Companies are being put on notice, and paying the price, for deceiving consumers with untrue or ambiguous environmental pronouncements about their products or services, a practice widely known as greenwashing. A case in point was when Keurig Canada was fined $3 million last year by the Competition Bureau for making misleading claims that its K-Cup pods were recyclable. This year in the U.S., an investment firm controlled by Deutsche Bank was required to pay $25 million to settle charges over misstatements regarding its environmental, social, and governance (ESG) investing practices.
With society facing growing crises, such as climate change and biodiversity loss, many corporations have promised to take action to create a more sustainable future. Such promises include committing to net-zero greenhouse gas (GHG) emissions. Unfortunately, like these two examples, these are often empty promises that simply serve as a façade while businesses carry on with misleading, wasteful practices.
A new report from Ivey’s Centre for Building Sustainable Value and the University of Michigan’s Erb Institute outlines the evolution of corporate greenwashing. Most importantly, the report, entitled Greenwashing 3.0 – Why addressing greenwashing remains as important as ever (and what can be done about it), shares approaches for addressing the issue.
Advice for addressing corporate greenwashing
The report outlines key ways organizations can avoid greenwashing, including:
- A greenwashing assessment tool, provided freely online, allows organizations to hold greenwashers accountable by analysing the quality and truthfulness of corporate environmental claims;
- The assessment tool was also designed to help firms committed to sustainability avoid greenwashing in their communication strategies and practices;
- Net zero requires a company to aggressively reduce its own GHG emissions as well as the emissions of its value chain, and not relying on carbon offsets. Integrity Matters, the report from the United Nations’ High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities, provides specifications for a company to be considered and recognized as net-zero aligned; and
- With greenwashing remaining a widespread and consistent problem, the need for regulators to increase vigilance and manage the changing nature of greenwashing is critical.
Greenwashing 3.0
There is now a new model of greenwashing where corporations are making large but often unsubstantiated or unverifiable commitments for the future, often relating to climate emissions. The authors refer to this latest paradigm as “Greenwashing 3.0.” The influence of investors and financial markets is also emerging as a catalyst in the fight against greenwashing as investors make capital allocation decisions based on businesses’ climate performance, says Wren Montgomery, an associate professor of Sustainability and General Management at Ivey. Montgomery co-authored the report along with Tom Lyon, Faculty Director of the Erb Institute.
“Climate risk is investment risk, and investors are looking for firms that have a solid plan to manage their ESG issues going forward,” said Montgomery. “Yet many firms are now engaging in a new form of greenwashing, which we term ‘futurewashing,’ and are making misleading claims about their climate strategies. Trying to fool your investors is a very bad long-term corporate strategy.”
According to the report, as of May 2023, more than 8,300 businesses globally had made commitments to net zero under the United Nations’ Race to Zero Campaign. While on the surface these numbers seem encouraging, Lyon said there is much ambiguity around how seriously these businesses are working towards meeting their net-zero targets.
“Just a few years ago, it seemed that greenwashing was in decline,” Lyon said. “But the enormous surge of greenwashing in the last two years shows that we need concerted effort by regulators, investors, customers, and the managers of authentically green firms to defeat greenwashing.”
