Greenwashing – A major pitfall on the road to Net Zero

Written By :

Corporate Communication

Published On :

6 May 2024

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The world is grappling with the emergency of climate change and the pursuit of net zero emissions has become more important than ever. Governments and businesses worldwide are pledging to the cause with more than 140 countries and half of the world’s largest companies committed to net zero. However, despite the growing targets, there is an increasing concern about the credibility of these efforts, and here lies a perilous pitfall- greenwashing.

What is greenwashing?

Greenwashing can be looked at as a shadowy phenomenon, a deceptive practice where a company/ entity portrays its products and practices as environmentally sustainable, doing more environmental protection than they really are. Over the years greenwashing has taken various forms, from vague claims of being “green” to misleading labels such as “eco-friendly” to selective communication about the company’s sustainability attributes and false solutions to the climate crisis. These tactics trick us into thinking that things are improving and changing, while the reality is otherwise.


Greenwashing examples

There has been growing evidence, that reveals the alarming trend of escalating greenwashing practices across various industries. A report by Reprisk shows, the instances of greenwashing have surged by 35% in the past year alone, with sectors like finance and banking witnessing a staggering increase of 70%. Moreover, the financial sector has had the second-highest share of such incidents during the last two years, after the oil and gas businesses.

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Why the hurry to decarbonize       

Earth’s temperature has risen by more than 1°C in the last century, a direct consequence of increased greenhouse gas emissions. There are fluctuations in global temperatures. We see melting ice caps, rising sea levels, air pollution, natural disasters, changes in agriculture...                                                                                                                                                

Additionally, companies engaging in greenwashing or making false environmental claims accounted for ~25% of climate-related risk incidents in 2022-23. These incidents not only represent half-hearted commitments but extend far beyond mere deception, they affect both organizations and society at large.


Impact of corporate greenwashing

One of the most immediate and tangible consequences of greenwashing is the reputational damage for a company. In a world where consumers are more socially aware and conscious than ever, these practices lead to severe backlash, with a tarnished brand image and loss of consumer trust.


Further, companies may also face legal and regulatory consequences, including lawsuits, fines, and regulatory scrutiny, due to false and misleading claims. Another problematic consequence of greenwashing is the diversion of resources away from genuine sustainability efforts - companies end up allocating resources to superficial initiatives instead of meaningful and sustainable initiatives, which hampers innovation and undermines the overall progress toward sustainable goals.


The dilemma and problems caused by greenwashing does not end here. Data suggests there is a growing overlap between greenwashing and social washing with 18% of companies and 31% of public companies engaged in greenwashing since 2018, also being linked with social washing. Moreover, this alarming correlation is most evident in the US and the UK, with 39% and 44% of businesses respectively, engaged in both practices.

As the threat of greenwashing looms large, it is important that organizations navigate the risks and take appropriate measures to mitigate the threat head-on. To start with, there is a need to implement robust governance frameworks in the form of procedures & policies developed through collaboration between management and compliance, providing clear guidance on potential greenwashing risks and mitigation techniques. Additionally, organizations must focus on enhancing awareness among employees through training programs and ensure staying up-to-date with the developments in the marketplace.


Organizations also need to focus on clear and accurate disclosures. Today, nearly all of the Top 250 firms in the world (G250) report on sustainability, but it is important to ensure the information/ data provided is not cherry-picked. Moreover, to evaluate and verify claims, businesses should also consider third-party verification and legal audits.


As the next steps, organizations must prioritize due diligence of current and future sustainability claims which will help them mitigate immediate risks and rebuild trust with stakeholders. It is time organizations look into transactional due diligence and consider the counterparty’s sustainability profile while entering into new agreements, ensuring alignment with the organization’s relevant policies & processes. Only through collective action, transparency, and accountability can we navigate our path towards a net-zero future and avoid pitfalls like greenwashing.