Greenwashing and ESG, it’s the New Elephant in the Corner

What is Greenwashing?

Doubtless you’ve heard of ‘Greenwashing’, but have you realised the implications? Greenwashing is the overstatement of the environmental and social credentials of an organisation or product. Most often there’s no wilful attempt to mislead, but the consequences can be severe for businesses of all sizes when marketing enthusiasm gets ahead of reality. Even a small business can find itself facing fines or being barred from competing in public tenders.

In 1814, the poet Ivan Krylov (1769–1844), wrote a fable entitled “The Inquisitive Man”, which tells of a man who went to a museum and notices all sorts of tiny things, but fails to notice an elephant. Greenwashing is rather like that too, an embarrassing or awkward topic of which everyone is aware, but too few wishes to address.

The Regulatory Environment

Our current laws and regulations enable penalties for misstating the truth, but the situation is evolving rapidly. Now is the time to put one’s house in order because more regulations are coming, the first of which will be the EU CSRD, and then the UK SDR which is anticipated to follow the EU model.

Even today, false, misleading, or just plainly exaggerated environmental claims lay you wide-open to action by the Advertising Standards Agency (ASA), the Financial Conduct Authority (FCA), and even the Competition and Markets Authority (CMA). Consider too, the cost of rectifying any reputational damage.

Three high-profile examples of Greenwashing

McDonald and Paper Straws

Much has been made of single-use plastic, and it’s not so much about the volume in terms of tonnage so much as it is about conditioning the population to accept that individuals have an impact.

In 2020, many consumers celebrated McDonald’s switch to paper straws, only for McDonalds to lose credibility when it was revealed that neither the straws nor the cups can be recycled because both are lined with plastic. Hence the boasting of ‘green’ credentials was shown for what it was: unsubstantiated greenwashing.

L’Oreal “Vegan-Friendly” Hair Care

The cosmetic brand L’Oreal markets their products as ‘vegan-friendly’ despite the brand testing on animals. While not against the law, their packaging and customer communications in general creates an impression that their products are good for the environment and cause no harm to animals. From a PR perspective, this is an ‘own goal’.

Volkswagen Emissions Scandal

Still rumbling through the courts in multiple countries, Volkswagen admitted cheating on their vehicle emissions tests. As a result, they’ve had to recall and rectify over eleven million cars in a scandal which has engulfed other brands too, including BMW and Mercedes-Benz.

The Volkswagen saga is especially revealing, as it not only highlights deliberately false environmental claims, but it draws attention to the role of corporate governance and how internal failings contributed to a willingness to mislead both investors and consumers.

Pitfalls for your Business to Avoid

Be cautious of adopting a green theme on your website and product literature unless you’re confident that your messaging can withstand scrutiny. Similarly, avoid words such as ‘natural’”, ‘organic’ or ‘eco-friendly’ unless you have substantiated that the product overall meets these criteria.

Always remember that if your communications could influence a customer purchase, a job candidate to accept employment, or an individual or corporation to invest in your products or services, then you made be held to account.

In 2019 the Advertising Standards Authority held the paint manufacturer Edward Bulmer Ltd., to account for declaring their paint to be ‘the most eco-friendly paint on the market’. The ASA disagreed, noting the “paint products were typically made with materials that were known to have a harmful effect on the environment, such as solvents and plastics. In that context, we considered consumers would understand the claim that Edward Bulmer’s paints were ‘the most eco-friendly paint on the market’ to mean that the paints contained little or no harmful substances.”

We see the regulatory future as certain to introduce strict penalties for such unsubstantiated claims, very much as the EU CRSD incorporates.

The ESG Test

The only solution is Environment, Social, and Governance (ESG) reporting. Whether your organisation makes environmental claims, cites its good work in supporting the community, or even declares itself to an equal opportunity employer, there must be documented evidence.

Every statement must be substantiated, and where assumptions are made, there must be a documented rational for how that assumption was derived. Publishing a policy isn’t enough, especially if it is copied and pasted from ‘the web’. You must ask how that policy or statement is substantiated? Is it measured, or is it merely paying lip-service to influence a third party?

Beware Supplier Audits

Your business is too small? Think Again! When you receive your first audit questionnaire from a key client, or when you’re already at mid-stage in a tendering process, it’s too late. Even the most minimal ESG report takes three months to complete, and that only gets you out of the starting gate.

Such audits demand documentary evidence behind every claim. You need to be prepared to disclose evidence across your internal governance (such as how you measure and manage risk), to specifics as to how you manage equality, corruption, privacy, and more.

Statements which reference the environment merit particular caution, so dive deep in quantifying any claims made by third parties whose products or services you’re promoting.

Our advice is to start your ESG reporting now. Over time this will be as ubiquitous as Health & Safety documentation, and yet now is the opportunity for it to add value to your operations, increase sales, and to enhance your reputation.