During the COP26 conference we heard concerns raised around ‘greenwashing’, but what does the term mean, why is it used, and how are world leaders seeking to alleviate concerns?
How do we Define ‘Greenwashing’?
Essentially, Greenwashing is the action of a company or business to portray themselves or their products as being ‘green’ or ‘environmentally friendly’ when in fact this is not necessarily the case, and such information is potentially misleading. Investopedia, define it as follows:
“Greenwashing is the process of conveying a false impression or providing misleading information about how a company's products are more environmentally sound. Greenwashing is considered an unsubstantiated claim to deceive consumers into believing that a company's products are environmentally friendly.”[i]
To greenwash, a company may for example, claim that their products are from recycled materials or have energy-saving benefits, and whilst this may be true in part, those greenwashing typically exaggerate claims to mislead consumers. It may also be that a company replaces an older product perceived as environmentally damaging, with a newer design that on the surface seems eco-friendly, yet the production or lifecycle of that new product may in fact be more harmful in the long term.
Examples of Alleged Greenwashing…
A number of major international companies have been accused of greenwashing and the majority of these sit within traditionally polluting areas such as the fossil fuel extraction, energy, and manufacturing industries. Even brands that today are noted for their drive towards sustainability have fallen foul of activists eager to identify and denounce greenwashing. Earth.org, a non-profit environmental organisation, noted Starbucks 2018 push towards sustainable packaging as creating a potential case of greenwashing. The brand released a “straw-less lid in 2018,” however Earth.org argue that this:
“Contained more plastic than the old lid and straw combination. The company didn’t dispute this, but claimed that it is made from polypropylene, a commonly accepted recyclable plastic that ‘can be captured in recycling infrastructure.’ Critics were quick to point out that only 9% of the world’s plastic is recycled, so the company shouldn’t assume all the lids would be recycled. Further, the US exports about one-third of its recycling to developing countries, so [it could be argued] it is simply passing its responsibility to poorer countries.”[ii]
Further, as Earth.org note, there is no single legal definition for marketing-friendly words such as “sustainable,” “green,” or “environmentally-friendly”, meaning that these can generally be applied in such a manner as to however a business sees fit. Thus, there is significant variation in what sustainable operations and products entail. As a result, the term ‘greenwashing’ is being used to identify misleading campaigns or actions and raise awareness to drive change.
How is Greenwashing Being Addressed?
Government, and certainly NGOs and environmental groups, have been aware of greenwashing for many years. In the UK, the government is seeking to address the issue, taking a specific stance around ending the practice within the finance industry. To help with this, the UK government announced in June 2021 the formation of an independent group to help tackle ‘greenwashing’. The Green Technical Advisory Group (GTAG) will oversee the Government’s delivery of a “Green Taxonomy” or a common framework which will set the bar for investments that can be defined as ‘environmentally sustainable’. [iii]
“The Green Taxonomy will help clamp down on greenwashing – unsubstantiated or exaggerated claims that an investment is environmentally friendly – and make it easier for investors and consumers to understand how a firm is impacting the environment.”
The finance industries environmental practices are also taking precedence on the global stage too. At COP26, it was announced that 450 institutions have now signed up to the so-called Glasgow Financial Alliance for Net zero (Gfanz). Gfanz was founded in April 2021 and is led by former Bank of England Governor Mark Carney. According to Yahoo News “Financial firms that want to join the club must sign up to science-based guidelines to reach net zero emissions by 2050, have interim targets for the end of this decade for their fair share of a 50% decarbonisation target, and report on their progress. They must also publish a net-zero transition strategy and adhere to strict rules on what emissions they can offset.”[iv] Further, members of the alliance will be required to clarify to customers any strings attached to the loans they give, the investments they make, and the insurance they provide. Whilst the financial sector has been under criticism for its operations around the fossil fuel sector, Gfanz is placing an early focus on three key sectors – aviation, steel, and oil and gas – working with companies in these areas to create Net zero strategies. Whilst Net zero and greenwashing are different things, the push to make financial institutions set net zero targets, and do so in a meaningful and transparent way, means that greenwashing activities will become much harder to mask and disguise. Likewise, the sector will now be far more visible in its net zero journey, and will see increased scrutiny from environmental groups, governments, and the general public too.
Rishi Sunak Brought his Green Ministerial box to COP26 as he announced plans for the UK to become the “first ever net zero aligned financial centre”
Additionally, the Chancellor of the Exchequer, Rishi Sunak announced that all listed companies in Britain will have to produce a strategy to reduce their carbon emissions or face fines. According to the Times “In moves to make the UK the first carbon neutral financial centre, firms, investors and banks will be required to detail how they will move towards becoming net zero.”[v] In summary, this recent action represents a push towards addressing financial institutions commitments to net zero. The requirement for both UK firms in general, as well as Gfanz members themselves, to publish a clear road map to net zero (and subsequent progress reports), will go some way towards addressing concerns around greenwashing in the sector. However, whilst greenwashing will become harder to hide, it will be the pressure and scrutiny from individuals, environmental groups, and government itself that bounces firms into addressing concerns, lest they see backlash.