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Environmental labels and sustainability claims are being used more and more as marketing tools to convince consumers to believe that buying such products would contribute to the development of a more circular economy. However, unfortunately, many of these claims are often vague and unsubstantiated. The problem is that they create the illusion of sustainability in order to appeal to a market that is becoming more and more concerned about the impact of their consumption on the environment, and who is actually ready to pay more for it. In today’s blog post, we explore what’s happening, what’s coming, and how as Ethics & Compliance teams we have a role to play in protecting our organizations from it.
I like the definition of greenwashing as “the practice of giving a false impression of the environmental impact or benefits of a product, which can mislead consumers” (Stopping greenwashing: how the EU regulates green claims). Simple enough.
One thing that is important to remember is that greenwashing is very much living on a spectrum, “ranging from outright deceit to wishful thinking” (KPMG - Greenwashing, greenhushing and greenwishing: Don’t fall victim to these ESG reporting traps).
I propose that we start by delighting ourselves with the different practices that are relevant to our topic:
These practices are not only misleading to consumers, but also harmful to the environment.
First, it allows other players to do the same and erodes the trust of consumers. It hides the efforts of the companies that are really working hard to do the right thing.
More generally, it creates a lack of accountability which ultimately prevents the development of a sustainable economy, and hinder the development of fair competition between companies to create more environmentally friendly products.
Bad for the planet, bad for consumers. And also bad for companies, the gap created by companies between the consumers' expectations and the company's actual environmental impact, can for sure lead to criticism and backlash. The reputational risk is huge and the legal risk is pretty significant (even though the seriousness and dissuasive effect of the enforcement still varies greatly between countries, as highlighted in the March 2024 report by the EU Agency for Fundamental Rights).
It’s also bad for my market share and talent management as an organization.
Generation Z encompasses 32% of the world's population and is the largest generation ever. Born between 1996 and 2010 Gen Z is 13 to 27 years old.
Investing in sustainability matches the expectations of these new consumers, the adults of tomorrow, the ones who by 73% report that the climate crisis is terrifying them, impacting their mental state (‘Terrified for my future’: climate crisis takes heavy toll on young people’s mental health - The Guardian, 30 Mar 2023).
These consumers are also the ones who absolutely will not buy from companies who do not care: according to a First Insight report, The State of Consumer Spending: Gen Z Shoppers Demand Sustainable Retail, 62% of Gen Z prefers to buy from sustainable brands, and this number is very likely to grow.
A McKinsey study showed that 70% of Gen Z respondents “try to purchase from companies they consider ethical”, and they do remember scandals or controversies involving a company. In fact, 80% of them refuse to buy goods from companies involved in scandals.
If we take data coming from self assessment, it’s pretty big. In a 2022 survey, 58% of global execs (and 68 % of US executives) admitted being guilty of greenwashing and two-thirds of executives questioned whether their company’s sustainability efforts were genuine.
This self perception is also properly backed by empirical research: a study by the European Commission made in 2020 actually found that more than half of green claims made online lacked evidence, meaning no sufficient information was available to confirm whether the claim was accurate (Screening of websites for ‘greenwashing': half of green claims lack evidence).
“In their overall assessments, taking various factors into account, in 42% of cases authorities had reason to believe that the claim may be false or deceptive and could therefore potentially amount to an unfair commercial practice under the Unfair Commercial Practices Directive” (Screening of websites for ‘greenwashing': half of green claims lack evidence).
It’s a big market, one of conscious consumers, and companies want to appeal to this market demand.
It’s also a crowded market, and environmental claims are a great way to stand out
60% of respondents to a McKinsey survey said they would pay more for sustainable products (McKinsey survey). If people are ready to pay more for sustainable products, a company can charge a premium for such products easily.
Often enough, companies want to do good and are well intended, they just don’t know how to communicate well on their efforts, they work with agencies who are not well versed on the topic, and are very surprised by the backlash that may occur afterwards.
This topic has historically been driven by engaged citizens & NGOs. It expresses itself best in the form of social media outrage. Companies launching campaigns will face backlash right there (and better be ready to monitor the negative buzz). That is not the only place though: misleading claims towards consumers typically qualify an unfair commercial practice and this is regulated in many countries. Citizens, associations have been taking companies and their campaigns to court for that, using the existing legal frameworks in their countries, often pretty successfully. To note: for many NGOs, winning in court is not the only goal, the goal is to attract attention and ensure public awareness around the practice in question.
If you’re interested in having a look at campaigns that were taken down, and in exercising your critical eye, check out the great Akepa’s blog post Greenwashing: 14 recent stand-out examples.
The regulatory landscape is also changing. We are shifting from an inclusion of these practices in the general corpus of laws related to false or misleading advertising, to specific greenwashing guidelines and dedicated regulations, also unified at the EU level.
In this blog post, we will focus on the EU corpus which is deep diving on greenwashing, but several national regulations are already pretty advanced in regulating greenwashing specifically (I’m thinking of the 2021 French Loi Climat et Résilience, for example). Various authorities and governmental agencies have also been stepping up and providing detailed guidance (for example, in the UK, the Competition & Markets Authorities guidance on environmental claims on goods and services, or in France the anti-greenwashing guide published by ADEME).
In the EU, since the 2019 Green deal, we’ve taken the commitment to tackle false environmental claims by requiring that consumers receive reliable, comparable, and verifiable information to enable them to make more sustainable decisions and reduce the risk of greenwashing.
The numbers are indeed scary, I’ll paste them below:
Source: EU Commission - Green Claims
I would like to focus on two fairly recent directives that aim at addressing greenwashing specifically:
Let’s start with the Directive Empowering Consumers for the green transition through better protection against unfair practices and better information (February 2024).
The Directive makes a number of amendments to the list of unfair practices included in the 2021 Unfair Commercial Practices Directive.
“In order to contribute to the proper functioning of the internal market, based on a high level of consumer protection and environmental protection, and to make progress in the green transition, it is essential that consumers can make informed purchasing decisions and thus contribute to more sustainable consumption patterns. That implies that traders have a responsibility to provide clear, relevant and reliable information” (Directive Empowering consumers for the green transition through better protection against unfair practices and better information, Recital 1).
Member States must have transposed the new rules by September 2026.
This Directive notably provides:
This Directive will be supplemented by the Green Claims Directive.
The proposed European Union Green Claims Directive ("Green Claims Directive") was tabled by the European Commission in March 2023.
This Directive should apply to all voluntary claims made by companies:
Here are some of its key requirements (may be subject to change as the text keeps evolving):
These 2 directives extend beyond the EU in the sense that any company that makes a voluntary environmental claim directed at EU consumers will need to comply with such requirements.
Such unified European regulations will definitely bring some advantages:
Ethics and compliance teams play a crucial role in helping our organizations avoid greenwashing by fostering a corporate culture that prioritizes ethical conduct, including fostering a genuine and honest sense of environmental responsibility. As always, leadership must set the tone, with senior management actively promoting authentic sustainability efforts. A key focus should be put on having the right governance, and a committed leadership.
How can we impact our culture? Generally, the attitude we display as an organization towards sustainability is really important as to how we will be perceived. It is better to make small steps, and to be humble about the approach and the challenges that we face. This may be representative of our culture: are we genuine? What are our values?
Leading our sustainability initiative in an organisation is a huge cross-functional project in itself, to identify, know and analyze our impact, the impact of our supply chains, report on them, and then have a concrete time based plan on what to do about them. Depending on organizations, who coordinates this project may vary, which doesn't matter as it is truly cross functional initiative at the end of the day. The key here is that we have reliable data for our organisation, because greenwashing will often start where we don't have data. We need access to valid information and accurate data to properly manage and report.
As to the prevention of greenwashing more specifically, which is our focus in this post, below you’ll find a few ideas (by no means exhaustive), on how we can help our companies get better and get ready for what is to come. And yes, depending on where you operate, you will likely have to adopt the most restrictive approach to make sure you satisfy all the frameworks that are potentially applicable to your organization.
It’s always a good idea to get a view of where we stand, in order to make a plan for where we want to go.
What is being done today, by whom? Are we carrying proper life cycle analysis of our products and services? Who’s in charge and accountable? Map who does what, and who contributes to make sure there is no gap. Which other departments take care of what? Map the stakeholders to make sure we are clear as an organization as to where the responsibilities lie. How is our supply chain? Do we know what their impact is? How are our products being used downstream?
Then, let’s examine how we communicate today. Assess your risks, conduct an audit to review marketing materials, product labels, reports and other company communications, in light of the coming regulation and industry recommendations, in order to identify any discrepancies, vagueness, absence of backing up of claims and generally, any inconsistencies. This can be a very educational exercise, as you’ll communicate the results and findings back to the various stakeholders. Don’t hesitate to work with external experts to train yourself and become an expert too, progressively.
Once we know where we stand today, we have some great substance to make a good plan forward. It will be a good idea to develop company-wide guidelines for environmental claims and communications. Also consider having similar guidelines that need to be followed by your agencies and included in the agencies contracts.
One will want to collaborate closely with marketing, sustainability and other departments to ensure consistency and accuracy in messaging. Work together on a process to ensure green claims are reviewed at the right level with the right expertise before they are made public.
Once we have created internal guidelines and rules, increasing the awareness of our colleagues will be key. This is a very misleading topic indeed and training is warranted to get better and better at spotting what may be problematic or misleading in claims. I recommend using very concrete examples to sensitize your teams, enabling them to spot potential greenwashing and providing them with concrete action points and checklists to avoid it. It’s also a lot of fun and practical training sessions that you will have right there.
On this, National authorities typically offer very useful resources, such as the French Agence de la Transition Ecologique’s anti-greenwashing tool, which allows companies to self-test claims and campaigns: check out for example L'outil en ligne anti greenwashing. In some countries, you can also seek the consultative advice of dedicated public bodies on a given campaign before publishing it.
As to how to spot the negative buzz, you can also work to to implement monitoring practices using tools and software to track external communications, social media, and customer feedback to hear what the public has to say and spot any backlash or negative buzz early.
Don’t forget to establish clear internal mechanisms for employees (and third parties) to report potential greenwashing claims without fear of retaliation.
Lastly, what is the process to integrate our learnings back into our framework? Are we ready to handle a crisis?
When a backlash, negative buzz, or lawsuit occurs, restoring trust typically begins with recognizing the mistake and taking immediate measures to ensure it doesn’t happen again.
A posture of humility and sincerity is essential in managing a public crisis. Acknowledging the challenges ahead shows stakeholders that the company understands the gravity of the situation and is committed to meaningful change. This can be made with:
We all make mistakes, the goal is to learn from them. And of course, once the crisis is behind us, teams should receive targeted training to address the gaps that led to the issue, and processes should be adjusted accordingly. You know the drill! Never waste a crisis, they are often the best way for an organization to learn and truly enact change.
To conclude, it’s time to get serious about how we can prevent greenwashing, and E&C Teams have a great role to play to prevent, mitigate, and help create a culture of genuine efforts that communicates genuinely.
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