing on superficial claims.
- Stagnation in Regulation: if companies are perceived to be making progress through greenwashing, there might be less public pressure for stricter regulations. This could hinder meaningful improvements in industry practices.
- Public Cynicism: Greenwashing contributes to public cynicism, which can lead to disillusionment and disengagement from sustainability efforts altogether.
- Reputation Damage: When greenwashing is exposed, it can lead to reputational damage for the company. Negative publicity can be difficult to recover from, and may harm relationships with stakeholders.
- Undermining the Sustainability Movement: The overall sustainability movement loses credibility when Greenwashing becomes widespread. People may dismiss sustainability efforts as mere marketing tactics rather than recognising them as crucial for a better future.
To foster true sustainability, it’s important for companies to practice transparency, demonstrate genuine commitment to responsible practices, and back their claims with concrete evidence. Consumers, investors and regulators also play a role in holding companies accountable for their sustainability efforts and challenging instances of Greenwashing.
Marketing firms, consultants and personnel should be ethical in their advice and services to business regarding sustainable practices, rather than undermine efforts through Greenwash practices.
Isaac is an ESG and Sustainability Investment Professional
REFERENCES
Volkswagen: The scandal explained – BBC News
https://earth.org/sustainable-food-packaging-companies-to-support/
3 file:///C:/Users/HP/Downloads/Simon-Kucher_Global_Sustainability_Study_2021.pdf
[2] Volkswagen emissions scandal: Forty years of greenwashing – the well-travelled road taken by VW | The Independent | The Independent
[i] Only 9% of the world’s plastic is recycled (economist.com)
[ii] Banking on Climate Change 2020 – Banking on Climate Chaos
