The deceptive practice employed by businesses to make false or exaggerated environmental claims. Such misleading practices make it challenging for customers and investors to make informed financial decisions based on accurate and legitimate information regarding a company's ethical practices.
We’re seeing more and more products spouting ‘environmentally friendly’, ‘carbon neutral’, ‘sustainable’ in our daily lives. With clear trends that consumers are taking the environment into account when making purchasing decisions, and some are willing to pay a premium for that good or service, it’s important for businesses to keep in mind the impact these representations are having, and what they are communicating.
Why does it matter?
Apart from deceiving consumers that want to do good and supporting businesses that are good for the planet, there’s actually a huge and costly risk to the reputation of businesses and their bottom line too.
Over the last year we’ve seen more and more companies being called out for greenwashing, whether it was intentional or not.
The United States Securities and Exchange Commission (SEC) fined Deutsche Bank’s asset management firm, DWS, $19 million for making materially misleading statements regarding its ESG investment process. (source)
BlackRock has been sued by Tennessee for "deceiving consumers" about their ESG investments. The lawsuit alleges that BlackRock's climate policies misrepresented and omitted information, thus harming investors. (source)
Toyota could potentially face a $50 million “greenwashing” fine, Greenpeace Australia has lodged a complaint with the Australian Competition and Consumer Commission (ACCC) alleging Toyota has made misleading claims about the environmental performance of its vehicles and its net zero ambitions.(source)
The Australian Securities and Investments Commission (ASIC) took three funds– Active Super, Mercer Superannuation and Vanguard Investments – to court over greenwashing claims in 2023. (source)
UK’s Competition and Markets Authority investigates Unilever over green claims on its products, how “natural” products might be exaggerated and images, logos — such as green leaves — could make items appear more eco-friendly than they might be. (source)
Consumer NZ, the Environmental Law Initiative (ELI), and Lawyers for Climate Action New Zealand Inc (LCANZI) have taken Z Energy to the High Court. Z Energy, the second largest greenhouse gas emitter responsible for over 10% of the country's emissions, is accused of breaching the Fair Trading Act with their advertising campaigns creating the impression they’re taking urgent climate crisis action. (source)
We have arrived in this new age where “Greenwashing” is no longer tolerable, and greenwashing litigation is prevalent.
Fines, penalties, media scrutiny, and reputation damage are likely to become more common, as governments around the world enact rules to address the misleading advertisement of goods and services as green.
On the 17th January 2024, the EU has banned the use of general terms such as “environmentally friendly”, “natural”, “biodegradable”, “climate neutral” or “eco” that cannot be substantiated with proof by 2026. Terms such as “climate neutral” or “climate positive”, that often use carbon offsetting schemes to substantiate the claims, will also be banned.
“This new legislation puts an end to misleading advertising for supposedly environmentally friendly products and thus enables consumers to make sustainable choices,” said Anna Cavazzini, the Green MEP and chair of the Committee of the Internal Market and Consumer Protection.
“I am particularly pleased that claims such as “climate-neutral” or “climate-positive”, which are based on CO2 offsetting, have been completely banned from the internal market. Investments by companies in climate protection projects are welcome and of course they can still be communicated,” she said. “However, it should no longer appear that planting trees in the rainforest makes the industrial production of a car, the organisation of a soccer World Cup or the production of cosmetics climate neutral. This deception is now a thing of the past. This is a great success for the environment, the climate and consumers.”
Although the EU ban is limited to businesses that have a marketing presence in the EU, the legislation should serve as a warning to businesses globally.
Over in the land down under, the Australian Association of National Advertisers (AANA) has released a new code for environmental claims, requiring evidence to back up their environment, social and governance (ESG) claims, not use broad, vague or unqualified claims, and not omit important information that misleads consumers. (source)
Regulations like this are sending signals to carbon offsetting schemes, which have often been used to justify the labels, that it won’t be tolerated anymore. These schemes have sometimes been shown to lack credibility (source), misleading consumers into believing they can purchase without exacerbating the climate crisis.
Laws to crack down on greenwashing will not only emerge from a marketing and advertising perspective, but will also be caught from sustainability reporting regulations. The latest Australian climate-related financial disclosure legislation has stated climate disclosures will fall under existing liability frameworks for misleading and deceptive disclosures. Learn more in The latest on Australia's Climate-Related Financial Disclosure legislation
As regulators worldwide become more focused on greenwashing, companies need to be able to back up their green claims with credible data, and if they don’t, they risk facing consequences.
How can businesses manage the risk of ‘Greenwashing’?
It’s a simple concept: Be honest, transparent, and back up your claims with credible data.
You can only get credible carbon data if you approach it with the same rigour and robustness as with financial data. That’s why we believe accountants can help businesses to account for their carbon emissions. By bringing the data to light, businesses can minimise risks, make informed decisions, and ultimately take action towards a more sustainable future.
Learn more about carbon accounting and how accountants play a role here
An example from the Australian Competition & Consumer Commission (ACCC)’s Guide for Businesses Making Environmental Claims has made it clear businesses must quantify its carbon emissions, including its baseline emissions in a formal and reliable way (🔔🔔🔔 here’s where your accountant can help!)
Read the guide for more helpful examples on what is good practice and what may be considered as misleading.
The EU has taken the lead with its greenwashing ban, and we anticipate the rest of the world will follow. Stay ahead now with these resources, so you don’t get caught unintentionally greenwashing, and start on your carbon accounting journey.