Greenwashing, navigating the fine line between compliance and sustainable commitment

greenwashing

Greenwashing, navigating the fine line between compliance and sustainable commitment

greenwashingFollowing the Covid-19 pandemic, an increasing number of companies are embracing a diligent and comprehensive approach towards Environment, Social, and Governance (ESG) principles. The rising consumer awareness regarding sustainable product choices serves as a key catalyst for this transformation. Projections indicate that numerous new regulations concerning ESG will be introduced this year. Consequently, the more rigorously these regulations are enforced, the higher the likelihood that companies may resort to greenwashing practices.

According to findings outlined in the Global Trends in Climate Change Litigation 2022 report, no fewer than 20 instances of greenwashing have been litigated across various jurisdictions since 2016. Notably, in 2023, several prominent companies, including BMW, KLM, and Shell, were embroiled in greenwashing scandals.

Risks of greenwashing 

Greenwashing, as defined by NRDC, entails an attempt to present an inaccurate movement, campaign, or propaganda about the benefits of environmental sustainability in business. It can serve as a promotional “gimmick” for a product or service to appear concerned with sustainability choices when in practice, it is not. 

Experts argue that organizations often fall into greenwashing because, despite efforts by the board or executive leadership to address investor and customer concerns about sustainability, these efforts are not always reflected in day-to-day operations.

The practice of greenwashing is not only detrimental to the general public but also poses risks for the company itself. The impact can be severe, encompassing damage to reputation and potential legal ramifications.

While there are no studies specifically mentioning the average financial loss due to greenwashing, some cases have shown a significant impact. For example, the greenwashing scandal has cost VW more than US$20 billion and Keurig US$3 million, without considering reputational damage and a potential drop in stock market value.

Such losses underscore the crucial role of due diligence in scrutinizing and ensuring that companies are honest in making claims of sustainable business options.

Combating greenwashing with due diligence

A study indicates that a rigorous due diligence process is crucial for mitigating greenwashing practices within organizations.

Due diligence serves as a protective measure against legal liabilities by ensuring that companies present an accurate portrayal of their environmental endeavors. This entails examining adherence to environmental laws, verifying sustainability assertions, and promptly addressing potential issues that could result in legal action, including those related to product or service marketing.

The European Union has proposed a “Directive on Corporate Sustainability Due Diligence,” mandating large companies operating in Europe and involved in impactful sectors like agriculture, mining, and textiles to uphold human rights and environmental preservation values. They are required to conduct due diligence, including ESG assessments.

However, it’s crucial to emphasize that these companies must also ensure compliance across their supply chains. This entails active involvement from third parties—both direct and indirect, including subsidiaries and suppliers—in considering the regulation’s impact.

Engaging in proactive due diligence not only shields organizations from legal repercussions but also fosters a culture of transparency and accountability.

 

Image by Freepik

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