GREENWASHING RISKS

Greenwashing, whereby companies use ‘green PR’ or ‘green marketing’ to create a misleading perception that their products or services are environmentally friendly or socially responsible, is on the rise. Consumers are increasingly seeking eco-friendly, socially responsible brands and services, for which they are willing to pay a premium. This premium, among other factors, may drive businesses to greenwash their products and services. In times of economic uncertainty, such as those caused by the coronavirus (COVID-19) pandemic, greenwashing can be particularly tempting.

Greenwashing often undermines positive efforts to address areas such as climate change, carbon emissions, biodiversity loss, unsustainable water use, waste generation, air pollution and deforestation, by distorting the facts. It can also misdirect environmentally conscious customers toward disingenuous products and organisations. As such, the practice gives rise to serious risks.

Growing awareness, rising pressure

Companies have been accused of overplaying their ‘green’ credentials for some time; indeed, the term ‘greenwashing’ was first used by environmentalists in 1986. But awareness among consumers and investors has certainly increased in recent years. According to inriver, 62 percent of UK consumers said they would reconsider their purchasing decisions if retailers better communicated the environmental impact of delivery, for example.

Investors, too, are increasingly conscious of environmental issues. According to a 2020 survey conducted by Schroders, 60 percent of respondents said that actively engaging companies within their portfolios on environmental issues was a priority, up from 38 percent in 2019. More than two-thirds (67 percent) said they had integrated new environmental requirements in decision-making processes. And according to SwissRe, investment funds are increasingly flowing into green initiatives, with global environmental, social and corporate governance (ESG) assets expected to surpass $53 trillion by 2025.

Jan-Mar 2022 Issue

Richard Summerfield