Let’s keep talking about GREENWASHING!!

Recently, Capgemini published an insightful paper titled ‘Financial Services – ESG Benchmark Report 2024,’ (click to access) which excellently compiles the sustainability efforts and approaches of European financial institutions. While reading through the 40-page document, I encountered the term ‘greenwash’ at least 20 times. This prompted me to delve deeper into the topic of greenwashing.

Greenwashing occurs when companies attempt to enhance their image by making claims about their environmental protection measures or climate-friendly production, despite not truly operating sustainably upon closer inspection. As sustainability becomes increasingly important in consumers’ purchasing decisions, the use of “green claims” in marketing and advertising has steadily risen. Terms such as “environmentally friendly” and “climate-neutral” are being used more frequently.

We’ve set a new purpose… To reimagine energy for people and planet…Our bold new ambition… is to become a net zero company… by 2050 or sooner…Not only across our operations, but also from the oil + gas we produce…We want to help the world to get to net zero… by advocating for well-designed climate policies… like carbon pricing…To do this we have to change profoundly… so we are reinventing…

Guess the company! Later the company took a U-turn on it’s commitments!! If we look at video commercials of any global oil & gas major available on YouTube, this is the exact script that is usually followed.

Directives

To put an end to greenwashing, the European Union (EU) has introduced the GREEN CLAIMS DIRECTIVE. The Green Claims Directive is an EU proposal to prevent greenwashing by ensuring organizations’ environmental claims are reliable and verifiable. Organizations must use science-based methods to substantiate their claims, which must be independently verified before being made public. Violations can result in significant fines and exclusion from public procurement.

 On February 20, 2024, the European Council adopted the Green Transition Directive. It amends the Unfair Commercial Practices Directive (UCPD) and the Consumer Rights Directive (CRD) and targets to enhance consumer protection against unfair practices and improve the availability of information. The Green Transition Directive is designed to complement the proposed Green Claims Directive. EU regions also have other very important regulations like SFDR: Focuses on product levels and CSRD: Focuses on reporting and disclosure requirements.

In this context, it’s crucial to be aware of the common types of greenwashing that many organizations engage in, whether knowingly or unknowingly.

1.  Vague Claims Without Data

This refers to broad, ambiguous statements about a product’s environmental benefits that lack specific details or evidence. In 2015, Federal Trade Commission announced complains and proposed court orders to Nordstrom, Bed Bath & Beyond, backcountry. com and J.C. Penney to Pay Penalties Totaling $1.3 Million for falsely labeling rayon textiles as Made of “Bamboo”. While bamboo might have been the base materials, the textiles are treated with toxic chemicals to convert them into silky fabric.

One way, companies say they reduce their emission is by purchasing carbon offset. Carbon offset is an action or activity that balances the emission of CO2 or other GHGs into the atmosphere. It’s a tradable commodity. When a company buys a carbon offset it finances an action that removes GHG emissions from the air like building forests or renewable energy projects. This will balance the overall CO2 the company releases in the atmosphere. These projects and their benefits are not always transparent or visible or traceable to the consumers.

In 2022, Goldman Sachs asset management arm paid millions after violating SEC compliance rules with ESG fund marketing. In 2018, McDonald’s decided to change their all-plastic disposable straws to paper straws, and they announced it. Unfortunately, next year, it was revealed that these paper straws are not recycled as they are too thick and not compatible to the existing recycling process.

2. Selective Reporting

Another example of greenwashing occurs when companies emphasize their most favorable ESG accomplishments while neglecting to mention areas where they fall short. This selective reporting creates a misleading and incomplete portrayal of their overall performance.

Plastic waste: More than 8 million tons of plastic waste ends up in the oceans each year. CPG firms such as Unilever, Danone, Coca-Cola, Nestle etc., put lot of plastic packaging every year into the world, there is always a promise that the packaging will be made recyclable. But without proper infrastructure to recycle those plastics near to the site of selling, most of the materials would end up in landfill.  Also, most of these brands claim to make their packaging from recycled PET, but the companies don’t report explicitly to the consumer that only 17% of all the plastic packaging are made of PET and PET is the easiest to recycle. The remaining majority of 83% of plastic are harder to recycle. The companies only highlight the easiest material to recycle instead of mentioning the absolutely not recyclable amount of waste they produce around the world.

3. Lack of Third-Party Verification

If a company’s ESG claims haven’t been verified by an independent third party, there’s a higher risk of greenwashing. Investors want assurance that sustainability claims are real and not exaggerated. 3rd Party Certifications related to ESG and sustainability fall into three general categories: environmental, fair trade/ethical labor, and animal welfare. Within these three categories, there are quite literally hundreds of certifications to choose from. Some are globally recognized, which is shown in the diagram below. Some certifications are from select manufacturing companies, and there is justifiable suspicions on them from clients and authorities.

Innocent Drinks, a B Corp since 2018 and owned by Coca Cola, has been repeatedly criticized for its lack of effort using single use plastic packaging, and was petitioned against for its green-washing advertisement activities in the UK, yet remains a B Corp without consequence. There's a growing concern that some companies might use the B Corp certification more as a branding tool than as a reflection of true environmental and social commitment.

4. Overstating Environmental Impact

Some companies overstate the environmental advantages of their products or services. For instance, a company might promote a product as “carbon neutral” without considering the emissions generated throughout its entire lifecycle.

 An example is Volkswagen. In 2015, the company confessed to manipulating emissions tests, marketing their diesel vehicles as “clean” despite them emitting nitrogen oxide pollutants up to 40 times the legal limit. This is a prime example of large-scale greenwashing, where the company misrepresented itself as a pioneer in green technology, deceiving both consumers and regulators.

5. Ignoring Social and Governance Aspects

Concentrating only on environmental factors while overlooking the social and governance aspects of ESG is a frequent form of greenwashing. Companies may highlight their carbon reduction achievements while disregarding labor practices or governance issues.

Consider the example of ship breaking at the end of a cargo ship’s lifecycle. The EU has regulations for ship recycling that outline best practices and provide an authorized list of ship recycling facilities. However, no South Asian ports are included on this list due to their failure to meet the required environmental standards. Despite this, many European vessels end up in ship-breaking facilities in Bangladesh, India, and Pakistan through third parties, often changing their flags to evade compliance. The scrap metals from these ships frequently end up on ocean beds, and the hazardous materials pose significant health risks to workers. While the EU limits the environmental impact of ship breaking near its shores, it fails to enforce these laws strictly, resulting in environmental harm along the shores of South Asia.

Role of AI (and GenAI) in Curbing Greenwashing

Artificial intelligence (AI) could become a key ally in fighting greenwashing by analyzing data and verifying environmental claims, thereby increasing transparency in sustainability efforts. AI thrives in deceptive environments such as greenwashing that are hard to detect. AI-powered tools can analyze vast data, including company reports, marketing, and social media content, to spot inconsistencies in environmental claims. Natural Language Processing (NLP) algorithms identify exaggerated or misleading language, while machine learning (ML) compares public statements with real-world environmental data, exposing discrepancies in claims like "carbon neutral". AI also processes real-time data from sensors and IoT devices to track sustainability metrics like recycling, water use, and emissions, ensuring companies' actions match their sustainability promises.

Capgemini has, For example, a wide range of solutions to address the threats of greenwashing. Here are a few recent and noteworthy offerings that caught my attention. For more details, please visit the Capgemini website here .”

Conclusion: In summary, greenwashing weakens true sustainability initiatives by deceiving consumers and skewing the market. It’s essential for companies to be transparent and accountable in their environmental claims, ensuring these claims are supported by verifiable data. As consumers become increasingly eco-conscious, the demand for genuine corporate sustainability practices will rise, making it crucial for businesses to focus on authentic, comprehensive ESG commitments rather than superficial green claims.

Thanks to : Abhiram Pureti & Apurva Kale for help.