“Greenwashing” – what does that actually mean?

27. June 2023

Every company likes to adorn itself with the label of sustainability. Hardly any marketing strategy is more successful these days than emphasizing an environmentally-friendly image. You almost have to ask yourself when was the last time you came across an advertisement that didn’t emphasize the company’s alleged sustainability. The inflationary use of the term and the enormous appeal of a sustainable product for many consumers has brought to light a number of exaggerations in the business world in recent years, which simply overdo it with meaningless, purely campaign- and attention-oriented individual messages. The main problem here is that a number of companies are not taking a truly holistic approach to the concerns of our planet. They merely concentrate on advertising or image-promoting headlines. This approach can certainly be seen as a betrayal of the idea and necessity that we humans must use the planet’s resources more sensibly in the future than we have done in recent decades.

The system behind this approach is called “greenwashing”, a term that is now almost part of everyday language. In Switzerland, the word was named “Financial Word of the Year” in 2021. But what exactly is behind “greenwashing”, what does it mean for the financial sector, who is promoting it and what counter-movements are there?

Everyone wants quick success, a green image and a clean slate

It is becoming increasingly difficult to find a company that is not following the “green trail”. Greenwashing covers almost every industry. All of them advertise with posters, slogans and commercials that are intended to make it clear to us as consumers that we are virtually making a statement against climate change with our purchase. Many consumers are aware that in most cases this is a purely fictitious dream scenario, but this advertising ploy still works.

The overarching aim of greenwashing is to create a positive perception of a company. Various PR and marketing techniques are used in an attempt to give the company a clean slate. This can involve topics such as climate change, world hunger, poverty, and other issues that put the company in a positive light. However, climate issues are particularly popular. Buzzwords such as “sustainable”, “energy-efficient” and “CO2-neutral” are very popular.

The system behind it

In order to create a green image, effective publicity campaigns are needed to highlight individual positive achievements, structures or guidelines of the company. Large advertising campaigns or PR events ensure that these positive individual achievements are highlighted enormously. What is actively concealed and thus remains hidden is the discrepancy with the actual corporate culture and the core business, which is run according to other objectives. In other words, the contradictions between the internal attitude of the company and the marketing-effective external image. Negative causalities are concealed and hidden – what counts is the striking emphasis on the one positive aspect.

To ensure that the whole machinery functions smoothly, it is often not only the companies themselves that are involved, but also specialized PR agencies, lobbyists, and marketers.

Greenwashing made easy

Terms and phrases that supposedly convey clear messages on products are misleading for consumers. Anyone who buys a sweater with a label advertising “environmentally friendly” will leave the store convinced that they have made a sustainable purchase decision. The same applies to those who consciously choose the “natural” and “regional” products in the fruit and vegetable section of their supermarket. The problem with this is that none of these terms are legally protected or restricted in their use. In plain language, this means that the fancy labels could simply hide empty words that mislead the consumer.

A similar approach is taken by companies that deliberately want to promote their image with color-coded company branding. Companies often use the color green in their logo, on their website and in their marketing campaigns to create direct associations with “environmental friendliness”, “nature” and “health”. Food manufacturers act in a similar way, printing images of animals in green meadows or even in the great outdoors on their packaging. Green imagery helps companies that are otherwise unable to position themselves sustainably to be perceived, at least at first glance, as a company “with a heart for the environment”.

ESG as a misleading goal for sustainable investments

Interest in sustainable products on the financial market has also increased enormously in recent years. However, such financial products declared as sustainable should be examined more closely. What is marketed as financing social and green projects can be purely an image product.

The ESG objectives, which focus primarily on the “do-less-harm” strategy, contribute to greenwashing to a large extent. This is because instead of supporting an impact-oriented “do-active-good” attitude that can actually lead to more sustainable development, ESG strengthens projects that hide behind the alleged achievement of ESG goals. Nevertheless, ESG funds and products are becoming increasingly popular.

The high demand favors the development of superficially “green” financial products that are in reality anything but “green”. ESG has created a low-threshold label with which any provider can quickly and easily create a sustainable image. However, society is not yet aware of this, which is why investors and consumers still naively opt with the best of intentions for these “green-washers”. ESG is therefore not a solution, but rather part of the problem.

Politics as the cause of greenwashing

Why are companies so tempted to align their marketing with sustainability issues? The answer is wide-ranging but can be summarized briefly and succinctly: the media pressure is great and leaves hardly any alternatives. We can thank Greta, the climate campaigners, and the many other people who have made doomsday scenarios en vogue again.

Meanwhile, our politicians are playing symbolic politics and turning off the taps of nuclear power plants, for example, while coal-fired power plants continue to run happily. It is only logical that many consumers are unsettled and do not know how to get through the whole environmental-energy chaos financially unscathed. Nevertheless, the official side is trying to create a mood of optimism. Unfortunately, however, the unclear leadership and lack of guidelines have resulted in exactly the opposite. There is no sign of a “sustainable approach” either among consumers or in industry and business. Instead of long-term strategies for success, most companies focus on short-term hype for attention. Of course, this is not right, but it is understandable given the developments of recent months and years.

SFDR and CSRD require disclosure

With the “Sustainable Finance Disclosure Regulation”, the EU has introduced a regulation on the transparency obligation for sustainable financial products. It came into force in spring 2021 to combat greenwashing, particularly in the area of financial products. For the first time, this regulation forces fund managers to disclose the negative social and environmental impact of their investments.

The intentions behind SFDR are positive. The idea is to give particularly impact-oriented Article 9 financial products  a bigger stage and the opportunity to differentiate themselves. Such companies or financial products that wish to be classified under Article 9 must demonstrate a positive overall strategy with which they comprehensively and positively improve individual aspects of the 17 UN Sustainable Development Goals. They are therefore obliged to pursue a clear “do active good” strategy with concrete evidence.

However, the implementation is problematic: because we did not want to banish all other companies that cannot provide this evidence to the category of Article 6, a further category had to be created. Article 6 should be reserved for those companies that evade reporting and are penalized as a result. This created a further, somewhat vague category in the form of Article 8 companies. In order to classify this category, the vague ESG requirements have been used, which open the door to emphasizing positive individual aspects.

Through this development, the EU has inadvertently given massive impetus to the issue of greenwashing. One can even speak of structural greenwashing through EU regulations. The EU is now trying to curb this trend with further regulations, but this will prove difficult due to the structure of the existing SFDR regulations.

Fazit

Ultimately, it remains our responsibility as consumers not to be blinded by short-term and incoherent statements. The focus is currently so often on CO2 reduction that we are criminally neglecting other important areas such as water quality, soil acidification, and our wider social challenges.

We should resist the impulse to cry out for more and more regulation and now not also demand that greenwashing be banned. Instead, we should face up to the responsibility and opportunity we have as consumers. It is our decision to buy a product or a service. It is our decision whether we consume without any thought or start to look behind the scenes and form an informed opinion.

Unfortunately, the media don’t necessarily make it easy for us because they are also subject to the dictates of attention and are not guided by the search for high-quality information, but by the next wave of clicks.

If you not only want to consume and invest “without harm”, but also want to make a positive contribution, you should focus on companies that follow impact logic. This reduces the risk of investing in greenwashing, as sustainability goals are firmly anchored in the business model. After all, the basic idea behind the impact logic is to achieve measurable, positive results in the social and ecological areas in addition to a purely financial value.

It is almost impossible to expose the greenwashing exaggerations of numerous companies on a daily basis. Nevertheless, the critical mind of each individual is required when it comes to making a truly sustainable decision. Impact logic offers a long-term and economical alternative to the green cloak of greenwashing.

Source: https://unsplash.com/de/fotos/s8w1-m69bS0
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