The crackdown on greenwashing

Greenwashing can pose a serious risk to businesses if misleading activities should be found
Greenwashing can pose a serious risk to businesses if misleading activities should be found Greenwashing can pose a serious risk to businesses if misleading activities should be found

THE market for green products is expanding quickly as more businesses try to capitalise on the public's increased awareness of environmental issues. It has also led to the rise of greenwashing, with a huge, potentially negative impact for businesses.

Greenwashing is the term given to a situation where a company tries to convince the public that its products, objectives, or policies are more ecologically friendly than they actually are. Some companies have been caught out trying to persuade sceptics or stakeholders that they have good intentions.

Greenwashing is both risky and unethical. It deceives investors and customers who truly want to purchase environmentally friendly goods or to associate themselves with genuine, environmentally conscious businesses.

The goal of greenwashing is to take advantage of consumers’ willingness to sacrifice a saving by paying what is often a premium for ‘green’ products, or to attract a talented workforce with green credentials.

Sadly, it undermines the efforts of companies that are genuinely trying to address sustainability and the climate crisis.

Greenwashing can also pose a serious risk to businesses if misleading activities should be found. According to authors of a recent Harvard Business Review paper, 42 per cent of green claims made in Europe were exaggerated, false, or deceptive, and may have violated EU regulations against unfair commercial practises.

The widely reported Volkswagen emissions-test scandal caused an almost 20 per cent drop in the price of its shares and a loss of market value of more than 11.5 billion. There have been other high-profile examples including some of the UK’s best-known companies.

Regulators have started to put up ideas to safeguard consumers and investors to combat greenwashing. Over the last year, this activity picked up speed.

In October, the UK’s Financial Conduct Authority proposed a package of new measures to protect consumers and improve trust in relevant investment products. Potential measures include restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used.

So, what can businesses do to prevent greenwashing and how can it be avoided?

The key is transparency. Global sustainability standards are still being developed, but any company can work to ensure that it is clear about what it is doing now, what it has accomplished so far, and what it is likely to be able to do in the future.

This can involve reviewing corporate pledges such as ‘Net Zero by 2050’ against planned investments in emissions-reduction, or screening for emissions-heavy products in a company’s investment portfolio.

When dealing with their supply chain, businesses need to display attention to detail and an ability to question the data to separate fact from aspiration.

Some questions that businesses should be asking about their suppliers’ products and services are:

• Does the company making the product or providing the service back up its environmentally friendly claims?

• Are the claims independently certified by a verified third-party, such as B-Corp or Fair Trade?

• Does the product use language that is vague and unspecific (for example, ‘eco-friendly’) without any description of how this is achieved?

• Are the claims made by a company too good to be true (for example, ‘carbon-neutral coal’)?

Businesses should also increase their understanding about the meaning of terms such as ‘carbon neutral’, ‘climate-friendly’ and ‘nature positive’.

As your knowledge grows, you can use it to evaluate claims made by businesses that aren't supported by reliable, independent third-party verification.

You will find that many professional bodies, such as Chartered Accountants Ireland, have further guidance available on sustainability for businesses. Sustainability can be a daunting area, but it is here to stay, and it is growing in importance. It’s also an opportunity to set your business apart, and to make a real difference in the world.

As scrutiny increases, painting a ‘green’ picture on its own simply won’t wash.

:: Zara Duffy is head of Northern Ireland at Chartered Accountants Ireland