Regulators Feel Pressure To Take A Harder Stance On Greenwashing
Don’t you feel burned when companies, non-profits, and even governments make deceptive or outright false environmental claims about their ecosystem and climate protection strategies? Awareness is growing about greenwashing, and climate advocates are calling for regulators to step up and provide a uniform interpretation of what’s an environmentally sound policy and what’s not.
It requires applying environmental, social, and governance (ESG) metrics to quantify climate pollution impact.
Say a company creates a press release that brags how it’s reducing its carbon footprint. But then — whoops — it neglects to mention that its overall production impact doesn’t take into account significant emissions produced by its customers or suppliers. Or say an investment house affirms that companies in its portfolio are ESG friendly but is coy about the standards it applies to come up with that ESG designation.
Wouldn’t it be best for regulators to create explicit statutory mechanisms to determine ESG merit?
“Greenwashing is a type of corporate propaganda that positions the industry as a ‘white hat’ doing their part to protect the environment,” Renee Hobbs, professor of communication studies at the Harrington School of Communication and Media at the University of Rhode Island and founder of the Media Education Lab, told CleanTechnica. “This type of propaganda has historically been effective in promoting self-regulation over government regulation.”
Conventional finance theory looks at rating, volatility, and maturity as the major factors for assessing a stock’s viability. Until the last decade, assessments of ESG practices have been scarce. Yet a recent review of 500 global websites led by the UK’s Competition and Markets Authority and the Netherlands Authority for Consumers and Markets (as part of the International Consumer Protection and Enforcement Network) showed that roughly 40% of green claims fall into the category of greenwashing.
“The battle to stamp out greenwashing continues to be foiled by the lack of a clear and common definition across jurisdictions,” says Maia Godemer, a London-based sustainable finance analyst at BloombergNEF. “The market can only continue to flourish if regulators build a common framework around what is considered environmentally or socially sustainable.”
European Securities and Markets Authority regulators lead the way in moving toward greenwashing standards. The Authority launched a collaborative review to gauge the scale of exaggerated ESG investing statements to determine the extent to which existing regulations are working. Part of the process was to gather useful and concrete examples that exemplify greenwashing.
The regulators did make a difference, as a number of asset managers afterward halted the practice of stating investment sustainability benchmarks that fell outside the standard under the new rules.
Sustainability certification, when not conducted rigorously, can be used as green cover for corporations and governments to deepen the assault on ecosystems and social and indigenous rights. Greenwashing clearly threatens the foundational integrity of ESG investing, but no substantive agreement has yet emerged as to greenwashing’s consequences in a legal or regulatory context.
Much work remains to be done. Implementation inconsistency among agencies and jurisdictions is leading to misinterpretation and inconsistent application of the rules, according to Bloomberg Green. Unless there’s more clarity and uniformity, it’s likely investors will simply pare back their holdings of funds advertised as sustainable.
Clearly, tackling greenwashing needs to be among the top priorities of regulators around the globe.
What Does Successful ESG Marketing Look Like?
Hobbs tells us that it’s okay to admit we’re not savvy about greenwashing nuances. “It’s not always easy to recognize greenwashing because lots of background knowledge is needed,” she explains. “This kind of communication is protected by the First Amendment — and, so, for these reasons, media literacy education in science education is vital. All students should learn about greenwashing when learning to read news about environmental science.”
Such prior education prep is now creating a generation who is increasingly aware of greenwashing, some of whom are entering the advertising field. Called sustainability public relations, these marketers engage in the strategy of having real sustainable goals and plans and communicating them to the public.
Sustainability-focused public relations agencies can help companies design marketing campaigns, media relations, and brand messaging that prioritize a message of sustainability. Messaging can include sustainability-focused content marketing, investor relations, partnerships, and overall transparency about the commitment to the process.
For example, a marketing firm called Sustainability PR works companies to:
- create a message that communicates the company’s mission
- gains third party certifications
- connect with influencers to promote the brand
- forms stakeholder coalitions with differing viewpoints to help facilitate systemic change
- communicates with staff members to sharpen the sustainability messaging throughout the media channels
Financial market participants also need to increase their knowledge about ESG metrics and educate themselves so that municipalities can come to agreement on aligning their standards. It will take an international structure that covers the baseline of sustainability reporting.
Without such a foundation, more greenwashing-related litigation will likely be the result.
What Would a Global Greenwashing Framework Look Like?
In part due to the prevalence of NGO-led lawsuits, regulators are also taking action against companies that make false statements or provide misleading information about the environmental impact of their products and services. The Australian Treasury recently launched a consultation on climate related financial disclosure, and the Australian Prudential Regulatory Authority conducted a climate vulnerability assessment with the country’s 5 largest banks. Australian regulators have been quite active in connection with greenwashing and assessing climate change impacts on financial industry stability. The absence of funding toward the project in question, progress on technical work, cost assessment, or substantive modelling could call into question the adequacy of the basis for sustainability related statements.
The EU taxonomy is a green classification system that is intended to guide investors to projects that are in line with Europe’s goal of net zero emissions by 2050 and better protection of nature. In June 2021, the Competition and Markets Authority issued the “Green Claims Code” to help businesses accurately communicate their green credentials to customers.
The Green Claims Code outlines how, when making a green claim, a business should be able to answer ‘yes’ or agree to each of the following statements:
- The claim is accurate and clear for all to understand.
- There’s up-to-date, credible evidence to show that the green claim is true.
- The claim clearly tells the whole story of a product or service; or relates to one part of the product or service without misleading people about the other parts or the overall impact on the environment.
- The claim doesn’t contain partially correct or incorrect aspects or conditions that apply.
- Where general claims (eco-friendly, green or sustainable for example) are being made, the claim reflects the whole life cycle of the brand, product, business or service and is justified by the evidence.
- If conditions (or caveats) apply to the claim, they’re clearly set out and can be understood by all.
- The claim won’t mislead customers or other suppliers.
- The claim doesn’t exaggerate its positive environmental impact, or contain anything untrue – whether clearly stated or implied.
- Durability or disposability information is clearly explained and labelled.
- The claim doesn’t miss out or hide information about the environmental impact that people need to make informed choices.
- Information that really can’t fit into the claim can be easily accessed by customers in another way (QR code, website, etc.).
- Features or benefits that are necessary standard features or legal requirements of that product or service type, aren’t claimed as environmental benefits.
- If a comparison is being used, the basis of it is fair and accurate, and is clear for all to understand.
Based on these criteria, should the EU taxonomy on sustainable finance list ethanol and wood biomass as “controversial” but allow gas and nuclear (albeit with an “amber” designation)?
Final Thoughts about Regulators & Greenwashing
Studies indicate that investors are inclined to accept lower returns in exchange for contributing to the funding of infrastructure projects with greater impact on the sustainability targets. Because greenwashing occurs when companies, people, or governments overstate, misrepresent, or out-and-out plain lie about their climate credentials, its wide-reaching nature has resulted in judicial struggles to specifically describe what it is.
Companies that make claims about their commitment to addressing climate change and ESG without sufficient evidence may be accused of greenwashing which can have civil, regulatory and — depending on the jurisdiction — potentially criminal repercussions.
Greenwashing is “also well-known to include a variety of inaccurate and false claims,” Hobbs explains. “It is often targeted at elites (not ordinary consumers) in order to position corporate social responsibility as a legitimate government policy.” She goes on to explain that “the journalistic norm of objectivity, with its pressure to balance controversy through competing claims, probably also contributes to the success of this PR strategy.”
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