David McMillan l Palladium - Oct 04 2021
The Greenwashing Label: Incentive or Deterrent?

Credit: Sam Bark

“Gaining the financial benefit of a sustainable business without doing any of the work.” That’s how Inger Andersen, Under-Secretary-General of the UN, defines greenwashing, and it can be a real fear for companies. From marketing campaigns wrongly claiming that products reduce ocean plastic levels, to “Fair Trade” products failing to meet standards across supply chain participants, to ESG (Environmental, Socio-Economic, Governance) and CSR (corporate social responsibility) statements failing to provide proof points, consumers and investors have little patience.

As a result, the fear of greenwashing accusations are prompting some companies to rethink their approach to sustainability, while others may be deterred from doing anything at all. Is it possible that the fear of greenwashing is deterring some organisations from doing the work, or can it still be used as a means for accountability?

Should we expect companies to act selflessly?

The sustainability of any business is rooted in profitability and maintaining competitiveness through strategic investments. In this reality, strategic CSR reduces costs, increases customer engagement, and lowers risk to the business model.

Tesla, whose mission is to “accelerate the world’s transition to sustainable energy,” has famously committed to allowing open-source use of their patents.

Is this selfless pursuit of the mission?

It’s unlikely. Tesla recognises that the sustainability of their business depends on the ecosystem around electric vehicles maturing. In a 2014 statement Tesla CEO Elon Musk noted, “our true competition is…the enormous flood of gasoline cars.” So Tesla’s decisions was, at least in-part, acting in the interests of the company’s survival and growth, but does that make it any less valuable to the sustainable energy movement?

Honestly sharing business investments made with a dual purpose of profitability and impact is a valid avenue to enhancing the value proposition.

Greenwashing as a Sin, But Progress as a Win

TerraChoice’s ‘The Seven Sins of Greenwashing’ have become well-accepted categories for misleading environmental impact representations. From “the sin of worshipping false labels”, exemplified by the plastics industry in making the recycle symbol ubiquitous on single-use plastic items despite most plastic formulations not being readily recyclable, to “the sin of lesser of two evils” demonstrated in the discussion over recycling distracting from the more general issue of packaging, these sins easily apply to social impact as well.

Unfortunately, there are many troubling examples of greenwashing accusations shaming companies for marketing what some perceive to be insufficient effort. The recent Federal Trade Commission filing against Chevron Corporation alleges “greenwashing” because Chevron is messaging its commitment to decrease carbon intensity while its growth strategy may result in increasing the company’s total carbon footprint.

The filing seems to miss the reality that if Chevron can reduce its carbon intensity while gaining market share, then overall industry carbon emissions would likely decrease. While we might hope that Chevron would invest more rapidly in the energy transition towards renewables, admonishing them for the progress they are making puts general momentum at risk.

Working with the beef industry on the topic of feed efficiency, a recent Palladium strategy targeted outcomes including reduced carbon footprint resulting from a several percent reduction in feed per unit of beef produced.

The strategy did not, however, extend to material issues such as methane, treatment of animals, or ecology protection. If the industry were to communicate this strategy and results, would it, like the Chevron example, be labelled as greenwashing for not creating enough impact in an industry with such significant environmental impact?

Strategic Corporate Responsibility

Companies need to arrive at “enlightened self-interest” to avoid greenwashing and to achieve continued growth while maximising impact. Organisations invested in addressing material ESG issues must keep advancing honest and transparent reporting that details outcomes achieved, negative externalities of the business yet to be sufficiently addressed, and the immediate and long-term financial implications of both. Reporting should be tied to a clear CSR strategy being resourced and implemented, and ideally integrated with the corporate growth strategy, reflecting a comprehensive, mutually-reinforcing ‘triple bottom line’ set of outcomes.

A strategy management framework like a Balanced Scorecard can serve these needs. Additionally, taking an inclusive growth approach to exploring and implementing innovative solutions assures greater stakeholder support, by transparently setting the expectation that big problems require innovative solutions and that incubating scalable solutions will require collaboratively piloting new ideas in new contexts, a portion of which will fall short of expectations.

Collective Responsibility

As the saying goes, if you are not part of the solution, you are part of the problem. Just as we expect companies to invest in ESG issues, as consumers, investors, employees, community members, or other stakeholders, we can all find ways to advance CSR. First, we must hold companies accountable for legitimate greenwashing.

Second, we should celebrate meaningful CSR reporting and corporate strategies that integrate material ESG issues into growth strategies.

Third, we must be politically active, knowing that not all societal issues will be in the self-interest of companies to solve, at least not without political pressure or regulation.

Finally, we must reward companies that are serious about investing in material ESG issues with our investment—whether that be customer loyalty, equity, or seed capital.

Greenwashing remains a useful label for insincerity and deceit, but instead of using it to deter companies from even starting to invest in sustainability efforts out of fear of being criticised as disingenuous or incentivising companies to stick with safe investments instead of innovating, we must use it as a tool for accountability.

For more information, contact info@thepalladiumgroup.com.