Greenwashing, the practice in which companies misreport or deceptively convey environmental or social responsibility to the public, has been on the rise in recent decades as consumers, investors, and policy makers grow increasingly concerned about corporate sustainability. One study from the Paris-based EDHEC Business School, for example, found that many investment funds claiming to meet environmental, social, and governance (ESG) criteria use these standards for only 12 percent or less of their overall methods. It’s an unusually small percentage, given that sustainability is their primary selling point.
A Look at Greenwashing
Many forms of greenwashing exist, but two in particular stand out:
- A) Promising but not following through with sustainability commitments, and
- B) Following through with sustainability commitments, but with uninspired actions that demonstrate markedly low impact or effort. This is by far the majority of greenwashing cases.
The primary difference between the two is that in case A, the company is obviously lying, and in case B, the company is displaying a token gesture of responsibility. But both strategies have the same objective: to convince consumers, investors, and policy makers to support their business while making only minimal material commitments.
This obviously creates issues. If stakeholders do not have the proper information and metrics to test the validity of a company’s claims, or if regulatory bodies do not enforce transparent reporting standards, we run the risk of unwittingly supporting harmful business activities in the name of sustainable progress. On top of that, in an economic system that encourages financial return above all else, businesses have the perverse incentive to minimize their true social and environmental commitment in order to remain competitive.
This can be seen with a simple illustration. If you and 100,000 of your closest friends go out for a fancy dinner and rack up a bill of several million dollars, it would take an inordinate amount of benevolence for you to cover dinner for everyone, and you would likely become insolvent in the process. A better solution would be if each person paid for their own dinner. Now imagine you are a business, and everyone else at the table is your competitor. In this scenario, any amount you sacrifice to help the group now makes you worse off and benefits all of your competitors.
Corporations, however, have the incentive to appear sustainable since they know it influences purchasing decisions. Most businesses will only make responsible commitments if they protect their brand and increase financial returns, but they won’t go further.
Knowing that businesses systematically have the incentive to greenwash, what can we do to truly hold them accountable?
The Individual’s Role
Many individuals feel powerless, thinking that their actions have a negligible impact. On the contrary, the only way changes can emerge is through a combination of individual behavioral choices and large-scale political or cultural shifts in which we each play a crucial role. After all, we are the ones who buy these products, we are the ones who put votes in the ballet boxes, and, to some extent, we are the ones with money in 401(k)s investing in these companies.
Granted, regulation would likely be the most effective solution, and certainly we are not at fault for the actions of large corporations, but that doesn’t mean we are powerless. After all, the fact that businesses are even taking the time to greenwash shows that our changing preferences are altering the actions of the corporate world. That’s progress.
Now it’s time to raise the bar. We must understand that changing macro-scale systems is a challenging, often messy job of trial and error. So we have to see greenwashing for what it is—the outcome of integrating a new social contract into the old order. This calls upon the best in each of us to work together to increase our standards, educate ourselves and those around us, and continuously examine and improve our consumption habits.
Perhaps most importantly, we need to find ways to communicate our preferences to businesses and to each other in order to amplify our voices. Our call to action is clear: to push through the veil of greenwashing, vote responsibly with our pocketbooks, and develop a culture of sustainability to make for a better world.
Greenwashing isn’t the only issue on the road to sustainability. Listen to this month’s Mapping The Green Transition podcast with Dr. John Ikerd on the ethics and economics of industrial agriculture.