Greenwashing legislation: vital step or lacking impact?
With a rise in sustainability and ESG related language in marketing communications, regulators are cracking down. But will the new greenwashing legislation be effective?
In 2021, for the first time, greenwashing was the focus of the European Commission’s annual online “sweep” to identify breaches of EU law. Forty-two percent of “green” claims gave authorities reason to believe they may be false or deceptive, and 59% of claims were not backed up with any evidence. These results led the EU Justice Commissioner Didier Reynders to state that many firms “pull the wool over consumers’ eyes with vague, false or exaggerated claims” when it comes to sustainability. It isn’t all that black and white, however: at best, the lines of communication between sustainability and marketing functions are poor, and at worst, some companies are wilfully misusing sustainability claims to increase sales.
Indeed, there is evidence to suggest marketers aren’t deliberately indulging in greenwashing: the 2021 Chartered Institute of Marketing survey found that half of marketers were wary of working on sustainability marketing campaigns, with many citing “fear of being accused of greenwashing by consumers”, and yet three quarters had done so without any training. This is a justified fear: YouGov polls show Volkswagen’s reputation has yet to recover from its 2015 emissions scandal, even after fines, brand redesigns, and a product overhaul. There is thus a recognition that misusing sustainability claims could lead to significant and lasting reputational damage, but that the industry currently lacks capacity and training around the responsible use of environmental and social messaging. That tension has to be resolved to enable companies and their marketers to use sustainability messaging responsibly and comply with emerging requirements.
With all this in mind, let’s examine where the legislation seems to be going.
National governments have started to react. Earlier in June, the British Advertising and Standards Authority banned a Tesco advert making the unsubstantiated claim its veggie burgers were “better for the planet”. In May, German police raided Deutsche Bank on the basis it was exaggerating the sustainable credentials of certain investments. In the U.S., the Securities and Exchange Commission took Brazilian mining company Vale to court in April for its misleading ESG claims regarding its dams, at the same time as the Federal Trade Commission was handing out fines to Wal-Mart and Kohl’s for deceptively marketing products as being made from bamboo.
While these regulators are using existing rules to target greenwashing, other countries are introducing laws specifically to combat it. In April, French president Emmanuel Macron passed a decree stating that, from 2023, organisations found to be greenwashing could face fines amounting 80% of the costs of the false promotional campaign, with an obligation to publish corrections on billboards, in the media, and on company websites.
Given individuals and investors can’t be expected to verify the green credentials of products and funds, there is a growing consensus that relevant national watchdogs — whether in finance or advertising — need to operate within a universal framework to be effective. The EU is spearheading the largest of these efforts.
The EU steps in
In February this year, the European Securities and Markets Authority released its Sustainable Finance Roadmap 2022-2024, which identifies tackling greenwashing and promoting transparency as the first of three key priorities for sustainable finance. It plans to create a legislative regime to clearly set out the legality or illegality of certain market practices.
The EU Commission went a step further in March, when it proposed Directive amendments that would ban certain greenwashing practices outright — a step up from the current rules, which consider accusations of greenwashing on a case-by-case basis when they are found to negatively affect consumers. This would be accompanied by a set standard that brands would have to meet to make certain environmental claims. The Commission’s proposal hints that this standard could be the provision of “reliable, comparable, and verifiable information”, which it claims would facilitate enforcement by consumer protection authorities such as the watchdogs of member states.
Will it work?
All of this seems to be a step in the right direction. But with the EU itself recently itself being accused of greenwashing by including gas and nuclear in its definition of green energy, will new legislation have the teeth it needs to be effective? There are other potential issues to consider here too.
Firstly, approaching the issue from a consumer rights perspective shifts the onus of action to make informed purchases onto the consumer. While it’s essential to give people more information on the products and services they buy — and indeed there is some evidence that sustainability credentials are starting to impact consumer choice — some might argue there is a risk of this taking the focus away from more significant systemic issues. The elimination of greenwashing won’t remove the other drivers of consumer choice such as cost, familiarity and quality. What it might do is expose how far many companies still have to go in shifting their overall product and service offering to something genuinely more sustainable. In other words, even if the legislation works, will it really make a difference to the overall impact companies have on people and planet?
Secondly, enforcement is likely to prove a significant challenge. Whereas some claims can be relatively easily verified — for example whether a product is made of 100% recycled plastic — others are much more complicated. The Commission aims to tackle this by blacklisting generic claims such “eco”, “green”, and “climate-friendly” where environmental excellence cannot be demonstrated. But not all misleading labels can be so neatly categorised. For example, should a company be unable to advertise its products as sustainable when it is temporarily not the case (a debate currently taking place in the UK where “free range” eggs have not been available due to avian flu)? This approach also fails to address the types of marketing and advertising that give the impression of sustainability without words: positive associations with the colour green, environmental and natural imagery, and even certain fonts.
It’s also likely that companies will find other words to replace those on the blacklist, such as when juice companies started using the phrases “freshly bottled” and even “squeezed fresh” when the U.S. Food and Drug Administration limited the use of “freshly squeezed” in the 1990s. Altogether, this poses the question as to the suitability of the law as a mechanism to tackle greenwashing.
What can companies do?
So, what can companies do to ensure their marketers and advertisers use sustainability messaging more responsibly?
Better communication with sustainability specialists is a key way to keep abreast of legislation surrounding environmental and social messaging. This is a very fast-moving space — just last week the United Nations backed a crackdown on climate change-related advertising — and keeping up is essential to not fall foul of ever-heightening requirements. With the correct guidance, firms can build capacity for marketers to work with the spirit of emerging legislation rather than trying to find loopholes that may backfire. This responsible use of messaging is likely to strike a chord with consumers who increasingly value honest, transparent brands.
Ultimately, there are two main courses of action for companies. Firstly, get used to always backing up claims with facts. Make sure you are collecting accurate data, using unbiased terminology when analysing it, and not cherry-picking narrow instances to be publicised. Secondly, if you feel the temptation to greenwash, consider investing the money you would have spent on misleading marketing into creating more sustainable offerings — products and services your company can genuinely be proud of and that don’t require exaggerated claims.