‘Greenwashing’ is a dirty word in ESG – so how can you avoid being tarnished?

Greenwashing is a label that can stick to you like a bad smell – or a climate activist super glued to a Van Gogh painting. Once your business has been named and shamed, the greenwashing label is hard to shift. It serves as a reminder to consumers that you falsely claimed to be greener than you are in order to appeal to their sustainability sensibilities and to turn a tidy profit.

Increased awareness of climate change has led consumers to actively seek products that will not harm the environment, while governments around the world have pledged commitment to achieving net zero targets over the coming decades. Research conducted by Made in Britain in January finds that half of UK businesses (51%) today have a sustainability strategy in place, and within our community of manufacturing companies that number is even higher, at more than two-thirds (69%) of our members.

The ethical consumerism market in the UK is now worth around £122bn, but as the impact of climate change increases, that market is likely to expand. With average global temperatures set to rise by 1.5C in the next nine years, we will likely see more companies seeking to capitalise on that demand. Marketing their products as “green” or “eco-friendly” will no doubt result in a fresh wave of enterprises who are not “whiter than white” (or indeed “greener than green”) being called out by savvy watchdogs, journalists and consumers.

Already, over the last decade, many large corporations have hit the headlines accused of greenwashing, including Coca-Cola coming under fire for making false claims about the environmental impact of its Dasani bottled water, McDonalds for making false environmental claims about its coffee and palm oil sourcing practices and Unilever for making false environmental claims about its Dove soap products.

In the UK, there are significant penalties for greenwashing that extend beyond the corporate reputation damage caused by negative press. Violating consumer protection regulations can result in fines, legal action, and a requirement to correct false advertising. In severe cases, the UK government’s Competition and Markets Authority (CMA) can take action resulting in fines of up to £30m or 10% of the company’s global turnover, whichever is higher.

The ethical consumer sector has many labels for companies that jump on the “moral” bandwagon. They have become increasingly sophisticated, with terms such as green crowding, lighting, shifting, labelling, rinsing and hushing now being used. Ethical Consumer Magazine uses at least 12 different terms, including everything from “beewashing” (claiming to protect bees whilst causing significant damage to their population) to “wokewashing” (advocating for a social cause whilst simultaneously harming the communities they ‘advocate’ for).

Despite the threat of financial penalties, negative publicity and a loss of consumer trust, these broad-reaching and misleading claims are still widespread. A survey by the CMA and The Netherlands Authority for Consumers and Markets (ACM) for the International Consumer Protection Enforcement Network (ICPEN) found 40% of green claims in their survey of websites were misleading. Many of these claims are related to the environmental impact of packaging, renewable energy use, and products’ recyclability.

Within the sustainability profession, this is a significant concern, as there is already a huge trust deficit: the annual Edelman Trust Barometer shows worryingly low levels of trust in business, media, NGOs and probably not surprisingly, government (with business the only institution seen as competent and ethical). Greenwashing not only undermines consumer trust, it also hinders genuine efforts to combat climate change, boost the circular economy, protect natural capital and ensure ethical and responsible sourcing.

So what can ESG professionals do to avoid greenwashing claims?

Aside from embracing the CMA Green Claims code, which sets out standards and guidelines for companies making environmental claims about products and services, we should also put ourselves in the minds of cynical consumers. That means checking the language and statistics used in our marketing materials, product labels and advertisements to determine if we are making credible environmental claims.

The Green Claims code covers a wide range of environmental claims, such as claims about energy efficiency, carbon emissions, and waste reduction. Still, we can also deploy other tactics to avoid falling foul of greenwashing accusations.

Above all, we should be transparent about sustainability practices, environmental impact, sustainability targets, and our organisations’ actions to address challenges. The first step to ensuring this happens is to develop a sustainability strategy. This document must be credible and transparent, clearly outlining goals, targets, and actions for reducing environmental impact and promoting sustainability.

In particular, by establishing targets and metrics to track progress in reducing environmental impact, we can accurately assess the effectiveness, and so too can our stakeholders. In addition, factual data which backs up claims adds credibility in the eyes of both consumers and shareholders.

We should seek reputable third-party validations which can provide credible environmental labels and certifications. However, these require enterprises to adhere to strict standards.

ESG professionals should also make it their business to engage with all their stakeholders. Dialogue with consumers, employees, suppliers and environmental organisations ensures identification and resolution of concerns as early as possible.

By following a mantra of ‘Truth Well Told’, we can all positively impact climate change.

When we create products and services that satisfy consumer needs and deliver positive, lasting environmental impacts, we can avoid greenwashing accusations. By holding ourselves accountable for the environmental claims, we take the organisations we work for one step closer to overcoming global sustainability challenges.

Professor Chris Harrop OBE is Made in Britain Chairman and ESG Strategy Director at Marshalls plc and is Visiting Professor of Sustainable Business at the University of Huddersfield Business School