Greenwashing – Too Green to be true!

In the absence of specific regulatory controls, some businesses seem to abuse the ESG concepts by tossing unsubstantiated green claims, aiming to mislead eco-conscious consumers.

It’s been repeated over time that ESG transforms Risks into fruitful Opportunities, especially for companies and investors, and that is true. However, be aware of Greenwashing, as this effect has exponentially grown at the same pace. Marketing tactics transform ‘dirty’ products into ecofriendly ones’, either by vague and unsupported claims or by using fake slogans or exaggerations to promote a product. Basically, through false pretenses. Companies often claim that their products have positive environmental impact, unjustifiably or by not disclosing if may cause a negative impact in another area.

The material drawback is that greenwashing certainly undermines the efforts of companies that are genuinely working to improve their environmental impact.

Another form of greenwashing is observed in ‘sustainable investments’, where investors are triggered to invest in so called green services, that also do not back up what they claim. And so, after trillions of dollars have poured into sustainable investment strategies in recent years, where regulators have taken little to no action to ensure funds are marketed accurately, now is about time.

The European Union has recently drafted a directive to require companies to back up green claims about their products with evidence, in an effort to fight greenwashing and misleading advertisements. This is consequence of an assessment performed by the European Commission, after examining 150 claims in 2020, which revealed that 53% of relevant adverts provided "vague, misleading or unfounded information".

The directive is expected to be presented for approval this year. If so, companies will only have few days to justify green claims about their products or face ‘effective and proportionate’ penalties. Hopefully then, catch phrases like ‘climate neutral’ or ‘containing recycled materials’ shall require proof of statement, otherwise heavy penalties will knock on their door.

Therefore, businesses in general, should avoid vague or overstated environmental claims which cannot be supported upon request. Supporting certifications certainly help through third-party ratings, such as the ‘Energy Star label’ or the ‘Forest Stewardship Council certification’, which can provide credible information about products’ environmental credentials.

Five ways that a company can avoid greenwashing:

1. The "Green label" must be substantiated

2. Unclarity and vague statements must be avoided

3. Be ready to be scrutinized

4. Promote actions and not words

5. Local and reputable brands should be prioritized

 

Our ESG Experts at Infocreditgroup can help you clarify the concepts of ESG and craft an effective ESG communication approach that matches your line of business.