If a company exaggerates its environmental impact or claims an environmentally-friendly policy that is not true, it is engaging in greenwashing. So how widespread is this issue? This is not a question that can be answered easily, as definitions differ from country to country. Similarly, there is limited macro-level data on how commonly companies commit greenwashing. So to answer this question, two data points will be considered. First, how do various countries see and persecute greenwashing? It stands to reason that a country that actively combats greenwashing has cases of greenwashing in it. Secondly, what do various research groups say about the amounts of greenwashing from region to region?
A 2021 report found that nearly half of the companies audited by the EU were engaging in some degree of Greenwashing. The businesses claimed either an exaggerated environmental impact or an environmentally-friendly policy that was not true. As a result, the EU has put forth a standard for what is considered greenwashing in an attempt to curb it. Individual countries in the EU also have relatively strict laws regarding environmental claims. For example, in France, parties guilty of greenwashing can face prison sentences.
The U.S., however, has not followed this trend. It does not require companies to disclose climate risks in securities filings if they deem such risks immaterial. Additionally, the US does not mandate environmental or social impact reporting. There are currently no formal definitions of what qualifies as a sustainable activity and no uniform standards for measuring corporate environmental goals or quantifying and reporting climate risks. Currently, some US legislators and the EPA is working on a greenwashing regulatory framework. For a more in-depth look at how the US approaches greenwashing, check out one of our other articles.
Other notable examples
Similar to the EU, Canada has a more robust system of punishing greenwashing. The Canadian Competition Bureau has already fined multiple companies millions of dollars for false claims. Individual territories of Canada also have their own greenwashing regulations. Similarly, the UK has a robust legal framework. The CMA has developed clear definitions of what a company must do to claim sustainability or net zero.
Contrasts in Asia
On the contrary, major Asian countries like Singapore and China have little to no greenwashing regulations. China explicitly seeks to grow its industries and tries to impose as little regulation as possible. However, local Administrations for Market Regulation (AMRs) have had success in persecuting companies that mislead the public about their impact. Similar to the US, Singapore does not have a unified legal code to combat greenwashing. Singaporean industries have even banded together to protect themselves from greenwashing allegations.
So what does this mean?
Just the presence of greenwashing laws is not necessarily an indicator of widespread false environmental claims. But it is worth noting that in every country listed above, the trend is to increase the legal risks of greenwashing.
How widespread is Greenwashing?
There is no global reporting on the prevalence of greenwashing. Instead, there are a number of reports conducted over the last two decades. So what have researchers and government agencies found? As previously stated, greenwashing is surprisingly common in the EU. Over 42% of the cases analyzed by the European Commission found some degree of greenwashing. This number is particularly surprising as the EU has some of the most robust anti-greenwashing laws in the world. If the prevalence of greenwashing is so high within Europe, this could indicate that it is even more common elsewhere. There is some data to support this claim. A 1991 study of environmental marketing in the US found that 58% of environmental ads had at least one misleading claim.
Why should companies care?
As authorities around the world increase their scrutiny towards environmental claims, companies need to be proactive in reducing their legal risk. Even in places where there is not yet a unified code on greenwashing, consumer advocacy groups still can put pressure on companies. SC Johnson, Aldi, Exxon, and BP, among others, have all faced lawsuits in the US over their ESG claims. Multiple companies have faced fines in the UK and EU over misleading claims.
Regardless of how courts rule in greenwashing cases, companies need to understand the public’s perception of ESG contributions. For example, the Unilever cleaning brand Persil has attempted to market itself as “kinder on the planet.” The company used hashtags like #plantmoretrees without detailing exactly how their product was “kinder on the planet.” As a result of public outcry and an investigation by the UK’s Advertising Standards Agency, Unilever altered its advertising campaign. The public now demands more sustainable products and services and is unlikely to be sympathetic to false claims.
What should companies know?
The proliferation of greenwashing cases over the last few years indicates that companies will come under increasing scrutiny. Businesses must be proactive in mitigating legal risk. Firstly, legal teams need to keep track of ongoing cases to understand what standards are expected by the public and the courts. Companies should conduct a full review of their labeling, packaging, and other public-facing information. This should also apply to all public statements, from social media posts to securities filings. “Aspirational” claims should be avoided, even if the company plans to implement them eventually.
In general, companies should explore the methods and means that their competitors use to avoid the legal risks associated with greenwashing. The Global Summit on Greenwashing Legal Risk Management & Compliance Strategies 2022 conference will be held in Brussels on November 8th. It is the perfect opportunity to do just that. Decision makers and legal experts from a variety of industries will come together to discuss how to best protect themselves from the risks of greenwashing.