What Is Greenwashing and How Can Businesses Avoid It?

Learn all there is to know about what greenwashing is, examples of this practice and the risks involved.
Persefoni Team
By Persefoni Team
October 5, 202215 min read
November 22, 2022, 11:20 AMUpdated
October 5, 2022Updated: November 22, 2022, 11:20 AM15 min read

Greenwashing is when an organization creates a false impression or inflation of environmental action through misinformation. “Greenwash” is a play on the word “whitewash,” which refers to covering up any poor or unlawful behavior through biased data, intentional misrepresentation, and other means.

Shareholder pressure and consumer interest in sustainability are examples of motivating factors for companies to appear more environmentally friendly. Simon-Kucher’s Global Sustainability Study found that 34% of all respondents were willing to pay more for sustainable products. Of those respondents, 39% were Gen Z and 42% were millennials.

Unfortunately, the rise in environmentally friendly practices can entice some organizations to fabricate or artificially enhance the sustainable credentials of their business, product, or service. Today, companies can spray the green sheen across products and services with complex data or claims that are intentionally difficult to substantiate.

This complexity can make greenwashing difficult for consumers to spot. Companies may even misunderstand environmental issues and inadvertently participate in greenwashing, often through poor data handling/management. For these reasons and more, it’s important to understand the different types of greenwashing and how best to avoid them.

Key Takeaways

  • College student Jay Westerveld coined the term “greenwashing” in 1986 when describing an instance of it at a Fiji hotel.

  • Greenwashing is a deceptive tactic to make an organization seem more environmentally friendly than it really is.

  • Engaging in greenwashing can result in legal issues and lost trust with stakeholders.

  • Any organization can greenwash, whether it’s intentional or not.

  • Greenwashing is often illegal and jurisdictions are beginning to implement and/or enforce anti-greenwashing regulations.

  • Companies can avoid greenwashing by refraining from making misleading or false claims, allocating resources to sustainability initiatives, verifying data with third parties, and using carbon accounting platforms to accurately capture data.

How Can Greenwashing Harm Businesses?

Greenwashing can harm businesses by putting them in danger of legal action and losing stakeholder trust. It may feel easier to embellish details or make broad environmental statements. However, this can cause harm to businesses, consumers, stakeholders, and ultimately, the planet. Below are a few ways that greenwashing can hurt businesses.

Legal Issues

Greenwashing can lead to financial penalties and other legal action. For example, the U.S. Federal Trade Commission (FTC) recently sued Kohl’s and Walmart for falsely marketing rayon textile products as bamboo. These companies claimed the “bamboo” textiles they were selling were created with eco-friendly processes when the process actually generates pollutants.

The case is still pending at the time of this writing, but both companies may pay penalties of $2.5 million and $3.5 million, respectively. There are also laws coming down in multiple jurisdictions explicitly fighting greenwashing and related misrepresentation. We’ll highlight a few later in this guide.

Stakeholder Trust

Credibility is the currency of sustainability. Companies caught greenwashing to any degree can put themselves at risk of losing the trust of consumers, investors, and other stakeholders.

Consumers

Customers want companies to be more sustainable, and thus often find themselves the recipients of greenwashing.

In one study looking at the consumer reactions to lies, half-lies, and other degrees of greenwashing from companies, researchers found that lies and half-lies both had similar negative effects on reputation.

Participants were shown different statements for a fictional cruise company that represented varying degrees of greenwashing along with other information. Researchers presented questions to these participants that related to a company’s corporate reputation, including questions about the company's emotional appeal, financial performance, products and services, and social responsibility. The responses were then used to measure the positive or negative effects of greenwashing on that company’s reputation.

Only “true green behavior” — when organizations take action to be more sustainable and truthful about their efforts — had a positive effect on reputation.

Investors

As investors have become more aware that climate risk is financial risk, they are also increasingly concerned with sustainability. Schroders’ Institutional Investor Study found that 59% of surveyed institutional investors consider greenwashing a major challenge to sustainable investing.

Investors are taking environmental, social, and governance (ESG) issues into consideration when making investment decisions. The Investment Association’s ESG Global Survey of asset managers and owners found that 75% of respondents use ESG factors in decision-making to improve returns and manage risks, and Climate Action 100+ has seen an explosion in asset managers committing to the organization, now representing more than $65T in assets under management.

The study also found that 65% of respondents believe that regulation is likely to deepen their organization’s ESG strategy. With carbon disclosure mandates on the horizon in a number of global jurisdictions, regulation is likely to arrive sooner than later.

Employees

There is also some evidence that greenwashing can negatively affect employees. One study with Chinese employees found that perceived greenwashing — meaning employees' discernment of organizational behaviors that mislead stakeholders — negatively affects job performance.

A company’s environmental record is also a consideration for job seekers. A Gallup poll of part-time and full-time employees found that 69% of respondents consider a company’s environmental record as a factor when looking for a new job. About 1 in 4 described it as a major factor, while nearly 1 in 5 described it as a minor factor.

What Are the Types of Greenwashing?

Greenwashing can range from intentional misrepresentation and unfair comparisons to unintentionally pushing out false information.

Over the years, greenwashing tactics have gotten more sophisticated. As pressure has mounted, companies have begun making creative use of research to appear more “green” than they are.

Misrepresenting carbon offsetting is one example of greenwashing. High-polluting corporations like airlines rely on carbon offsetting to reduce emissions they can’t currently cut down (like carbon generated from flights).

Offsetting claims can go awry when companies rely on low-quality or unverified projects that don’t actually remove or avoid carbon emissions as claimed. This results in unmet goals and misrepresented progress, which is harmful to businesses, stakeholders, and the environment as a whole.

There are many other examples of greenwashing that involve varying degrees of deception on the company's part. We’ll cover common examples below, with each category inspired by the degrees of the greenwashing study mentioned earlier.

Intentional Misrepresentation and Blatant Lies

Some companies may willfully avoid the truth or make claims that are blatantly false. This can include using false certifications or knowingly providing falsified data to regulators. Glaring acts of greenwashing will take much more effort in the future as regulations begin to come down the pipeline.

Example: Volkswagen Emissions Scandal

The Volkswagen emissions scandal is an extreme example of intentional greenwashing. Volkswagen falsely advertised that their diesel cars were low-emission vehicles. They sold 590,000 of these vehicles, including models 2009 to 2016, with “defeat devices” installed. These devices were created to cheat on federal emissions tests.

As a result, Volkswagen pleaded guilty to three criminal felony counts and paid a $2.8 billion criminal penalty. They also paid an additional $1.5 billion in separate civil resolutions of financial, customs, and environmental claims.

Example: The “Tested Green” Certification

The FTC ended “Tested Green” Certifications in 2011, which claimed to test products on their environmental friendliness through two distinct third parties. However, Tested Green never actually conducted any testing, and the third parties they used were subsidiaries. The company would instead give away Tested Green certificates for a fee.

Misdirection, Unfair Comparisons, Unsubstantiated Claims, and Other Half-truths

Greenwashing can commonly fall under this category if companies are partially telling the truth but misrepresenting some part of it to make their company appear greener. This can range from over-emphasizing the impact of a green initiative to using more natural-looking packaging to come off as more environmentally friendly.

Example: ClientEarth, BP, and the “Possibilities Everywhere” and the “Keep Advancing” Campaigns

ClientEarth filed a complaint in 2019 against BP, alleging that BP’s “Keep Advancing” and “Possibilities Everywhere” campaigns misled the public about BP’s environmental impact. ClientEarth filed a complaint against BP with the UK National Contact Point for the OECD Guidelines for Multinational Enterprises (UK NCP). ClientEarth alleged that it gave a false impression of the scale of BP’s renewable and low-carbon energy.

BP’s CEO Bernard Looney announced in February 2020 that they would end corporate reputation advertising and instead use the funding to promote net-zero policies and collaborations, among other related actions. The UK NCP rejected ClientEarth’s complaint since BP stopped the campaigns in question.

Although there was no official ruling on the complaint, this is one example of the importance of substantiating claims with data.

Companies shouldn’t make claims or targets that fall apart under scrutiny. Instead, they should be able to back up claims with the specifics of how they made them and how they plan to reach their targets.

Example: Ryanair’s Claims as “Europe’s Lowest Emission Airline”

The Advertising Standards Authority (ASA) forbade Ryanair to continue running three commercials that claimed they were Europe’s lowest emissions airline. Ryanair did complete tests and had some studies and data to attempt to support some claims.

However, the ASA ultimately decided that the basis of the claims wasn’t made clear in the ads. The ASA also said that the evidence Ryanair provided wasn’t sufficient to substantiate claims of being the lowest carbon-emitting airline.

Example: Chevron’s “People Do” Campaign During Ongoing Environmental Lawsuits

Chevron’s “People Do” advertising campaign used ads like this one to highlight how they are restoring nature after exploiting it for oil. However, this claim is misleading since doing so was already required by the law.

Around the same time, Chevron was in the middle of environmentally related legal battles. For example, they paid $1.5 million in penalties for illegally dumping pollutants in Santa Monica Bay.

Example: ENSO Water Bottle Companies’ “Biodegradable Plastic” Claims

The California attorney general filed a lawsuit against three companies that allegedly made misleading and false claims of marketing plastic water bottles as “100 percent biodegradable and recyclable.”

The court approved the settlements a year later and required the companies to stop using the term “biodegradable,” remove biodegradable claims from marketing materials, and pay penalties, among other actions.

Unintentionally Misrepresenting Information

Well-intentioned companies can also find themselves guilty of greenwashing if they don’t fully understand or verify the claims they promote. This can also occur if companies aren’t aware of their suppliers’ practices. However, a lack of understanding doesn’t excuse companies from the consequences that follow.

Example: Ikea’s Alleged Links to Illegal Logging

Ikea’s alleged links to illegal logging are an example of what can happen when businesses don’t thoroughly vet their suppliers. Ikea has been recognized for its advances in sustainability, like winning the Accenture Strategy Award for Circular Economy Multinational in 2018. Ikea’s page on wood also touches on its goals of using more sustainable wood. However, allegations began to arise regarding the wood used in their products.

Nonprofit Earthsight released reports (“Flatpacked Forests” and “Ikea’s House of Horrors”) alleging that Ikea created certain products with wood from trees in protected forests in Ukraine and Russia, respectively. Earthsight urged Ikea in its reports to improve its system to clean up supply chains.

Ikea has since responded with an investigation into their Ukrainian wood supply chain and their plans to improve forest management.

Suppliers can undermine a company’s environmental claims if they’re polluting or harming the environment in some way.

Understanding the types of greenwashing can help consumers spot it. More importantly, companies must get familiar with them as well to avoid being accused of greenwashing.

What About Unintentional Greenwashing?

Well-intentioned businesses can unfortunately also fall into greenwashing if they begin promoting benefits or changes that aren’t true. This can happen when companies don’t fully understand the “green” benefits of their products or services, and can’t transparently analyze or verify their findings.

Workiva’s ESG Reporting Global Insights for 2022 surveyed 1,300 respondents who had some stake in their organization’s ESG strategy and reporting as part of their current role. Workiva found that 63% of respondents feel unprepared to meet reporting mandates and their organization’s ESG goals. Only 35% believed they can use data and technology very well to make decisions to push forward ESG strategy.

Regardless of intent, businesses are better off from a legal and reputational standpoint by reporting only on what they can verify rather than promoting claims that they cannot prove. Improving data collection and analysis are a couple of ways businesses can step away from greenwashing and toward substantial claims and actions.

Is Greenwashing Legal?

Greenwashing is not legal and many countries and jurisdictions are implementing laws specifically prohibiting it.

Until recently, greenwashing that came to light was more of a PR nightmare than a legal issue. Greenwashing Study and Consumers’ Behavioral Intentions found that consumers tend not to trust products or brands once they’re perceived to be greenwashing.

However, as environmental performance has become more closely linked to economic performance in recent years, regulators have started to see accurate environmental data as pertinent to stakeholders and investors, moving the issue further into the courts.

Recent landmark cases have moved ‘greenwashing’ from the world of public relations to the legal realm. In the Netherlands, environmental groups Fossielvrij NL, ClientEarth, and Reclame.NL are filing a case against Dutch airline KLM for allegedly misleading the public about the sustainability of their flights and claims made in their “Fly Responsibly” campaign. This is just one example of several cases against high-emitting greenwashers.

Many nations have strict laws on public-facing statements for firms in the financial services sector, particularly when managing money. Late last year, in what many saw as a precursor of things to come, the Wall Street Journal reported that the U.S. Department of Justice was investigating Deutsche Bank’s asset-management arm, DWS Group, for misleading investors regarding Sustainability claims, leading to the resignation of the CEO, Asoka Wöhrmann, breach of a deferred prosecution agreement, and extension of the “oversight of a corporate compliance monitor … for nearly a full year.”

In addition to the current individual cases, a growing number of regulators around the world are putting laws in place to ensure companies are not greenwashing.

The Security and Exchange Commission's recent climate disclosure proposals aim to guarantee companies are accurately measuring and reporting on their greenhouse gas (GHG) emissions. In the European Union (EU), the Sustainable Finance Disclosure Regulation (SFDR) will force companies to disclose substantive sustainability-related financial information.

Below are a few more examples of laws and initiatives that prohibit greenwashing along with government-created resources:

Where Did the Term “Greenwashing” Originate?

Greenwashing has been around since the 1960s when consumers started to notice the environmental issues associated with consumerism.

However, it didn’t get labeled as such until 1986, when college student Jay Westerveld described an experience he had in Fiji, in an essay on the hotel industry.

He noticed that one of the hotels on the island asked patrons to reuse towels to “help them help the environment” and protect the corals. The hotel did this while it conducted an environmentally destructive construction project behind the scenes to expand its square footage.

As a witness to this hypocrisy, Jay wrote in his paper that “it all comes out in the greenwash.” The term was picked up by a local magazine and eventually caught on in the wider media.

How To Avoid Greenwashing in Your Business

Companies should refrain from making misleading claims, allocate resources to real sustainability initiatives, partner with trusted third-party auditors or accreditations, and use transparent carbon accounting software to avoid greenwashing.

Promoting only the verifiable truth is the main way businesses can avoid greenwashing. The path to getting there revolves around the data.

Accurate data with additional verification from third parties can help businesses back up claims. These additional layers of verification can also help businesses see what progress they’re actually making along with their areas of improvement.

Avoid Making Misleading, Vague, or False Claims

Claims should be clear and specific without leaving anything up to interpretation. Describing a product as environmentally friendly is vague and meaningless unless it's followed up with specific claims and the data to prove it.

These are a few things businesses can do to avoid making misleading claims:

  • Make clear statements about the environmental benefits that are straightforward enough to both understand and verify.

  • Refrain from overstating benefits with creative math or half-truths.

  • Specify what claims refer to, like if a company has made the product’s manufacturing process more efficient rather than the packaging used for the product.

  • Avoid forcing green imagery into marketing, advertising, or packaging.

  • Verify accreditations and certifications to ensure they are trustworthy and substantial.

  • Transparently share the company’s plans for reducing its carbon footprint.

Allocate Resources for Sustainability Initiatives

Instead of greenwashing, resources should be put toward initiatives to reduce emissions and make offerings more environmentally friendly.

Resources and funding can go toward:

  • Collecting emissions data

  • Identifying areas with high emissions

  • Setting science-based targets

  • Creating disclosure reports aligned with globally accepted reporting standards

  • Researching ways to improve the efficiency of operations, products, and services

  • Accurately communicating progress and claims with internal and external stakeholders

  • Educating relevant stakeholders on initiatives and related operational changes

Verify Data With Trustworthy Third-party Auditors or Accreditations

Companies should look to third-party auditors or accreditation companies to seek assurances of their claims through regular and transparent ESG reporting.

Companies can also use accreditations and report in alignment with globally accepted carbon accounting reporting standards to help prevent accusations of greenwashing.

Some examples of reliable certifications and standards include the following:

  • LEED is a certification that helps companies get their buildings accredited for their environmental performance with a rating system that ranges from certified to platinum.

  • The Science Based Target initiative (SBTi) helps companies and financial institutions create net-zero targets and make progress towards them based on the best available science.

  • CDP helps companies, cities, states, and regions disclose their environmental impacts by measuring and managing their risks and opportunities on climate change, water security, and deforestation.

  • ISO 14001 gives tools and guidance for companies to measure and report their environmental impacts.

Alignment with these and other reliable accreditations allows consumers, investors, and other companies to know a business’ environmental claims are accurate and truthful.

Calculate Data With Carbon Accounting Platforms

Another method for companies to protect themselves from scrutiny is by using software platforms like climate management and accounting platforms (CMAP).

With CMAP and similar platforms, there is a data trail that can be used to ensure the environmental data and reporting are wholly accurate and transparent. They also connect to the various disclosure systems and include embedded accreditations in their platform, allowing companies to align with them automatically.

For a better understanding of how CMAPs can be utilized to ensure alignment with accreditations, full auditability assurance, and compliance with any anti-greenwashing legislation, you can schedule a free demo of Persefoni’s enterprise-level carbon accounting solution.

© 2022 Persefoni AI Inc. All rights reserved. This presentation is the exclusive property of Persefoni and may not be copied or distributed, in whole or in part, without the express permission of Persefoni.

Persefoni is a leading Climate Management & Accounting Platform (CMAP). The company’s Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users with a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.

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