Greenwashing or Real Progress?

When Jay Westerveld wrote his essay in 1986 about the hotel’s reuse of towels to save the environment, he noted that towel reuse saved laundry costs but had little to no effect in reducing energy waste. He concluded that the real objective was increased profit and not protecting the environment.

Greenwashing has taken on increased importance due to the desire of many companies to appear environmentally responsible. A 2023 survey by the Pew Research Center reported that 56% of Americans believe that the federal government should do more to reduce the effects of global climate change, and two-thirds say corporations are doing too little to mitigate the impacts of climate change.

Although climate change is only one aspect of environmental responsibility, results from surveys such as this tell companies that this is an area of importance to many Americans. This awareness has led to the development of Environmental, Social, and Governance (ESG) scores, a numerical score or a letter rating assigned to a company based on their environmental and social efforts. These were developed as a quantitative method for investors and analysts to benchmark the efforts of different companies on ESG issues. 

ESG Scores

Some well-known organizations calculate ESG scores, including Morgan Stanley Capital International (MSCI), Bloomberg and Moody’s. Each organization calculates its ESG scores differently. However, as an example, the following issues are considered by MSCI in their ESG scores for the environment (the E in ESG):

• Climate Change
  • Carbon emissions
  • Product carbon footprint
  • Financing environmental impact
  • Climate change vulnerability
• Natural Resources
  • Water stress
  • Biodiversity and land use
  • Raw material sourcing
• Pollution and Waste
  • Toxic emissions and waste
  • Packaging material and waste
  • Electronic waste
• Environmental Opportunities in:
  • Clean technology
  • Green building
  • Renewable energy

MCSI combines the key issues and weights and normalizes the scores relative to industry peers to derive their ESG ratings – from Leader to Laggard.

There are many limitations to ESG scores, including their lack of standardization, self-reported data, and a general lack of transparency regarding the actual weighting and calculations of the scores. ESG has also been criticized for allocating money based on political agendas rather than earning investors' best returns. There is conflict, particularly in the energy sector, as ESG drives people away from investing in energy-producing companies when energy production is needed more than ever.           

But as ESG scores become more influential, companies are under increased pressure to increase their environmental scores and may turn to Greenwashing. 

What is Greenwashing?

Greenwashing is

“the process of conveying a false impression or misleading information about how a company’s products are environmentally sound. It involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive impact than they actually do.”

Companies may engage in greenwashing through press releases and commercials touting their great strides in reducing pollution or using clean energy. Sometimes, a company may use greenwashing as a communication strategy to divert attention away from other problems.

Examples

Examples of practices cited as greenwashing include:

• Chevron: Launched its “People Do” advertisements in 1985, showing its employees protecting bears, butterflies, sea turtles, and other cute and cuddly creatures. The advertisements were so successful that they won an advertising award, and two years after the start of the ads, surveys found people trusted Chevron more than any other oil company to protect the environment.  
• McDonald’s changed its European logos in 2009 from yellow-and-red to yellow-and-green, explaining that the change was “to clarify their responsibility for the preservation of natural resources.”
• Pamper’s Dry Max Diapers were marketed as “pure and natural” in green packaging. Pamper’s claimed that these diapers reduced landfill waste by reducing the amount of paper pluff in the diaper. Others asserted this was strictly a way for the company to save money.
• Starbucks: To be responsive to calls to ban plastic straws, Starbucks developed a straw built into the lid. However, the straw contained more plastic by weight than the old straw and lid together.
• H&M: Used a scorecard system to inform consumers about the environmental soundness of each product, but a 2022 report revealed that more than half of the scorecards portrayed products as better for the environment than they actually were.   

ESG scores have become popular because they attempt to quantify actual progress on environmental issues instead of environmental activities without measurements to back them up.        

The Federal Trade Commission (FTC) has issued Green Guides, guidelines (not regulations), on how to differentiate “real” green products from greenwashed. General guidelines include:

• Packaging and advertising should explain the product’s green claims in plain language and readable type.

• An environmental marketing claim should specify whether it refers to the product, the packaging, or just a portion of the product or package.
• A product’s marketing claim should not overstate, directly or by implication, an environmental attribute or benefit.

Specific areas discussed in the green guides include carbon offsets, certifications and seals of approval, compostable and degradable products, “free-of-substance,” non-toxic and ozone-friendly claims, recyclable and refillable products, made with renewable energy, and source reduction.    

While general guidance can be helpful, expanding government involvement is increasingly controversial. The Securities and Exchange Commission (SEC) has increased its enforcement actions related to greenwashing and announced that ESG investing would be included in its examination priorities for 2022. They have recently brought several cases against companies and fund advisors for misleading claims on ESG.

The simple, undeniable truth is that you get what you measure. Measurement is an essential tool in evaluating the genuine commitment of companies to improving their environmental footprint. The challenge is whether you are measuring correctly or simply checking a box. In the final analysis, the consumer/investor must ensure they’ve done their due diligence. For those who wish to factor in environmental issues, they need to examine ESG scores or use other methods to ensure that environmental progress is real and not just a modern form of virtue signaling.