‘Business strategy can be used to reduce harm done to environments and communities, while maintaining growth.’
Sustainability isn’t about the preservation of the planet and communities at the expense or replacement of businesses achieving a profit. It is a fundamental shift in business strategy, where maximisation of profit is no longer pursued at the expense of the planet and communities.
And ‘going green’ can have a significant impact on an organisation’s bottom line. In the period between 2017 and June 2023, products that made ESG-related claims had a cumulative growth of 28% versus 20% for those that didn’t. Furthermore, those products with less well ‘known’ claims grew 8.5% more than products without ESG-related claims – over four times more than products with well-known ESG claims (2%).
Looking at this from another perspective, in a recent First Insight Inc study, 72% of consumers surveyed said sustainability is a very or somewhat important purchase consideration. What this all comes down to, in the end, is ESG is good for business.
Given the advantages that can be gained over the competition, it can be tempting for business to market exaggerated ESG credentials that can be seen as misleading. A 2021 study by the UK Competition and Markets Authority (CAM) found that, of the 500 websites reviewed, 40% seemed to be using tactics that could be considered misleading. “Greenwashing” – the term used to refer to the tactics of marketing a company or product as more environmentally friendly than it is – is not new.
Originally coined in the 1980s, greenwashing was used to refer to the hotel industry’s practice of promoting the reuse of towels to help ‘save the environment’, while at the same time not making any real effort to reduce energy waste themselves. It has now become a widely adopted term and is still as relevant.
Recently, the CMA began an investigation into several large clothing brands due to concerns “about the way the firms’ products are being marketed to customers as eco-friendly”. Over and above the ethics of exaggerating a product’s sustainable benefit, even perceived greenwashing – whether intentional or not – can have some serious negative impacts on an organisation. Are reputations really at stake?
With sustainability at the forefront of consumers’ minds, knowing that their trust has been broken by a company actively misrepresenting their ‘green’ credentials could have a substantialimpact on a brand’s reputation. This would be the case in any situation where companieshad been found to be misleading the public.
Studies in the US have shown that perceived greenwashing – including where firms have over committed or not delivered on their reported sustainable targets – has had a negative impact on their overall ASCI customer satisfaction score.
Ultimately, perceived greenwashing can impact a company’s bottom line. In 2015, it was announced that Volkswagen had violated the Clean Air Act by installing software that reduced carbon emissions during emissions testing. Days after the announcement, Volkswagen’s stock price fell by a third, which highlights the serious consequences that misleading ESG claims can have. Is it worth it?
An investigation by The Independent found that in the 12 months to mid-March 2022, 16 adverts had been banned by the UK Advertising Standards Authority (ASA) for exaggerating sustainability claims. Considering the amount of time, money, and effort that goes into creating and producing advertising, an advert banned in this way is an avoidable waste, and one that SMEs can’t always afford. What is the regulatory position?
In November 2022, the UK government announced that the introduction of the Digital Markets, Competition and Consumer Bill would be brought forward to early 2023. The bill introduces several new powers and regulatory reforms, including giving the CMA new powers to fine companies up to 10% of their global turnover for breaches of consumer law, including misleading ESG marketing, advertising, or claims made on packaging.
Over and above consumer protections, the FCA has said it will soon start fining companies that are found to have overstated their ESG credentials. In the US, BNY Mellon paid $1.5m in fines to the Securities and Exchange Commission (SEC) for claiming that all their investments in the funds had undergone an ESG review, even though this was not always the case.
So , how do companies avoid inadvertently ‘greenwashing’ themselves or their products? Tackle the right problems
Greenwashing doesn’t always involve exaggerating or misleading consumers based on the claim itself. It can also refer to companies promoting authentic green credentials as a smoke screen to their other environmentally harmful activities. Coca-Cola have been marketing a number of green initiatives over the years in an attempt to appear asa more sustainable choice for consumers. However, campaigners claim the company is greenwashing, as it remains the top plastic polluter globally. They argue that its ‘PlantBottle’, made from plant-based plastic, isn’t helping solve the larger issue of the negative environmental impact of single-use plastics.
It is vital that companies who want to be more sustainable and market their ESG credentials, fully analyse the impacts on the environment and associated societies of their products. They can then take the most appropriate actions to help alleviate the bigger problems, not just the relatively cheap and easy ‘quick wins’.
Follow the CMA ‘green’ code
In September 2021, the CMA released guidance for businesses to help them understand and comply with existing requirements under consumer protection law when making environmental claims. The guidance covers six main principles:
1. Claims must be truthful and accurate
Any ESG claim that businesses make must not mislead consumers by giving them an inaccurate impression, even if the claims are factually correct. Fischer Future Heat claimed that one of their electric immersion heaters was “Zero emissions”. It was ruled that although the heater didn’t produce any emissions itself, it relied on the production of electricity, which is a source of carbon emissions. The “Zero emissions” claim was found to be misleading to consumers.
- Claims must be clear and unambiguous
The specific ESG claim must be worded in a way that is transparent and understandable. In 2019, McDonalds released paper straws to replace their single-use plastic ones. But the sustainable claim wasn’t as it seemed. While this looked to be moving in the right direction, the straws were in fact non-recyclable, and therefore had minimal impact on reducing single-use waste.
- Claims must not omit or hide important information
Knowing what isn’t said can also influence consumer decisions. ESG claims by businesses must include all relevant information so consumers can make informed decisions. In Canada, Keurig led consumers to believe that they could recycle their plastic coffee pods. However, what they failed to mention was that the process to recycle the pods was so specialised, only two recycling plants in Canada could process them. Keurig was fined $3m and had to change the claims on the packaging.
- Only make fair and meaningful comparisons
ESG claims stating something is better than an alternative should be based on up-to-date, clear, and objective information. In 2020, Ryanair claimed that it was the lowest emissions airline. The claim was found to be practically made- up, and the ad campaign was subsequently banned by the Advertising Standards Authority (ASA).
- Claims must be substantiated
As ESG claims should be objective and factual, businesses must have evidence that support the claims being made. In 2020, Quorn Foods claimed that their new ‘Thai Wonder Grains’ lunch would help reduce their carbon footprint. When reviewing the claim, the ASA noted that since the product was new, it was impossible to determine whether it could reduce the carbon footprint. As a result, the ad was banned for being misleading.
- Claims must consider the full life cycle of the product or service
To ensure ESG claims are accurate, business must ensure the whole lifecycle of the product is considered – not simply one component or part of a process. In 2021, a lawsuit was filed against Hefty Bags for their claim that its bags are designed specifically to handle recyclables. On inspection, it was found that the bags themselves were not recyclable. Therefore, while they could be used to hold recyclables, they still ended up in landfill, which led the claim to be identified as misleading.
Embed the UN Sustainable Development Goals into your business strategy.
In 2015, all UN member states adopted ‘The 2030 Agenda for Sustainable Development’. At the centre of the agenda were the 17 Sustainable Development Goals (SDG). This framework is a call-to-action by all countries and businesses. They recognise that to end poverty and deprivation, communities must also work on strategies that improve health and education, drive economic growth, and reduce inequalities – at the same time as tackling climate change and working to preserve our planet.
The 17 SGD are:
- No Poverty
- Zero Hunger
- Good health and Wellbeing
- Quality Education
- Gender Equality
- Clean Water and Sanitation
- Affordable and Clean Energy
- Decent Work and Economic Growth
- Industry, Innovation, and Infrastructure
- Reduced Inequalities
- Sustainable Cities and Communities
- Responsible Consumption and Production
- Climate Action
- Life Below Water
- Life on Land
- Peace, Justice, and Strong Institutions.
- Partnerships for the Goals
In general, campaigners take notice of businesses whose sustainability claims don’t seem to represent their actions. Businesses that embed as many of these goals within their strategy can avoid this issue, by aligning their actions with this keyframework.
Not only can businesses benefit from a boost in reputation and product differentiation, they can also reduce operating costs and improve their employee value proposition. To conclude, consumers are focusing more on sustainability and ESG. This is unlikely to change in future. Businesses that differentiate on sustainable grounds can gain significant advantages. But for the sake of communities, the economy, and the planet, they must focus on real sustainable development – by using the SDG framework as a guide. It is only through real change in strategic direction that business can maximise the benefits available and avoid the risks of greenwashing.