Practical tips to avoid greenwashing
Explore more of our tips and advice to ensure your business is not making false claims about its sustainability practices.
Read the article for our tips
What is greenwashing in business?
Seeing green? Understanding the risks of greenwashing and how to avoid it is imperative to business success. We explore key regulations and the role of good governance to ensure your business is setting clear ESG goals.
In today's world, where environmental consciousness is becoming more important to both consumers and regulators, the term 'greenwashing' has gained significant prominence.
Definition of greenwashing
Greenwashing arises when an organisation makes deceptive claims, or gives a misleading impression, regarding its environmental impact. It can often involve false advertising of products or services which misleads customers into thinking a company is “greener” than it is.
Businesses inflating their environmental and sustainability claims is becoming a more prominent issue as customers look to more 'environmentally friendly' brands.
What are some examples of greenwashing?
Greenwashing can manifest in various ways, such as:
Using vague, unsupportable language such as “eco-friendly” or “sustainable” without qualification or verification.
Inflating the impression of good environmental performance by cherry picking positive data, while concealing the full picture.
Utilising green-themed packaging or imagery to project an exaggerated, eco-friendly image.
Highlighting a single eco-friendly product or service while omitting to mention a plethora of non-sustainable products.
Making claims of zero carbon emissions without making it clear that they are based on offsets.
Exaggerating claims of environmental benefits of a product or service beyond what can be supported by evidence.
Why is environmental sustainability important for businesses?
For businesses, environmental sustainability is no longer just a moral and ethical consideration. It is a business opportunity and increasingly a legal requisite due to environmental, social and governance (ESG) litigation and regulation.
In many industries, such as finance, technology, and property, a robust ESG strategy correlates with long-term profitability. Clients and potential investors favour companies with similar values. Notably, 88% of millennials are interested in investments addressing climate change[1]. Therefore, strong ESG practices are not just beneficial but essential for attracting investments, building enduring partnerships and attracting conscious consumers.
Get the greenwashing guide
In our 'Greenwashing guide for UK businesses', we detail the risks of greenwashing and how businesses can avoid making misleading claims about their environmental practices.
What are the effects of greenwashing on business?
Legal and reputational damage
Legal and reputational damage
There has been a noticeable rise in greenwashing investigations and environmental class actions in recent years with companies facing legal consequences for violating consumer protection laws, anti-greenwashing regulations and codes, and business-to-business rules.
Legal and reputational damage
Legal and reputational damage
There has been a noticeable rise in greenwashing investigations and environmental class actions in recent years with companies facing legal consequences for violating consumer protection laws, anti-greenwashing regulations and codes, and business-to-business rules.
Loss of consumer trust
Loss of consumer trust
Greenwashing can severely damage a brand’s reputation. Customers may feel deceived following accusations of greenwashing and may be driven towards competitors who offer a more sustainable alternative as a result.
Negative financial consequences
Negative financial consequences
The loss of consumer confidence, coupled with potential fines and negative press, can deter investors and negatively affect stock prices.
The environmental impact of data centres
Data centres have become an increasingly integral part of our modern lives – they're a physical home to our digital information and other forms of IT equipment that power services and platforms.
Data centres currently consume 3% of the world's electricity to keep up with the demand for data storing and processing. As advancements in technology and computing continue, it's clear that demand will rise steeply and there is a critical need to make data centres greener. Studies have warned that the AI industry alone could consume as much energy as the size of the Netherlands by 2027.
To manage the efficiency of data centres, new technologies are needed to reduce the amount of energy consumed by these centres. Cooling data centres is one of the largest consumers of energy, so there is a need for drastic change towards more sustainable cooling methods. The rise of battery storage technologies also provides more storage options for data centres, allowing a constant power supply without the need to source energy from the grid at peak times.
Anti-greenwashing regulation: what you need to know
Avoiding greenwashing goes beyond moral and environmental commitments. Businesses need to take into account their legal obligations and ensure they are abiding by legislation, regulatory frameworks and associated codes and guidance.
A number of instruments have the effect of restricting businesses from making misleading environmental claims in their marketing activities. Taking the UK as an example market, these include:
- The Consumer Protection from Unfair Trading Regulations 2008 (to be repealed and replaced by the Digital Markets, Competition & Consumers Act) which govern misleading advertising directed at consumers,
- The Competition Market Authority's Green Claims Code,
- The Financial Conduct Authority's anti-greenwashing rule,
- The provisions of the CAP and BCAP Codes administered by the UK Advertising Standards Authority.
What do boards need to know about risk management when it comes to greenwashing?
Looking at the impacts of greenwashing on a business emphasises the importance for leaders and c-suite executives to ensure that appropriate risk management and ensuring they are not engaging in greenwashing.
Board members and business leaders should first set clear ESG goals. These should be specific, measurable and time bound targets that align with the company's strategy. Measuring targets using standardised reporting would be the next step for business leaders, using standardised frameworks i.e. the Corporate Sustainability Reporting Directive (CSRD), Global Reporting Initiative (GRI), and Sustainability Accounting Standards Board (SASB).
In 2023, the EU introduced the CSRD which aims to update and reinforce the regulations related to the disclosure of social and environmental information by companies. Under the directive companies, large companies and listed SMEs must report on sustainability.
Next steps are to ensure that adequate systems and controls exist within the business to train staff and ensure appropriate sign-off for all environment-related claims and assets. Just one mis-step could jeopardise a hard-earned reputation for strong environmental performance and transparency.
Footnotes:
[1] Morgan Stanley: Sustainable Signals - individual investors and the COVID-19 Pandemic
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