INSIGHTS | How Companies May Avoid Unintentional “Greenwashing”

Anxiety over proper ESG information disclosure is rising among companies. What information must be disclosed? Should companies tell the truth when they realize that they are not doing well? Should ESG issues be stated again when corrections and rectifications have been implemented? These problems have become increasingly prevalent in recent years, as regulatory authorities globally have tightened their crackdown on “greenwashing.”

Generally, greenwashing is an unethical tactic in which companies intentionally overstate their achievements in environmental protection and sustainability to attract consumers, investors, and other stakeholders. Some companies knowingly resort to greenwashing to pursue profit and promote their business. However, greenwashing can also happen without conscious participation from the organization. It may be that companies have a shallow understanding of ESG and lack practical experience in ESG reporting, resulting in insufficient information disclosure, such as only reporting positive performances but not negative ones, or making too many promises that cannot be implemented. In this case, companies may not realize they have faults in information disclosure until they receive resistance, warning, and even punishment from consumers, regulators, the public, and other stakeholders.

Unintentional greenwashing is everywhere

The European Commission once scrutinized whether online stores of clothing, cosmetics, and household equipment sectors were involved in greenwashing in 2021. Through reviewing the marketing webpages of online stores, it was found that nearly half of the 344 samples did not provide sufficient information and evidence for their products and services; 37% of the descriptions included vague and general descriptions such as “eco-friendly” and “sustainable,” which were intended to convey the impression that their products were harmless to the environment, but impossible to verify. In addition, 59% of the sampled businesses did not provide easily accessible evidence to prove their environmental protection claims. Based on the above data, 42% of environmental protection commitments in 2021 were exaggerated, misdescribed, or misleading to consumers. Although such practices may have been unconscious decisions, these businesses with greenwashing suspicions still received the national-level rectification notice. After this review, the EU promised to include greenwashing in its consideration for actions to protect consumers’ rights and interests.

Intentional or not, greenwashing will do more harm than good for companies

First of all, no matter the company’s intention, a company’s credibility is lost once it is found to partake in greenwashing. The loss of credibility commonly drives consumers toward the company’s competitors, jeopardizing profitability. Secondly, efforts required to repair its reputation may exceed the company’s imagination. As it is difficult for the public to distinguish whether the event was intentional or unintentional, a company faces significant challenges in explaining its position to the public and carefully managing its expression to avoid further criticism or misunderstanding. If the effort to amend its mistakes is genuine and consistent, the corporate image may be restored, but the company will pay a heavy price for its greenwashing through the collapse of its stock price, sales volume, and reputation in the process. Finally, the repeated occurrence of greenwashing is bound to cast a shadow on the market. Some companies may be wary of marketing their green credentials for fear of accidental greenwashing. However, if truthful efforts and achievements made by companies in ESG are not expressed, companies lose a great opportunity to deepen their brand image and promote sustainable products to meet consumer demands. Therefore, companies should know where to draw the line between greenwashing and marketing authentic green practices.

How to avoid falling into the trap of greenwashing?

Every company should have a sense of crisis regarding unintentional and intentional greenwashing. The following suggestions may help companies avoid falling into the trap:

1. Ensure that every statement is reasonable, well supported, and clarified in scope. Whether it is about product information or marketing, it must be borne in mind that companies should ensure that every statement has evidence to rely on. In addition, companies should ensure that the supporting materials are easily accessible, scientific, clear, and up-to-date. For example, companies may use product data provided by suppliers or certification information obtained from a third-party testing agency as the basis of their claims. In addition, to eliminate confusion, green labels and statements shall clarify which part of the product they apply to. Greenwashing may occur when consumers believe that a certain green label applies to the entire product, while the label may only apply to the product’s packaging materials.

2. Enhance communication of industry-specific sustainability. There may often be information asymmetry between consumers and companies over how sustainability is defined, especially when the public is less informed about the common practices of the industry in question. To effectively communicate sustainability commitments, companies should take initiative to educate consumers on sustainable practices in their specific industries and highlight eco-advantages over their peers. This helps adjust consumer expectations and reduce public anxiety over green claims, as comparability is enabled.

3. Focus on actions in the company’s business line. When telling stories, companies should focus on where they have the greatest influence – their own business lines. For example, a packaging company, rather than emphasizing how it encourages its employees to plant trees, should instead focus on how to achieve sustainable packaging, as this speaks to the environmental impact of its core business function. While a greenwashing-free marketing campaign can showcase some eco-friendly initiatives unrelated to the company’s business activities, it must also convey the company’s full implementation of sustainable commitment on the business line.

Sources

https://www.nbd.com.cn/articles/2022-10-08/2490707.html

https://www.yicai.com/news/101566944.html

https://new.qq.com/rain/a/20220803A05X3C00

https://baijiahao.baidu.com/s?id=1747107922371401114&wfr=spider&for=pc

https://business.sohu.com/a/591355367_116132

https://www.nbd.com.cn/articles/2022-10-08/2490707.html

https://finance.eastmoney.com/a/202210242535996357.html

https://www.euronews.com/green/2021/12/28/how-to-avoid-the-greenwash-trap-in-2022-5-tips-for-businesses

https://ec.europa.eu/commission/presscorner/detail/en/ip_21_269