ESG (environment, social, and corporate governance) credibility continues to be questioned as no standards exist to properly explain what success is and how that success is defined. The methodologies used by ESG rating agencies receive constant criticisms as misrepresentation of data can be used to mislead internal and external parties, namely investors and governments.
The list of companies which are actively using ESG elements to paint a better picture of itself are rising. This is especially true for the ‘environment’ factor, where terms such as ‘low emission’, ‘eco’, and ‘made from sustainable sources’ are often used to drive the point home.
It happens because the general public is more knowledgeable about sustainability and see the urgency in the agenda. Whether the user or buyer realizes or otherwise, it makes being ‘friendly to the environment’ a selling point. A very lucrative one too.
The European Commission estimates that the global market for low carbon environmental goods and services is worth €4.2 trillion. That’s the kind of number which manufacturers and marketing agencies simply cannot ignore.
Law & Regulations
Likewise, governments are trying set-up laws which prevent greenwashing—which is the act of making misleading claims to present something as more environmentally friendly and sustainable than it actually is in order to gain appeal.
Europe, for instance, will bank on the European Green Deal where companies making eco claims will have to prove it as fact using a standard methodology of assessment currently under development.
In Australia, the Australian Competition & Consumer Commission (ACCC) is actively targeting ‘greenwashing’ this year, warning businesses who make false or misleading claims undermine consumer trust and confidence in the market.
Such regulations are already available in UK where the Competition and Markets Authority (CMA) have issued an end of 2022 deadline for companies to stop greenwashing to avoid facing legal action.
Other authorities may take action too—even independent ones—such as when the UK’s Advertising Standards Authority banned a Ryanair ad after claiming it was the airline with Europe’s lowest emission without providing sufficient evidence.
Anti-greenwashing legislation in Asia or ASEAN is not yet well defined and certainly far from something similar to the European Green Deal, but there are authorities which recognize its dangers. In 2021, the Competition and Consumer Commission of Singapore made grants available for investigations into sustainably-related issues, including greenwashing.
If legislation is not enough to scare organizations from greenwashing their services or products, consider the backlash from society. Mercedes-Benz was recently accused of coming up with an ad campaign with a greenwashing message for their EQ products which run on electric power. Fair enough, this was not a global campaign, but in a world where a post in social media certainly does go around the world, it was too ambitious.
Exposure to Greenwashing Risks
The VP for Advisory at Gartner, Ian Beale detailed a case how organizations can be exposed to greenwashing risks.
Company leaders may sign up for protocols and commit the company to goals at timelines which are not achievable without proper planning. While committing to such targets could provide competitive advantage if achieved, there has to be investments and detailed project management to make it a success.
“If statements are made, and not delivered upon, or inaccurate information is reported (intentionally or through carelessness) there will be a swift and negative impact in today’s world of 24/7 news and immediate social media commentary,” Ian said
Conclusion
The need to jump on the eco bandwagon was previously (and predominantly) required as a means to get headlines and following the trend. But for the past few years it has noticeably become a race to one-up the competitor and gaining the consumer’s or customer’s attention. Simply, there is an extremely valid and profitable reason to be ‘green’.
But it needs to be done responsibly. Greenwashing could be a nightmare for the company’s reputation and lead the customer to a negative customer experience.
As commented by the ACCC Deputy Chair Delia Rickard, “Unfortunately, the ACCC is hearing growing concerns that some businesses are falsely promoting environmental or green credentials to capitalize on changing consumer preferences.
“It is important that businesses can back up the claims they are making, whether through reliable scientific reports, transparent supply chain information, reputable third-party certification, or other forms of evidence. Where we have concerns, we will be asking businesses to substantiate their claims,” Ms Rickard added. She also urged businesses to step into the shoes of a consumer before making environmental claims about a product, adding the ACCC is working with other regulators to take a coordinated approach to addressing a range of issues relating to sustainability.
