Greenwashing is a nasty issue, but pressure from consumers, investors, and governments is making it tougher to hide deceptive sustainability claims.
More than 60% of Americans understand the threat posed by climate change. As a result, they are willing to spend billions on products with less environmental impact. But some companies are eager to "greenwash" their practices to make a profit. This article will outline how prevalent greenwashing is, what pressures discourage it, and how they encourage authentic change.
Greenwashing Is a Persistent Issue
In 2021, the European Commission ran a wide-ranging test of websites to gauge the prevalence of greenwashing. They found that 42% of the "green" claims were deceptive, exaggerated, or false. In addition, 37% of the claims were no more than vague statements, including terms like "eco-friendly" and "sustainable.”
Over half the examined websites left consumers in the lurch, providing no specific evidence for their claims. Moreover, more than half provided too little context for consumers to independently determine or verify their accuracy. On its face, these data are a stinging indictment of the present state of green marketing.
High-Profile Companies Are Becoming More Sustainable
On the other hand, many high-profile companies are verifiably setting and meeting sustainability goals. While these businesses are not above reproach, they have performed well recently by improving transparency and specificity when touting their achievements.
For instance, Apple’s corporate operations are carbon-neutral. In addition, assembly facilities for the iPad, iPhone, Mac, Apple Watch, HomePod, and AirPods are waste-free.
Unilever is one of the largest consumer goods producers in the world and is open to criticism for the amount of single-use plastic in its supply chain. However, it has maintained a no-waste-to-landfill policy since 2016. Furthermore, it is making progress in its drive for 100% recyclable, compostable, or reusable packaging by 2025.
Finally, in 2019, Bank of Montreal made the (then) most significant commitment to sustainable lending. It promised that, by 2025, it would “mobilize $400 billion for sustainable finance, increase support for small businesses and women entrepreneurs, and commit to zero barriers to inclusion.”
Startups are in a great position in 2022.
ESG Criteria Are an Emerging Concern for Greenwashing Businesses
So, with evidence that both sustainability and greenwashing occur, how do we know what direction we're headed? Unfortunately, it is challenging to observe the trend directly.
However, we can draw inferences from the rise in how banks (like Bank of Montreal above) rely more on environmental, social, and governance (ESG) criteria for investing and finance. Simply put, ESG criteria are standards that lenders put in place to determine the viability of an investment. If a potential borrower does not meet the lender's social, regulatory, or environmental requirements, they don't invest.
According to S&P Financial Services, from Q1 2018 to Q4 2020, the number of S&P 500 companies that cited ESG concerns in their earnings calls rose from 5 to 129. Moreover, the value of sustainable bonds issued in the same period rose from about $200 million to $1 trillion. These increases jive with the results of a Quilter Investors 2021 poll that shows greenwashing is the number one concern of 44% of investors.
The conclusion from these data? Investors are paying closer attention to how companies deal with environmental, social, and regulatory issues. They understand that consumers will support businesses that prioritize them with their money. As a result, and as data suggest, lenders who stick with ESG-meeting companies are reaping the benefits. Greenwashing companies are increasingly left out to dry.
Consumers and Governments Exert Influence Against Greenwashing
From below, consumers are becoming more educated about sustainability and placing higher demands on companies to mirror their values. More than half are willing to pay more for eco-friendly products, and 80% intend to increase the amount they buy. Moreover, reports suggest up to 20% of consumers in some countries have already boycotted products making dubious sustainability claims.
Government regulations are also pressuring businesses to become more sustainable. For example, New York banned plastic bags, while California mandated organic waste recycling in 2016. Furthermore, the EU is leading the way in pushing for universal standards on sustainability reporting. As time passes, the scrutiny on businesses will increase from all sides.
Companies Are Changing to Avoid Being Left Behind
The pressures from above and below have started to effect substantive changes in sustainable business practices. First, as noted above, there has been a sharp rise in ESG investment. As early as 2018, nearly 25% of all managed assets ($20 trillion worth) passed through ESG criteria. Although the requirements differ from one lender to another, the fact that so many companies are reaching them is encouraging.
Positive signs also include many corporations committing to zero-waste production lines. The processes to divert more than 90% of a company's waste away from incinerators and landfills look different across industries. However, consumers and investors alike have rewarded companies that achieve incremental goals along the way to zero waste.
Society Demands Sustainability
Greenwashing has been around for decades and will likely persist into the future. However, several prominent corporations have met verifiable goals on the road to sustainability. As pressure mounts on companies from consumers, investors, and regulatory agencies, it will become more difficult for businesses to deceive consumers. Although much work is needed, the momentum is building towards a more sustainable future.
Mind the Gap – Every business owner knows sustainability is essential, but too few make it an explicit part of their long-term strategy. Even fewer consider it in their initial business plans. Reduce the gap between knowing and doing.
Separate Compliance and Competition – Meeting government regulations and ESG criteria will keep you focused on the big sustainability picture. Once you have addressed these, focus on positioning your individual products in the context of your proven commitment to the environment.
Start Sustainable – Startups are in a great position in 2022. It is easier to be sustainable when it's woven into the core values and mission of the company. Make sure you're not in a position where you need to re-formulate your company's values 10 years down the road.