On 22nd March 2023, the European Commission published a proposal for a Directive on Green Claims. The aim of the directive is to tackle the growing phenomenon of greenwashing, a misleading practice whereby organisations make statements that, explicitly or implicitly, suggest that a product or service is more eco-friendly or sustainable than it is.
Ardea International has published a blog on the specifics of the proposal that you can read here. But given the increased focus on greenwashing, this blog will go into more information about greenwashing and related misleading marketing practices that organisations will need to avoid in order to comply with incoming regulations.
Examples of Greenwashing
There is an increasing number of companies that are being called out for greenwashing. The results of which range from reputational damage and consumer boycotts, to receiving fines and having marketing campaigns banned. Just a few recent and high-profile examples of greenwashing include:
- Innocent – In 2022, the UK Advertising Standards Agency (ASA) banned an advert from Innocent smoothies that suggested that purchasing a specific innocent smoothie drink would ‘fix up the planet’, thus having a positive environmental impact. The claim made by the Coca-Cola-owned company was found to be baseless, and as a result, the advertising campaign was banned.
- H&M – In 2021, popular clothing retailer H&M was criticised by the Changing Markets Foundation after they brought out a ‘conscious’ clothing line, complete with green coloured labels that indicated that the clothing items were environmentally friendly. However, an investigation found that this was not the case, and that the clothes advertised were actually…
- Ryanair – In 2020, the ASA banned an advert from the leading budget airline, Ryanair, after an advert claiming that the airline had Europe’s ‘Lowest Emissions’ was found to be baseless.
Greenwashing is not always an intentional decision on behalf organisations, whilst this is possible, it is also true that greenwashing can occur through negligence, such as using vague terms and word choices that could indicate that a product or service could have a positive impact.
Risks of Greenwashing
There are plenty of risks that the practice of greenwashing presents to an organisation, some of them include:
- Reputational Damage – as explored in the previous section where some greenwashing examples were explored, companies that are caught greenwashing can face reputational damage. In the H&M example, as well as other cases, organisations can face consumer boycotts and online campaigns that can have a lasting negative impact on the reputation of a company, which can, in turn, have financial consequences and potentially affect organisations share price.
- Legal Risk – Given the increased attention on greenwashing, there has been an increase in green claims legislation. The EU’s proposed Green Claims Directive will, when in force, require companies to substantiate any green claims they are making. Furthermore, there is an increasing amount of litigation being brought against organisations for making misleading statements regarding their sustainability.
- Sustainable Finance – There is an increased focus on sustainable finance, that is, the aim of moving private investments towards more ESG and sustainable organisations. There has been a recent increase in investors favouring sustainable organisations, therefore, companies that are found to be misleading in their sustainable reporting and advertising may lose out on potential investment opportunities.
Laws and Frameworks Around Greenwashing
There is currently little in the way of greenwashing-specific legislation both on a domestic and international level. Of course, the EU Green Claims Directive will be a huge shift in the regulatory landscape in this area, and it will likely prompt some domestic legal systems to adopt their own legislation. However, in the UK there are some laws that indirectly require organisations to avoid greenwashing, for example:
- In the UK, there are a number of laws that prohibit misleading advertising, including the Consumer Protection from Unfair Trading Regulations 2008, and the Business Protection from Misleading Marketing regulations 2008.
- The UK Government has also published guidance for organisations to follow regarding environmental claims, in the form of the Green Claims Code.
- The Financial Services and Markets Act 2000 provides recourse for investors who have suffered financial losses due to misleading environmental claims.
Other Forms of ‘Washing’.
The concept of greenwashing has given rise to other forms of ‘washing’ which often revolve around businesses taking advantage of social movements in order to market a product or service. For example, ‘pink washing’ and ‘rainbow washing’ are terms used to describe a practice of using LGBTQ+ imagery such as the rainbow flag to indicate support for the LGBTQ+ community but in a disingenuous way. There are companies that use rainbow imagery that do genuinely support the community; however, the issue comes where organisations use the imagery in a superficial way, without providing any form of meaningful support to LGBTQ+ groups. This phenomenon is particularly prominent during Pride season, where companies will often re-brand their social media pages and product packaging with rainbow variations of their logos, despite offering no actual meaningful support. This is to capitalise on the increased interest in the LGBTQ+ community during the Pride season, an arguably cynical and deeply problematic way to commandeer a civil rights movement for financial gain.
Similarly, ‘purple washing’ is a term used to describe the practice of an organisation that makes their business, product, or service out to support feminism or gender inequalities, when in reality their organisation could include harmful practices such as a gender pay gap, a lack of gender diversity in the board of directors and the organisation as a whole, or having affiliations with organisations, suppliers, or stakeholders who may also have discriminatory business practices.
Generally speaking, any form of ‘washing’ is where an organisation takes advantage of a particular group, movement, or important topic for their own market gain, without actually making meaningful steps to support the movement in question. It is a way of taking credit without doing any work, and it is often a harmful practice that misleads consumers and reduces important social and environmental movements into commodified products.
What Businesses Can Do
There are a number of things that your organisation can do ahead of the EU Green Claims Directive to ensure you are avoiding any ‘washing’ practices and the risks associated with it. This includes:
- Transparency – if you are making any kind of green claim, make sure that you can provide more information substantiating that claim, using data and evidence where possible.
- Care – when producing marketing materials for a product or service, take care with the wording you are using, make sure that it cannot be perceived as making a false claim about the sustainability of a product or service.
- Diversity and Inclusion Policy – ensuring you observe a robust diversity and inclusion policy, and that diverse voices are being considered in a meaningful way, is a good way to avoid other ‘washing’ incidents as lived experiences can help curtail insensitive marketing decisions.
- Seek legal advice – Legal counsel can provide good advice and support in terms of understanding the law surrounding the claims you are making, to ensure they are true and accurate, and to avoid greenwashing risks.
How Can Ardea International help?
Ardea International understands that businesses have to ensure that they establish robust due diligence procedures. We support our clients by helping them identify how to manage human rights impacts and risks, ensuring they meet legal compliance obligations and integrate best practices into their policies and procedures.
Ardea International has developed a number of effective compliance solutions, including a human rights and environmental disclosure legal register. The legal compliance due diligence register allows businesses to track incoming legislation as well as current laws they may be subject to. We can also assess your business’s compliance with human rights regulations, including preparedness to comply with new legislation. In addition, Ardea can examine your business’ due diligence procedures and provide priority steps to improve performance.
We have an upcoming workshop on Developing an environmental and human rights mandatory due diligence framework. This course will equip you with an understanding of the key legislative developments and how to develop a due diligence framework to implement in the business.
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