ITL #581 Greenwashing risk: the state of play around the world

3 weeks, 3 days ago

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The air is getting thinner for corporate greenwashing across the world as governments adopt new laws against false green claims. By Daniel Silberhorn.



`Drink Responsibly’ is a well-known beverage industry plea to remind us of the effect of alcohol. You may be less familiar with the slogan ‘Fly Responsibly’. It was part of an image campaign by KLM with a focus on the Dutch airline’s sustainability efforts. But is was withdrawn in March 2024 after a Dutch court ruled its claims to be greenwashing.

The court found statements to be misleading, arguing some claims were “too vague”, painting a “too-rosy picture”, suggesting sustainable flights while the measures actually “only marginally lessen environmental impacts”. Observers think this decision may serve as a benchmark for airlines on what they can say about their efforts to reduce greenhouse gas emissions.

KLM were not the first, and they will not be the last. End of April 2024, EU regulators started to investigate 20 airlines regarding potentially misleading greenwashing practices. And indeed, climate change-related lawsuits have more than doubled over the past five years, according to the UN Environment Programme (UNEP). The number of cases is expected to increase as mandatory reporting such as the EU Corporate Sustainability Reporting Directive (CSRD) is coming into effect.

While businesses try to connect with consumer values, nobody wants to be found guilty of greenwashing. The reputational damage can be significant, as greenwashing risks undermine trust by sapping consumer and investor confidence. Also, the number of greenwashing litigation cases is sharply increasing. And there is new legislation ahead around the world.

The growing body of anti-greenwashing regulation is geared towards financial markets, but also consumer protection. And there is hardly a major country where this is not discussed.

From the US to Australia: new anti-greenwashing laws  

In the US as the largest economy in the world, for example, the Securities and Exchange Commission has recently adopted rules to enhance and standardize climate-related disclosures on March 6, 2024. This step comes after California’s Third Climate Law required new carbon offset disclosures in an explicit effort to combat greenwashing in October 2023.

In Asia Pacific, governments are quickly catching up. South Korea, for example, was the first East Asian nation to draft a law in January 2023. China issued regulations which include greenwashing prevention requirements this March and that same month, Australia saw its first successful greenwashing civil penalty action.

In Latin America, countries are working on new regulation too. Perú has already established sanctions through its National Institute for the Defence of Competition and the Protection of Intellectual Property and Chile is working towards approval in its congress. Colombia also has a motion in parliament.

Across Africa, the regulatory landscape so far appears more fragmented, with observers deploring an absence of clear regulations and standards for verifying claims. In South Africa, for instance, legislation may not be explicit, but relevant norms are part of the country’s Consumer Protection Act and exist in voluntary standards.

In Europe, legislation at national levels has already been in place in its member states, such as the German Act against Unfair Competition (UWG). Similarly, neighbouring France was one of the few countries worldwide to have criminalised greenwashing, and it further increased sanctions in its 2021 Climate and Resilience Law.

European Union leading the way in green laws

Overall, the European Union has been at the forefront of combatting greenwashing, going back to its 2007 Unfair Commercial Practices Directive (UCPD).

And as part of the European Green Deal, the European Commission announced plans to reduce the risk of false green claims back in 2019, promising to ban:

  • generic environmental claims on products without proof
  • environmental claims relying heavily on offsetting emissions
  • sustainability labels that do not comply with certain standards

The EU Green Claims Directive is the most recent European game changer. Adopted on 12 March 2024, the new rules outline required information to be provided to authorities and the public before publishing an explicit environmental claim. They also provide details on third-party verification and penalties. Fines could be at least 4% of annual turnover. Claims based solely on carbon offsetting schemes are illegal.

The threat is real: more than half of the respondents said in an international survey that they make green claims. In the European Union alone, there are 230 different eco labels. At the same time, the UK Competition and Markets Authority (CMA) found that 40% of corporate environmental claims made online are likely deceptive or false. This represents a serious reputational and financial risk for businesses.


Greenwashing threat is real for many businesses

The use of the claim ‘climate neutral’ is a particular risk, as NGOs regularly sue companies for declarations that may largely be based on carbon offsetting. In the past year, several big brands have silently shelved their climate neutral claims, including Gucci, KitKat, and Nespresso.

Unsurprisingly, companies are now increasingly looking for tools to help them understand which risks may create reputational and legal damage across their value chain. The SLR Greenwashing Risk Detector provides a useful starting point to understand the risk and for identifying areas that should be improved.

The principle is very simple: greenwashing happens in the gap between actions and words. So, checking how exposed you may be around factors such as your business’s industry is the first step to understand urgency. Then you need to look at how well your sustainability effort aligns with expectations – and how you communicate about it, engage with stakeholders, and incorporate ESG into your culture.

The best way to avoid greenwashing reproaches is to get your ESG house in order (demonstrate you are on the journey) and communicate truthfully, based on the right facts and accepted figures.

That means: you need to develop sustainability strategies based on stakeholder engagement and evidence, looking at the most material topics, set ambitious yet realistic targets that comply with science, and develop as well as implement a clear, KPI-based sustainability and carbon reduction roadmap. And along the way engage and communicate real progress continuously in a truthful, transparent way with all stakeholders, based on reliable evidence.

In 2024 and beyond, ‘Communicate responsibly’ is a principle for global PR practitioners to follow if they don’t want their companies to run into greenwashing trouble that may cost more than reputation.

 

 

 

 

 

 

 

 


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The Author

Daniel Silberhorn

Daniel Silberhorn is Senior Advisor ESG & Sustainability Transformation, SLR Consulting and Chair of the IPRA Climate Change Chapter.

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