Greenwashing: 6 reasons why businesses do it
With our climate in imminent peril, biodiversity in meltdown and inequality leading to rising tensions, the need to trust what businesses say is more important than ever. But how are we supposed to trust businesses with the ever-present threat of greenwashing?
By Jason Perks, Senior Director of Strategy, DNV UK
Individuals, investors, and even regulators are now, more than ever, holding corporations to a higher degree of accountability and demanding transparency throughout their supply chain and operations. In spite of this, greenwashing is at an all-time high. Greenwashing can take many forms, excellently summarised by Planet Tracker.
Willis, J., The Greenwashing Hydra. Planet Tracker (2023) (https://lnkd.in/e5b7t6Nr)
As the stakes get higher and companies feel increasingly under pressure to make green claims that burnish or protect their business, we need to understand and address the causes.
What causes greenwashing?
While it is a complex and ever-evolving issue, the underlying causes can be attributed to six key factors.
1. Lack of informationWithout robust data documenting companies’ practices throughout the value chain, it is difficult to obtain a clear picture of overall impacts and true performance. All too often, the focus of governance may rest on a few key metrics, most notably carbon emissions (and often only scope 1 and 2), while ignoring the wider picture. Ultimately, this lulls leadership into a false sense of security and convinces them that they are ‘doing the right thing’ while there are still glaring material issues, environmental, social, or economic elsewhere.
2. Lack of transparency
Most greenwash is a lack of transparency, whether intentional or not. Planet Tracker’s graphic above shows the many forms this can take. Underlying all is a lack of commitment to transparency or actively ensuring open disclosure. Typical examples range from simply not disclosing, through cherry-picking the rosiest facts and obscuring facts with waffle, bluster, or less-relevant data, to downright lying.
3. Lack of ambition
Failing to understand the scale and urgency of action needed or the organisation’s role in delivering the change often underpins claims that misrepresent. Communicating a positive perspective, despite slow, gradual improvement, or maintaining a ‘good enough’ status quo, is simply not enough.
4. Lack of accountability
Internal governance is essential to ensure delivery on the goals and commitments made on all material topics. Too often there is little real accountability for setting, monitoring, and delivering outcomes in sustainability, and even when there is, there is little consequence for failure.
External accountability is essential for driving internal accountability. Regulators, NGOs, investors, the media, and social media need to hold companies to account when they mislead or lie. While this is increasingly happening and regulation is tightening, far more accountability is needed.
5. Lack of incentiveDespite calls for the prioritisation of transparent sustainability reporting, many business leaders remain unbothered by the looming environmental catastrophe and fail to see the benefits of avoiding greenwashing and supporting sustainable growth. Accountability and incentive are a 'carrot and stick' situation; those involved in internal company governance, regulators, investors, and consumers can all incentivise positive change by rewarding those who make the right choices.
6. Lack of clear expectations and standards
There are several different standards and frameworks for the measurement and reporting of sustainability/ESG practices and performance (e.g., Global Reporting Initiative (GRI), ESRS ISSB, SASB, TCFD, the EU Green Taxonomy and the recently finalised CRSD). These standards have all been instrumental in driving disclosures, however, their lack of consistency and alignment have complicated the reporting landscape creating space where greenwashing can thrive. Standards often also lack sufficient rigour or ambition to drive truly sustainable outcomes, again enabling reporting to appear misleadingly meaningful.
In short – the lack of external drivers creates an operating environment where greenwash can thrive unless there is strong leadership and governance and a resulting culture to avert it.
Stay tuned for our next article which will be about how businesses can avoid greenwashing and how DNV can help manage this risk.
06.02.2023 0:00:00