Everyone (well, most people really) understands the price that the environment has paid in the name of advancing humanity. Naturally, it has become a concentrated global effort to do some form of damage control before we inevitably turn the world into a wasteland straight out of a dystopia. Of course, there will always be people who try to wrangle this situation in order to get something out of it. The term for it is “greenwashing”. Sounds neat? Well, let’s see how businesses are trying to ruin us this time.
Greenwashing, as one could probably guess, is the process of manipulating information (usually by a company) to present their products as environmentally sound when in reality, they are not. This is usually carried out to abuse the increasingly prevalent practices of being environmentally friendly. Hence, such false claims are often used to persuade consumers to buy a product, convinced that they are doing their part to help the environment. Furthermore, greenwashing also encapsulates the practice of emphasizing sustainable (green) aspects of products in order to cover up or draw attention away from a company’s environmentally damaging practices. A prime example of such behavior can be found in Nestle’s actions. Apart from the widespread usage of child labour, Nestle has also proclaimed that it wishes to achieve 100% recyclable or reusable packaging by 2025. Sounds great, does it not? Well, it would be fantastic, if Nestle (and other big companies) were not burning their plastic waste in order to “reduce” it. Regardless of the methodology, it is alarmingly common for companies to pretend to make the transition towards more environmentally-sound practices, partly to garner support for their products, and also partly to prevent people from rioting.
But why exactly is greenwashing so popular? A more optimistic person would suggest that it’s humanity’s natural compassion. And a more cynical one would point out that we are just trying to keep ourselves alive. Regardless of whatever you believe, people are more interested in keeping the Earth green. Hence, this has resulted in shifting global attention to sustainable investing, specifically investments that follow Environmental, Social, and Governance (ESG) guidelines. The socially conscious investor today no longer prioritizes returns on investment above everything else. Instead, the firm’s fundamentals such as its corporate values and existing commitments to the environment are also taken into account when deciding whether or not to invest.
“E” in this case refers to the company’s carbon footprint. Highly pollutive industries and sectors are usually shunned by such investors. Firms that have a poor track record of preserving the environment they operate in or abiding by local environmental regulations are also avoided. “S” stands for the social aspect, where investors examine how a firm manages its relationships with both its employees and the wider community. This may be reflected in workplace safety guidelines or corporate social responsibility (CSR) initiatives that help the disadvantaged. “G” alludes to the firm’s governance. Whether a firm upholds strict standards of accounting/ auditing and stays clear of illegal activity may also play a part in determining its place in the investor’s eventual choices.
In recent years, ESG investing has skyrocketed in popularity. Major brokerage firms have offered financial instruments such as Exchange-Traded Funds (ETFs) specifically tailored to such investors while even robo advisors have touted the consideration of ESG principles when designing their mutual funds. To meet this elevated demand, a Morningstar report has found that the number of ETFs specifically adhering to their own sets of ESG standards has increased by 36% to 534 in 2021. The largest Wall Street names such as Goldman Sachs and Bank of America have also regularly disclosed their ESG impacts through the publication of annual reports. There are also concerns over bad actors who unscrupulously pass off their activities as environmentally friendly.
In any case, greenwashing is prime territory for unscrupulous businesses to use to their advantage. Naturally, there are also measures put in place to make sure people cannot make money off such practices. With greenwashing becoming an increasingly real and complicated mess to deal with, companies that are attempting to jump on the ESG bandwagon must be very careful where they tread. With there not exactly being a specific definition of what is an “ESG product”, plus an inability to verify such product credentials without extensive research and investigation, recklessly using ESG as a promotional label could spell doom for such companies. For example, businesses in the UK must follow the Green Claims Code, a framework for checking whether their environmental claims are legitimate. Furthermore, there have been specific legal bodies set up in order to investigate ESG reports and review them for any signs of greenwashing. Naturally, failure to comply (or lying) would result in legal repercussions for breaking consumer protection laws and resulting in ruining of brand reputation, among other things. As such, businesses today must be extremely careful of any claims they make regarding the environment, or prepare to face class action lawsuits. Companies attempting to promote their products with the usage of ESG tags as a form of advertising must be prepared to defend everything from their wording to the way promotional material is arranged on displays. Of course, companies can mitigate these risks by choosing to present the truth in their claims and make a conscious effort to make the switch to more environmentally-friendly practices…but if that was the case, we would not be talking about greenwashing in the first place.
Unsurprisingly, we cannot have misinformation without applying it to the political context. On the international level, major players like the USA and China have made big commitments to climate goals, via multilateral agreements like the Paris Agreement. But in reality, little is actually being done, as enforcement is almost impossible to enact. There is no global body with sufficient power to legally enforce any of the measures set out in climate agreements, thus allowing countries to fail to comply with measures or withdraw entirely (as with USA in 2020) This also has an avalanche effect, as other countries also tend to stray from premeditated goals when they see the lack of consequences. Famously, the Copenhagen Summit in 2009 was a massive failure as many existing goals were dropped and there was a failure to set basic targets, with many countries eventually pulling out.
More recently at the COP27, political debate erupted over countries’ commitments to climate goals, with particular focus on the loss and damage fund. The sticking point is over the need for a new fund to help countries deal with the immediate effects of climate change, like recent flooding in Pakistan. The crux here is the split in contributions between developed and developing countries. Rich nations have resisted the creation of the fund, borne from the fear of having to pay for most of the fund, but developing nations have counter-argued that historically, these very nations played a major role in causing climate change. Another major issue is the 1.5°C commitment, referring to the aim of keeping the rise in global temperatures to just 1.5°C. However, there are fears among climate activists that this commitment might be watered down as the global rise in temperatures has already hit 1.3°C, prompting nations to scale back its aims.
So what does this all mean for our Earth? The future looks bleak, as more and more companies advocate and practice “greenwashing”, while governments look the other way in order to protect economies and livelihoods. Who can we rely on to protect our environment? Behind the veneer of political promises and commitments, it seems no one really cares about this imminent threat. To really enact change, we should rely on our collective voice as citizens of this blue planet to pressure governments and firms to take comprehensive action, while holding them accountable for their inaction. One can only hope that future generations can enjoy a pristine and healthy Earth.
Citations
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Greenpeace Southeast Asia. (2022, March 23). Activists send plastic waste back to Nestle, Call Out Company for Greenwashing. Greenpeace Southeast Asia. Retrieved from https://www.greenpeace.org/southeastasia/press/45221/activists-send-plastic-waste-back-to-nestle-call-out-company-for-greenwashing/
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Hayes, A. (2022, November 12). What is greenwashing? how it works, examples, and Statistics. Investopedia. Retrieved from https://www.investopedia.com/terms/g/greenwashing.asp
The legal risks of greenwashing and how to avoid them. Future Bridge . (2022, October 12). Retrieved from https://future-bridge.eu/the-legal-risks-of-greenwashing-and-how-to-avoid-them/
Philippine Daily Inquirer. (2021, October 4). Plastic 'neutrality' a corporate greenwashing solution. Philippine Daily Inquirer. Retrieved from https://opinion.inquirer.net/144863/plastic-neutrality-a-corporate-greenwashing-solution
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