Unenforced regulation
The EU Parliament has implemented
a voluntary labelling system for companies that want to promote
their products as being eco-friendly. This system awards a company with an “Ecolabel” based on its ability to prove that it meets certain standards regarding production methods and materials used in its products. The EU Ecolabel only applies to European markets, however; it does not apply elsewhere in the world, which leaves most countries without any labelling requirements for eco-friendly products.
The Federal Trade Commission in the USA has
guidelines on the use of “environmentally friendly” labels and advertising, in which they outline that marketers should not go overboard with making their products appear as if they are better for the environment than they actually are. The FTC also recommends that companies should avoid certain language when labelling a product as “environmentally friendly,” such as “eco-friendly,” “natural,” and “organic.”
The UK government has also issued its own
guidelines through the Competition and Markets Authority for businesses making environmental claims. As with other similar initiatives, these guidelines don’t constitute legal advice, and are set out to help businesses comply with any enforcement authorities.
“[The taxonomy] should create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed.”
The Securities and Exchange Commission in the USA has also set up an ESG (Environmental, Social, and Governance) task force, which is set to proactively identify ESG-related misconduct.
The challenge with these initiatives continues to be enforcement, as the majority of regulative efforts or compliance / audit systems are voluntary, limited by the reach of individual governments, and typically rely on businesses choosing to adopt guidelines or recommended practices.
Fortunately, there is some good news when it comes to regulation – notably, recent
legal action has been prepared against the directors of Shell, in what environmental lawyers ClientEarth describe as a failure to adequately prepare for the global shift to a low-carbon economy. ClientEarth claim an alleged breach of the directors’ duties under the UK Companies Act.
A case like this would be the first of its kind, and could set a powerful precedent for other such breaches to be addressed.
Greenwashing: a major turn off
A number of studies have shown that, when discovered, greenwashing can not only severely negatively impact consumer trust in a brand, but could even turn consumers away from environmentally responsible behaviours.
The rise of greenwashing is starting to lead consumers to doubt the authenticity of all socially responsible claims. More and more brands are finding that customer loyalty is being replaced with scepticism as a result of misleading environmental claims or branding. With the future of the planet hanging in the balance, we simply can’t afford to allow this problem to continue to exist in the marketplace.
[See University of Michigan / Critical Perspectives on Accounting]
For companies that are truly committed to positive environmental impact, there are five critical steps to take to fight greenwashing by consumers and stakeholders alike:
1) Be open about sustainability initiatives, providing impact data, process details, accreditations, or certifications.
2) Write and talk about your efforts in a way that is clear, understandable, and not confusing.
3) Use the most standardised ESG terms so that everyone is on the same page.
4) Engage with an ESG expert if needed.
5) Test your ESG efforts with consumers before going public.
Want to make sure your brand isn’t guilty of greenwashing? We offer an ESG sustainability audit service that evaluates the environmental and social risks of your businesses products, operations, or services. It also helps reveal any potential risks to the authenticity and reputation of your brand quickly, addressing them before they become a bigger problem.
