Tightening the noose on greenwashing

ESG
ESG

Greenwashing is a serious crime because it creates the illusion that more is being done to combat climate change than is the case, hampering anti-global warming efforts to the detriment of humanity. Unless they are unmasked, the culprits enjoy the reputational and financial rewards of the phony green sheen they have applied to their operations. 

Greenwashing can be subtle. For instance, a greenwasher may paint an incomplete picture of their ESG efforts by highlighting their investments in clean energy without disclosing that they have simultaneously ramped up their investments in brown energy.

Such selective reporting qualifies as misrepresentation. Another cunning approach is where companies report their ambitious ESG targets to gain credit in advance without subsequently working towards achieving these targets. There have also been instances where ESG reporting is couched in vague sweeping language to make greenwashing imperceptible. For example, claiming that a product is “planet friendly” without providing a basis for this assertion based on say recyclable packaging or a low-waste manufacturing process.

To mitigate against greenwashing, companies should ensure completeness and precision in their communication when touting their ecological initiatives. As an illustration, instead of professing to be "carbon neutral", they can specify the emissions reductions achieved and the methodologies employed.

Before making any proclamations of ESG successes, a company should undertake due diligence to ensure that such claims are evidence-based. This can involve seeking certifications from reputable independent experts to validate and verify the claims, especially for larger corporations which typically publish elaborate sustainability reports.

Such external ESG audits add credibility and provide a defence should greenwashing accusations be made. Commendably, some companies have taken their anti-greenwashing commitment a notch higher by thoroughly evaluating the sustainability practices of the vendors in their supply chain to safeguard against exaggerating the green contributions of their partners.

There is need for granular rules on sustainability-related product labelling and advertising. The regulators responsible for fair competition and consumer protection should continue to provide clear guidance on where the lines are drawn to aid compliance.

Greenwashing is notoriously difficult to uncover which means that whistleblowers play a crucial role in fighting this menace. There should be a safe mechanism for whistleblowers to make greenwashing allegations and to protect them from blowback.

Another pivotal part of dealing with greenwashing is ensuring that the punishment is harsh enough to have a deterrent effect. 

The repercussions for greenwashing extend beyond the threat of legal sanctions and fines as the malfeasors risk shredding their reputation and eroding consumer trust which diminishes market share and investor confidence. In our era of acute ESG consciousness, the fallout from deceptive green claims can be particularly damaging resulting in public outcry and boycotts. Criminal sanctions should also be imposed in severe cases.

It is important for all internal stakeholders in an organisation, from marketing teams to board members to be involved in discussions surrounding ESG integrity. Education on the risks of greenwashing should be prioritized at all levels. The battle against green spin demands collective action so all stakeholders have a part to play.

Nyabira is Partner and Head of Projects, Energy & Restructuring Practice at DLA Piper Africa, Kenya (IKM Advocates); Muigai (Director) and Kibagendi (Associate) are in the same practice.

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