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How greenwashing can stain your reputation - and how to reduce the risk

June 29, 2023

Accusations of greenwashing are becoming more than a source of embarrassment for businesses. With increasing legal and regulatory scrutiny of sustainability claims, they could cause real reputational and financial damage.
Casualty|Climate|Medioambiental|ESG and Sustainability|Marine
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Environmental activists, non-government organizations (NGOs) and charities have been calling out discrepancies between marketing claims and reality on everything from carbon emissions and plastics pollution to modern slavery for years.

Often, large companies have been able to deflect these accusations with good public relations and emerge relatively unscathed.

However, that might be about to change as regulators start to get more involved in policing sustainability claims.

In the UK, the Financial Conduct Authority has announced plans to clamp down on greenwashing in the promotion of green investment products.[1]

In many countries, consumer laws are being tightened to prevent misleading claims and misrepresentation.

In many countries, consumer laws are being tightened to prevent misleading claims and misrepresentation.”

Trent Williams | Head of Broking, Australasia

Campaigners are becoming increasingly sophisticated in publicising allegations of greenwashing through social media and, in some cases, are bringing legal claims against the companies they accuse.

Brands in industries such as grocery, food and beverage, and aviation, are facing class actions[2], and courts in the U.S. have awarded large fines in such cases.

So how can businesses tell their sustainability stories without risking accusations of greenwashing, which could lead to reputational and financial damage?

Implementing stronger internal systems can help you measure and report more accurately, while external horizon scanning can help you pick up on negative perceptions of your sustainability performance early to inform better decisions.

A difficult path to navigate

Typical greenwashing accusations that have hit the headlines include companies claiming their plastic packaging is recyclable when it isn’t; fossil fuel industries overclaiming the scale of their renewable activities; and fast fashion firms making sustainability claims while contributing to waste clothes mountains and bad practices in the supply chain.

There are also stories of businesses using fake or non-accredited certifications to demonstrate green credentials.”

Trent Williams | Head of Broking, Australasia

There are also stories of businesses using fake or non-accredited certifications to demonstrate green credentials, making vague ‘eco-friendly’ claims without any evidence, or putting misleading information on product labels.

But most businesses are genuinely trying to be more sustainable and want to show how they are fulfilling their fiduciary duty to act in the interests of their customers and stakeholders. That can be a difficult path to navigate.

Some are so concerned that their claims could be misinterpreted that they are now ‘green hushing’ – downplaying sustainability performance for fear of facing greenwashing accusations.

The lack of consistent standards

Part of the problem has been the lack of authoritative standards that companies can use to measure and benchmark their performance, with multiple metrics and performance indicators for the same sustainability criteria.

Many different audit and accreditation organizations compete to provide assurance of environmental, social and governance (ESG) claims and reporting. This can lead to confusion as, unlike financial reporting, there is no single version of the truth.

Because companies have to pay these organizations to audit or assess them, there’s also suspicion that they are paying to get a good score. This is especially true in areas such as carbon emission and net zero targets, which are the most heavily scrutinized aspect of sustainability performance.

Regulations and penalties increasing

In the absence of adequate voluntary standards to assure ESG claims and reporting, regulators are increasingly stepping in.

In the absence of adequate voluntary standards to assure ESG claims and reporting, regulators are increasingly stepping in.”

Trent Williams | Head of Broking, Australasia

Initially, the focus has been on financial regulation, with large penalties being imposed on banks and asset management firms that make misleading claims about sustainable investments and funds.

However, this is now being picked up by other regulators in areas such as advertising standards and competition law, and could become a much greater factor in the future.

Many countries have already introduced mandatory reporting in line with the Task Force for Climate-related Financial Disclosures.

New reporting rules are expected from the International Sustainability Standards Board in 2024, which could strengthen rules for non-financial reporting of waste and emissions.

How to reduce your risks and protect your reputation

Understand where your risks come from

Make sure you know how you’re doing across all areas from diversity and inclusion to your supply chain before you make any bold sustainability claims.

A transgression in any of those areas could trigger accusations of greenwashing, even if the claim is unrelated to the sustainability claims you’re making.

Be careful what you say

Don’t green hush, but do err on the side of caution. Overclaiming green credentials can be as bad for your reputation as concealment or lies.

Back up your claims with evidence

There has to be substance behind any claims you make. Make sure that public statements on sustainability are accurate and can be supported with reliable and up-to-date evidence.

Establish strong governance structures

Update your risk management procedures and controls to include sustainability criteria.

Have a plan for how to deal with any greenwashing accusations you face and embed it across the organization.

Monitor social media in real time

Track everything that’s being said about your company and its sustainability on social and news media in real time.

It could help you pick up on signs that something is going wrong before it turns into a crisis.

Footnotes

  1. The Financial Conduct Authority (FCA). (2022, October 25). FCA proposes new rules to tackle greenwashing [Press release]. Return to article
  2. Collins, S., & Northrup, L. M. (2022, July 25). The Legal Risks of Greenwashing Are Real. Bloomberg Law. Return to article
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Head of Broking, Australasia

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