There is a growing cultural expectation that businesses take their environmental and social responsibilities seriously. In fact, at a time when brand loyalty is at an all-time low, one of the few areas that significantly impacts customer loyalty is a company’s commitment to corporate sustainability. Additionally, investors and regulating bodies worldwide are pushing companies to disclose their environmental impact and formalize sustainability goals.
This pressure can create a legitimate temptation to avoid the costs associated with sustainability while trying to appear more socially and environmentally conscious. This practice is known as greenwashing.
What is greenwashing?
Greenwashing is when a company overstates their commitment to sustainability, creating a significant discrepancy between their sustainability data and their sustainability claims.
Greenwashing can sometimes be an intentional marketing decision to mislead consumers, investors, stockholders, and regulatory agencies, but sometimes it’s simply neglect or lack of knowledge and follow-through. Greenwashing can not only give the impression that a company or product is more sustainable than it is, but it can also misdirect people away from more damaging practices elsewhere in the organization.
What does greenwashing look like?
Greenwashing can manifest itself in many ways. Here are a few real-world examples of what it can look like.
Irrelevant and misleading claims
Sometimes companies make true claims, but those claims are inapplicable or inconsequential to the environmental impact of a product or brand. A prime example of an irrelevant claim would be a product whose packaging says, “No CFCs.” While this claim is valid, the fact is that chlorofluorocarbons have been illegal since the Montreal Protocol in 1987, so the claim doesn’t represent an example of a company’s commitment to being sustainable, and it shouldn’t need to be stated.
False assertions
Sometimes, the claims in packaging or advertising can give a completely wrong impression. This could be an assertion that a product is eco-friendly without any corroborating evidence or documentation.
In 2022, Keurig was fined $3 million in Canada for the misleading claim that their single-use K-Cup pods could be recycled. People invested in Keurig products, assuming their plastic coffee pods could be added to their recycling bins. The truth was that only two Canadian provinces would accept the pods for recycling. For most Canadian consumers, it was infeasible to recycle K-Cup pods.
Promises with no plans
Companies who want to appeal to sustainability-minded consumers can always talk about their net-zero emissions targets, but if they have no real strategy to make that happen, it’s just misleading marketing. If companies are serious about their ESG-focused promises, they’ll communicate how they intend to get there.
In 2018, Nestlé released a statement about their goal for all packaging to be recyclable or reusable by 2025. Critics quickly pointed out that Nestlé had neglected to offer clear targets or a timeline for such an ambitious statement, accusing them of greenwashing. By 2022, Nestlé reported that 51 percent of its packaging was recyclable, down from 55 percent in 2018.
Intentional vagueness
Transparency is a critical element of corporate sustainability. One sure sign of greenwashing is when organizations are fuzzy and non-specific about their operations, materials, and supply chain.
Ikea has worked hard to maintain a sustainable image, but it has come under fire recently for selling furniture made from illegal Russian and Ukrainian logging. Ikea released a statement that investigations into their timber use showed no issues. But critics pointed out that lack of independent oversight and transparency marred this investigation.
Cheating on tests or releasing false information
In September 2015, the Environmental Protection Agency discovered that many diesel Volkswagen vehicles sold in the United States had software that recognized when it was undergoing emissions testing. During testing, these vehicles entered a special mode that made them compliant with federal emissions regulations. Outside of testing, they ran in an entirely separate mode that resulted in up to 40 times the limit of nitrogen oxide pollutants.
This scandal became known as Dieselgate, resulting in the largest greenwashing fine of all time—more than $34.69 billion.
These examples are only the tip of the iceberg. Companies have found many ways to communicate that environmental concerns are more integral to their daily operations than they’ve demonstrated.
The negative impact of greenwashing on businesses
Back in 2007, a TerraChoice report identified a 79 percent increase over two years in products making green claims. They also found that a stunning 98 percent of those products were guilty of greenwashing. It’s difficult to overstate the cumulative impact this has on sustainability across the board. The more companies fudge numbers and make misleading claims, the harder it is to get an accurate picture of where we are or make headway in global environmental efforts.
And while greenwashing may seem like a short-term solution to disappointing progress or expensive investments into new technology or policies, the long-term costs are immense. And those include:
- A negative environmental impact
- A diminished brand
- More regulatory and investigative attention
- Loss of investors and partnerships
- Huge financial costs
A negative environmental impact
Attempting to hide the truth about a company’s environmental footprint means the ongoing impact leads to more pollution, resource depletion, and biodiversity loss. And while it might be easy to justify because you believe your overall impact is negligible, you have to consider all the organizations misleading the public about their impact. It’s like the adage that no single snowflake believes itself responsible for the avalanche.
A diminished brand
Sustainability claims impact consumers, and marketers know this. Quite often, a customer will spend a little more to invest in a product they feel shares their priorities and values. This is an investment of trust. Now imagine what would happen if they found out the company intentionally misled them about their ESG claims. It breaks their trust, and they can walk away feeling worse about that brand than others who make no sustainability claims at all.
More regulatory and investigative attention
The organizations responsible for regulating corporate sustainability have their hands full. They don’t have the time or resources for unnecessary probes and investigations. But what happens when consumers start reporting a company’s misleading claims, or whistleblowers reach out about unethical practices? This increases scrutiny into reports, marketing efforts, and policies from regulatory bodies, activist organizations, and media outlets.
Loss of investors and partnerships
Potential investors and partners do their due diligence into organizations they intend to align themselves with. This means that every financier, bank, manufacturer, or potential affiliate is not only looking into a business’ financial performance but also their reputation. This means greenwashing can not only impact future opportunities, but also undermine current partnerships.
After Dieselgate, Volkswagen lost 20 percent of its profits, S&P Global downgraded their credit rating, their stock was removed from the Dow Jones Sustainability Index, and they were in danger of the EU Bank demanding a return of all loans made on the promise of sustainable investments. Imagine being an investor or another business in a partnership with Volkswagen in this moment. You’re suddenly thrust into a position where strong decisions need to be made to protect your own bottom line and reputation.
Huge financial costs
Regarding size and scope, Dieselgate is a greenwashing outlier, but that doesn’t mean there aren’t significant losses associated with getting caught, including:
- Penalties, fines, and damages
- Legal costs
- Revenue loss
- Stockholder morale deterioration
- Reputation damage
- Wasted marketing and advertising campaigns
How to avoid greenwashing
So what does a company need to do to avoid greenwashing? Unfortunately, it’s not as simple as “don’t make false sustainability claims.” Even with good intentions, organizations can be vulnerable to greenwashing accusations. Here are some considerations to help put your best foot forward with investors, consumers, and regulators.
Consider third-party certification
Third-party, industry-specific and science-based certifications tell people that your sustainability claims have been checked and verified. Without external validation, businesses are essentially saying, “Trust us; we’re sustainable.” It tells people that you’re transparent and willing to have your assertions corroborated by professionals from outside your organization.
However, it’s critical to do your due diligence when seeking third-party certification. Not every organization has the same level of credibility, so do your research and choose a respectable certification for your industry.
Invest in stakeholder and consumer education
There’s a lot of vague and confusing language around sustainability. Greenwashing organizations take advantage of this confusion by using “green” and “eco-friendly” language without any actual visibility into their plans or operations.
If you want to avoid greenwashing, invest in educating customers and stakeholders. Explain your priorities and goals, provide a clear plan for how you’ll hit those targets, and then give regular updates about your progress. And when you’re providing updates, share the challenges and setbacks along with the wins. The more you talk about what you’re doing (even when reporting on things you need to improve), the more people will buy into your efforts.
One of the best things about embracing this kind of communication is it separates you from the pack. People are growing a little wary and skeptical about green marketing jargon, but their interest is piqued when they encounter specificity and transparency. This substantiates your efforts in a way that sets you apart from the smoke-and-mirrors of greenwashing.
Create more sustainable partnerships
Supply chains represent one of the most significant challenges when attempting to become more sustainable. It can be difficult to monitor suppliers who may be on different continents and may not share your convictions. However, a company doesn’t necessarily get the benefit of the doubt when consumers or regulators discover ESG violations in their supply chain.
This is why it’s essential to define the conduct and policies you expect and audit your supply chain to ensure that suppliers are in step with you. You can help them design and implement sustainability programs and find ways to help promote best practices. However, if a supplier is unable or unwilling to make the appropriate changes, it may be time to find partnerships that are more aligned with your priorities.
Share regular reports and updates
Regulatory agencies require disclosures detailing environmental performance in keeping with relevant laws and regulations. These include things like emissions data, waste management, and environmental impact. But these agencies aren’t the only ones who need consistent updates.
Stakeholders need to know how sustainability efforts are progressing. This includes investors, employees, suppliers, customers, and even the general public. The information presented to each audience can cater to their needs and interests. For instance, Patagonia includes a public-facing page on their website dedicated to their climate goals. It communicates their long-term goals, how they intend to hold themselves accountable, and a straightforward look at Greenhouse Gas Emissions (GHG) over the previous fiscal year. It’s simple and effective.
Suppliers and employees need to understand how their efforts are impacting the goals. They should have visibility into environmental goals and progress, but also social priorities. How is the organization committed to their welfare and interests? What programs and policies are impacting local communities? Investors may want the same information, but they need to look deeper into financial performance and innovative practices.
These reports shouldn’t simply highlight the wins, but they should also include a clear-eyed look at the obstacles and setbacks. This improves organizational transparency and buy-in, and it can be a significant jumping-off point for feedback and involvement.
Conduct a materiality assessment
A sustainability materiality assessment [link] enables a wide range of stakeholders to participate in the process of determining an organization’s sustainability priorities. Using an established framework like GRI or SASB, you select the sustainability topics or initiatives that are most relevant to your organization, evaluate the associated cost or timeline of pursuing each of them, and then ask stakeholders to rank them by importance.
This process helps organizations avoid greenwashing by increasing internal buy-in and focusing their sustainability efforts on the areas that have the greatest business impact and alignment. With these priorities in place, your organization can ensure that sustainability claims and pursuits fit with your plans for the future.
Allocate resources toward your sustainability priorities
Forward momentum in sustainability initiatives requires capital; there’s just no getting around it. We’ve already discussed the need for reports and education, which alone require a significant investment in software and labor hours. But here is just a sampling of the other areas that might require resources:
- Consultation
- Collecting and interpreting emissions data
- Auditing your supply chain
- Research to improve policies, operations, products, and services
- Rebranding and marketing costs
- Machinery and technology to improve processes
In place of the proper investments, companies rely on greenwashing to communicate their commitment to ESG initiatives. A shipping company might compare the costs of upgrading their fleet and invest instead in new paint jobs and rebranding to give the impression that their current fleet is more environmentally friendly than it is.
These investments will need to be made over time. This means identifying the current necessities and then triaging the changes that must be made over time. These investments get baked into your goals, and allocation targets are set and communicated to stakeholders.
Monitor your progress
One of the main ways companies unintentionally fall into danger of greenwashing is through a lack of visibility into their sustainability data. If you don’t have the proper systems in place to collect, analyze, and monitor your data, you can’t see the relationship between where you’re at and where you’re going. It’s like saying you’ll reach a destination by a specific time, without a GPS telling you how long it takes to get there at your current pace or how much of the journey remains.
This is why so many organizations turn to solutions like Tango Energy & Sustainability Management. Not only does Tango consolidate and standardize your sustainability data, but it also gives you convenient tools to monitor your progress toward goals and evaluate your compliance with guidelines.
Simplify sustainability with Tango and avoid greenwashing
As sustainability awareness grows, so does the demand for companies who are strategic and intentional in their sustainability efforts. It’s easy for companies to jump into the fray by making claims that they’re more environmentally friendly than their competitors. The competitive edge will go to companies who take sustainability seriously.
But this isn’t easy. Sustainability is becoming more complex as disclosure requirements evolve. And the larger your business, the more essential it is that you invest in specialized solutions to eliminate manual workflows and data errors.
Tango Energy & Sustainability by Watchwire helps ease the burden of sustainability reporting by consolidating and standardizing your utility data, even going so far as to automatically audit your data for common errors like duplicate entries and billing period gaps. Direct integrations with ENERGY STAR Portfolio Manager, LEED Arc, GRESB, CDP, and more help streamline the reporting process. And you’ll also have convenient dashboards for tracking sustainability goals, renewables, and more.
This means you can save on the time required to ensure your data is clean and usable, and put it toward communicating with stakeholders and educating the public about your sustainability efforts.
Want to see what Tango Energy & Sustainability can do for you?
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