As more investors and consumers seek to use their purchasing power to address environmental and social issues, green marketing claims are being put under the microscope. But this year, it’s more than corporate reputations at stake. Firms that are being called out for greenwashing in 2022 are already feeling the direct hit to their bottom lines, as CEOs step down and they reckon with multi-million dollar fines.
So far, regulators are focused on financial firms that exaggerate the credentials of environmental, social, and governance (ESG) products. But the swift crackdown on juggernauts like Goldman Sachs, BNY Mellon, and Deutsche Bank will trigger investors to probe the corporate sustainability claims of companies within their investment portfolio, and regulators may follow suit.
Indeed, the U.S. Federal Trade Commission announced it will revise its Green Guides for consumer marketing this year—the first update since 2012. Companies will be required to substantiate the truth of energy sources, carbon offsets, and net zero claims, as well as sustainability claims about recyclability, green materials, and much more.
Fortunately, companies who set clear sustainability targets and accurately measure their progress will gain an even greater advantage with investors and consumers as the new regulations take shape. Whether it’s accounting for Scope 3 emissions or educating your internal stakeholders, here are some best practices for ensuring your company is ready for the next phase of sustainability reporting and marketing.
Three Best Practices to Avoid Corporate Greenwashing
1. Adhere to Global Decarbonization Standards
Is your company’s GHG reporting compliant with the Greenhouse Gas Protocol? If not, it’s time to prioritize a transition.
The GHG Protocol is the gold standard of global GHG emissions tracking, with a long history to support its credibility. Managed for more than 20 years through a partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), it provides a framework for measuring and managing Scope 1, 2, and 3 emissions in alignment with the Paris Agreement.
Adherence to the GHG Protocol’s Corporate Accounting and Reporting Standard is one way for companies to build trust with corporate investors, regulators, consumers, and other stakeholders as ESG claims are put to the test. The standard has been tested by more than 30 companies in nine countries, based on input from 350 leading climate change experts.
2. Avoid Ambiguous or Misleading Advertising
Now is a good time to revisit the language your company uses to support ESG claims. Companies will need to keep a closer eye on marketing language to avoid greenwashing allegations and legal action.
When setting and reporting on sustainability initiatives, be sure to clearly define your terms and targets, and accurately describe progress toward goals. It is also important to disclose any time-bound limitations of stated GHG emissions reductions. The Green Guides caution that companies should clearly and prominently disclose if offsets or reductions will not come to fruition for two or more years.
The Green Guides also caution against greenwashing with regard to more general environmental and sustainability claims. If language is considered too broad or misleading, companies risk hefty fines. The FTC recently penalized Walmart and Kohl’s to the tune of $5.5 million for marketing rayon textile products as bamboo and claiming those products were eco-friendly, when in fact they created an environmental hazard.
Private litigation against greenwashing is on the rise, too. The National Law Review notes that consumers have lodged a class-action lawsuit against a company for labeling its single-use plastics packaging as recyclable, with more lawsuits in the works.
3. Set an Internal Compliance Strategy
Given the heightened scrutiny of marketing claims, it’s clear that ESG extends beyond the purview of sustainability teams. Internal marketing departments and external creative agencies must be knowledgeable about communications guardrails on all the fronts discussed above, as well as on any new developments that unfold as regulation on greenwashing evolves.
Legal teams will play an increasingly important role in verifying sustainability claims to investors, consumers, and other stakeholders. Product and purchasing teams will need to be educated about the importance of transparency and accountability of ESG claims along the entire value chain. In fact, it’s hard to imagine a department that won’t require a crash course in how to avoid greenwashing.
Work closely with leadership and internal champions to ensure that your company receives widespread education about the consequences of greenwashing. Then implement internal compliance strategies to maintain and update standard operating procedures as the ESG landscape evolves.
How Companies Can Benefit From the Greenwashing Crackdown
The recent headlines around greenwashing and ESG crackdowns are sobering, but they signal a positive shift for the sustainability industry. The increased attention and regulation will level the playing field for companies who are striving to make meaningful gains toward meeting sustainable development goals. And for sustainability teams struggling to get internal stakeholders on board, the headlines bring welcome attention to the consequences of greenwashing.
From a business standpoint, environmentally-conscious consumers and investors may gain confidence in the validity of environmental claims if it becomes clear that government regulation is meaningful and will be enforced. New consumers may opt for sustainable choices as it becomes easier to compare brands in a consistent, reliable way.
Whatever the future holds, the greenwashing crackdown underscores the escalating visibility—and importance—of sustainability to core business strategy. Accurate accounting of carbon emissions and sustainability progress has never been more essential.
SustainaBase uses globally-accredited standards to help you measure emissions and progress toward sustainability targets. To learn more about how to implement an accurate tracking program at your organization, request a demo with one of our sustainability experts.