Greenwashing explained: What it is and why it matters

What is “greenwashing”?

Greenwashing is a deceptive practice where companies falsely present their products, practices or policies as environmentally friendly. This tactic misleads consumers by creating the illusion of genuine environmental benefits, while in reality the organisation may be investing more in promoting a “green image” than in actually implementing sustainable or environmentally friendly practices. Greenwashing encompasses not only marketing but also selective disclosures of information, vague or exaggerated statements, and the use of eco-friendly imagery without substantial evidence. Consequently, it disseminates misleading information about an organisation's environmental strategies, goals and actions, often concealing the true ecological costs.

The term greenwashing was originally coined in the 1980s by environmentalist Jay Westerveld, who criticised a hotel’s towel reuse policy that claimed to save the environment, while the hotel was simultaneously expanding and causing environmental damage. The practice of misleading consumers about the environmental benefits of products or practices also has its roots in earlier corporate behaviour. For example, in the 1970s, several car manufacturers advertised their vehicles as environmentally friendly due to lower emissions, despite these cars still contributing significantly to air pollution. Over the decades, greenwashing has evolved, with companies increasingly using sophisticated marketing tactics to appear environmentally responsible without making substantial sustainability efforts. Today, despite regulatory efforts to mitigate greenwashing, incidents persist, underscoring the need for greater transparency and accountability in corporate environmental practices.

As greenwashing methods have become more sophisticated and diverse, it has become increasingly difficult to identify them. Planet Tracker, a sustainable finance think tank, has identified six different types of greenwashing:

1. Greencrowding relies on hiding weak environmental performance by associating with a group or initiative that appears strongly sustainable – e.g., an energy company promotes its support for the UN SDGs and highlights this in PR campaigns while still heavily investing in fossil fuels, using the alliance’s credibility to appear more sustainable than it is.
2. Greenlighting occurs when companies highlight minor green activity to distract from less environmentally friendly practices – e.g., an oil company promotes a small green project to distract from its major polluting activities.
3. Greenshifting is when companies shift the blame for environmental impact onto consumers, rather than acknowledging their own contributions – e.g., a plastic bottle company urges consumers to recycle, despite using non-recyclable packaging itself.
4. Greenlabelling involves marketers misleadingly labelling something as green or sustainable – e.g., a cleaning spray might be labelled “100% natural,” even though its ingredients are chemically processed.
5. Greenrinsing refers to companies amending their ESG targets to ensure that they achieve them – e.g., a food company sets a goal to reduce plastic by 50% by 2030 but later revises the target to 30% and extends the deadline to 2035, quietly adjusting its goals to appear on track.
6. Greenhushing involves corporate management teams under-reporting or intentionally hiding their sustainability credentials to evade investor scrutiny – e.g., a fashion brand achieves sustainability goals like switching to organic cotton, but chooses not to publicise them to avoid drawing attention to other unsustainable practices in its supply chain.

What are the impacts of greenwashing on clients and businesses?

A study released by the European Commission in 2021 states that 42% of corporate environmental claims made online are most likely false. However, greenwashing may have far-reaching implications for businesses that extend beyond misleading marketing claims, including reduced consumer trust, damaged business reputation, and even legal and financial repercussions.

Greenwashing can significantly erode trust, as consumers, clients or stakeholders may become sceptical of environmental claims made by organisations. When companies fail to deliver on their promised sustainability initiatives, it may lead to a loss of credibility.

Greenwashing can also severely damage a business's reputation. Accusations of greenwashing can result in negative publicity that can tarnish an organisation’s image and diminish the value of its brand. Exaggerated or false green claims can harm corporate reputation by creating distrust among consumers, clients or stakeholders, who may feel deceived and choose to avoid the brand. This distrust can make it difficult for businesses to attract new customers and partners, as potential clients and collaborators may question the authenticity of the company's overall practices.

Moreover, misleading environmental claims can breach consumer protection laws and financial regulations, leading to substantial fines and litigation. The European Securities & Markets Authority (ESMA) has documented an increase in greenwashing controversies among large European firms, highlighting the financial impact and regulatory scrutiny these practices attract. ESMA's findings indicate that greenwashing controversies have led to significant financial penalties and increased regulatory oversight for the firms involved. Financial risks related to greenwashing can stem from the materialisation of reputational or legal risk, as reputational issues from greenwashing allegations can harm a firm’s credibility and trigger further risks to its financial standing.

What are the consequences of greenwashing?

The multifaceted consequences of greenwashing encompass its environmental impact, social implications, and economic effects.

Greenwashing undermines genuine environmental efforts, leading to delayed climate action. According to the UN, false claims of sustainability mislead consumers, investors, and the public, hindering the ambition and action needed to address the climate crisis. The false sense of progress that greenwashing provides discourages genuine sustainable practices, ultimately exacerbating environmental degradation.

Beyond potential environmental consequences, greenwashing also has significant social implications, including the exploitation of workers and communities. False sustainability claims may mask poor working conditions and pollution in local areas, undermining genuine social responsibility efforts. Different analyses show that almost one in three public companies associated with greenwashing are also associated with these sorts of “social washing” practices, which can lead to social and economic harm, undermine trust, and hinder progress towards social and environmental goals.

Lastly, greenwashing can lead to significant market distortions by misleading consumers and investors about the true environmental impact of products and companies. This misrepresentation can lead to an inefficient allocation of environmental resources, as funds intended for genuine sustainability efforts are instead diverted to companies that falsely portray themselves as environmentally responsible. Additionally, greenwashing can inflate the perceived value of certain products, leading to price distortions and potentially harming competitors who adhere to authentic sustainability standards.

How can an organisation identify and avoid greenwashing?

According to the WWF, identifying greenwashing involves four key steps:

1. Identifying buzzwords such as "eco-friendly" or "green" which can be misleading without concrete actions to substantiate them. For instance, a company might label a product as "biodegradable" without specifying the conditions required for degradation;
2. Seeking evidence, which entails checking for detailed information and data supporting environmental claims, such as a company providing lifecycle analysis for their products;
3. Undertaking verification via third-party certifications or endorsements like the EU Ecolabel, Fair Trade, or FSC; and
4. Assessing sustainability by evaluating the overall environmental impact of a company's practices, rather than an isolated green claim. For example, a fashion brand might highlight its use of organic cotton while disregarding its overall carbon footprint.

There are several practices companies can adopt to avoid greenwashing and ensure transparency and honesty in their operations. It is essential to refrain from using vague terms such as "eco-friendly" or "green" without providing specific details. Partnering with transparent organisations and setting realistic sustainability goals are crucial steps, while educating customers, employees and stakeholders about genuine environmental efforts is also important. Obtaining third-party verification for claims can enhance a company’s credibility, and it is essential to support marketing claims with concrete evidence and audit supply chains to ensure sustainable practices.

In 2024, the EU implemented stringent regulations to combat greenwashing, ensuring that environmental claims made by companies are credible and transparent. This approach involves amending existing directives to empower consumers in the green transition by providing better protection against unfair practices, for instance by mandating that organisations provide clear, relevant and reliable information about the environmental impact of their products and services. Furthermore, the directives require that environmental claims be substantiated by robust evidence and verified by independent bodies. This framework aims to create a level playing field for businesses, enabling consumers to make informed purchasing decisions. By addressing greenwashing, the EU seeks to foster competition that leads to more environmentally sustainable products, thereby reducing the negative impact on the environment. An example of this in practice is Coca-Cola’s recent commitment to revise its recycling claims following an EU greenwashing complaint, where the company agreed to clarify misleading statements such as “100% recycled” to more accurately reflect the actual composition of its packaging.

In order to fulfil these mandates, organisations need to adopt transparent practices and ensure their environmental claims are substantiated by solid evidence. Third-party verification is required to ensure credibility and promote a more transparent and competitive market. Moreover, misleading environmental claims can breach consumer protection laws and financial regulations, potentially leading to substantial fines and litigation. Therefore, complying with EU regulations represents a crucial initial step towards effectively addressing greenwashing and fostering transparency in environmental claims.

By prioritising transparency, companies can mitigate the negative impacts of greenwashing, contribute to genuine sustainability efforts, and promote environmental integrity, social responsibility, and economic stability.

If your organisation is working to advance its sustainability aims, our ESG experts can support you in developing credible, best-practice strategies that minimise the risk of greenwashing. For further guidance, please contact us at esg@crowe.ie.