The Climate Conscious Emperor with No Clothes: Scrutiny on Greenwashing

Date: June 30, 2022

Source: News Room

In recent years, consumer and investor demand for sustainable and climate forward products and companies has increased rapidly. To meet this demand, many companies have begun branding themselves and their products as "green" or "environmentally friendly". Additionally, many major investment firms have launched actively managed funds that consist of companies they deem as environmentally and socially responsible, usually through investigating the environmental, social and governance impacts of the company (ESG).

However, not all companies practice what they preach, and when they fail to live up to the environmental stewardship they promise, they become guilty of what is known as "greenwashing." More specifically, greenwashing is the term used to describe marketing efforts that paint the image of a company as sustainable or climate conscious, but do not represent any actual major behavioral changes of the firm.

Examples of greenwashing can include branding that appears similar to familiar symbols of sustainability, like plants, flowers and blue water. Other examples include misleading labeling (think "certified organic") as well as distant promises of company change without the transparent release of relevant data (think "25% renewable by 2040"). In the past, these shallow branding changes were enough to drive consumer support. Recently, however, consumers as well as watchdog groups have become increasingly scrutinous of companies that fail to live up to their image.

The problem with cracking down on greenwashing is a lack of both industry and governmental standards on what should consist of sustainable or climate conscious behavior by companies. Agencies have yet to outline exactly what standards companies must live up to attain coveted green branding. However, those standards are beginning to emerge. The SEC has begun investigating funds that claim to abide by ESG and figuring out if the behavior of the fund matches with what it tells investors. While no specific punishments have been outlined, it indicates that the SEC and Justice Department are beginning to treat greenwashing as a serious threat to consumers.

Additionally, there are many privately run industry groups that have begun to set rigorous standards and conduct their own investigations to figure out which companies are living up to their marketing. For example, within the waste management industry, Solid Waste Environmental Excellence Performance (SWEEP) is an organization that aims to investigate and reward service providers and local governments that meet a standard of environmental best practices. SWEEP rewards environmentally conscious materials management firms with an industry recognizable certification. While other groups like SWEEP exist for other industries, there is still a long road ahead for ensuring that companies live up to their green promises.

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