What is Greenwashing?

Greenwashing is a term used to describe when a company or business claims to be an environmentally conscious company for marketing purposes but is not making any notable sustainability efforts. Businesses or companies can greenwash even when they have good intentions in mind. Due to greenwashing, nearly all American consumers do not believe that companies actually practice sustainability.

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You might have heard of the term whitewashing at least once. Whitewashing is used to describe when a company or organization covers up scandalous data by presenting a biased representation of the facts.

The term greenwashing isn’t well known. Greenwashing is when a brand spends more money and time marketing itself as a sustainable and eco-friendly company than decreasing its environmental impact or carbon footprint. It is a dishonest marketing gimmick that misleads customers who want to buy goods from sustainable and eco-friendly brands. Almost 60 percent of sustainable fashion claims are greenwashing.

Companies and organizations engaging in greenwashing have made headlines over the past decades. For instance, during the mid-80s, the oil company Chevron ordered several expensive print and television ads to broadcast and spread the news of its environmentally conscious efforts. While Chevron ran its ‘People Do’ campaign, it was actively violating the Clean Air Act and the Clean Water Act and spilling oil into protected areas.

Unfortunately, Chevron was not the only company making dishonest claims. A chemical company ‘DuPont’ in 1991, announced its double-hulled oil tankers. It displayed ads with aquatic animals prancing in chorus to music. When in fact, DuPont was the largest corporate polluter in the United States in 1991.

An Ethical Problem

Greenwashing is a major ethical issue as businesses and organizations can make profits from deceiving investors, shareholders, potential investors, consumers, and new customers. Further, they can use greenwashing to gain a competitive advantage quickly and without spending any money and time to carry out environmentally conscious efforts.

The term and practice of greenwashing has been around for some time now. As new advances in technology grow and new ways of marketing come up, the level of greenwashing from companies or organizations also continues to advance.

Greenwashing misleads consumers who put their hard-earned money, time, and faith into a brand or company; it also has destructive real-world effects. The European Union has introduced several new rules to help prevent greenwashing. However, there are several other countries, including the United States, that have not introduced such policies.

Greenwashing is a huge ethical problem for the simple fact that it misleads other people for the sake of financial gain, while completely ignoring the growing ecological impacts. For instance, greenwashing practices act as an obstacle in achieving goals like the United Nations Sustainable Development Goals.

The Sustainable Development Goals are a framework that tracks how the world is doing in terms of sustainability, the gaps needed to be filled, and the impacts of corporations. When brands or companies engage in greenwashing, there is less accuracy and transparency on ESG and sustainability metrics. Greenwashing can affect a company’s reputation and lead to negative perceptions about a company.

Impact of Brand’s Reputation

Greenwashing has changed over the years, but as mentioned before, it is certainly still around. As climate change increases and the world begins to move towards a greener and sustainable practices, corporations and brands face an influx of litigation for deceiving environmental and sustainability claims.

For instance, the Alliance to End Plastic Waste (AEPW). The AEPW is a Singapore-based non-profit backed by big oil and chemical companies like ExxonMobil, Shell, and Dow. It claimed that it was spending around $1.5 billion to clean up plastic waste in developing countries. However, in reality, AEPW failed to keep its promise to clean up the Ganges river in India. Its member organizations also carried out plans to generate even more plastic.

Several bottled water companies also try to overrepresent their sustainability and greenness. We have seen several plastic water bottles with colorful images of mountains, valleys, lakes, and flourishing wildlife printed on their labels.

According to Philip Beere, vice president of marketing at Sightline Payment, the main theme has stayed the same; the main violation is enhancing the product’s or service’s benefits. Beere believes that greenwashing is rarely caused by evil plots to mislead people- it is usually due to overenthusiasm.

Why are markets so enthusiastic about attracting customers by misleading them about their sustainable practices? According to GreenPrint’s 2021 Business of Sustainability Index, 64 percent of Gen X consumers tend to spend more on a good or service if it comes from a sustainable brand- that figure increases to 75 percent among millennials.

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Here are a few impacts of greenwashing on a company’s or brand’s reputation:

• A decline in brand image
• Reduce in revenue
• Broken trust and consumer disengagement
• Reduce in capital from investors
• Negative publicity
• Negative effects on the workforce management

Impact on Investments

More than 44 percent of ESG (Environmental, Social, and Governance) investors said that their major concern was greenwashed investments. This figure will likely increase as more brands and companies work to improve their ESG standings. And for sure, some companies will do so dishonestly and negatively.

Due to the rise of SRI (socially responsible investing) bringing in an increase in greenwashing, companies and businesses like oil companies try to get included in funds that investors would not expect. In the case of investments, the main reason that it’s easy for funds to greenwash is due to the several ESG data provides and the various ways that ESG evaluations are conducted. It will be difficult for investors to know which ESG ratings are real without a universal standard.

Greenwashing impacts business ethics and is a major concern in today’s market. One should always know the signs of greenwashing and educate oneself on the possible greenwashing brands in your portfolio to help further one’s impact investing efforts.

Staying educated, always conducting research, and maintaining the latest trends in the industries, affect one’s portfolio the most. There are several sources and artificial intelligence programs available that help make this process an easy one.