What is Greenwashing?

What is greenwashing?

Greenwashing is making knowingly false claims about the ESG qualities of a product, project, service or business with the intent to mislead. At best, greenwashing is a by-product of virtue signalling or vacuous marketing. At worst, it’s suppressing information, cynical manipulation, deception; and fraud.

How do companies greenwash?

• By concealing or using false messaging to disguise poor environmental performance.
• By claiming their products have positive environmental impacts without data to back it up.
• By promoting themselves as sustainable or eco-friendly, while only a small proportion of their production actually offers environmental benefits.
• By using intentionally vague and unclear language to infer ESG benefits.

What can companies do to escape claims of greenwashing?

To escape claims of greenwashing, companies must move towards science-based targets, supported by hard data. Transition must be embedded in formal transition pathways that set out timelines, milestones, actions and expected impacts. Stakeholders need to be regularly updated on performance. In hard-to-abate industry sectors, in particular, transparency is critical, leaving investors to make up their own minds about whether targets and progress towards them are credible.

How can greenwashing be stopped?

Only through open and transparent dialogue will people be made aware first of all that greenwashing is happening, and secondly how it can be recognised, called out and stopped. Over the past few years, we have witnessed an upsurge of debt issued with green, social or sustainable labels. More than $524 billion of ESG bonds and loans were issued between January and mid-May 2021, and some $3.1 trillion in 2020, according to Refinitiv.

A vital part of the transparency story is data capture and standardised disclosure, as well as detailed impact and environmental performance reporting, ideally verified by independent agencies. Having regulated disclosure requirements will be a huge benefit to verification agencies and will relieve them of any guilt by association, moral hazard or complicity if corporate data integrity is in any way compromised.