By Roy Snell
Greenwashing is an offshoot of the word whitewashing, which is often used to describe the act of covering up vices, crimes, and scandals. Greenwashing describes the act of exaggerating the environmental reporting of an organization. Citizens of many countries are extremely upset about environmental issues and are livid about environmental exaggeration and cover-up. There are nothing enforcement agencies like more than investigating and prosecuting cases that have active support of their constituency. The enforcement community is particularly drawn to cases involving companies that intentionally cover up known problems; we are approaching the perfect greenwashing enforcement storm, so compliance, ethics, and ESG professionals should get prepared.
New laws such as the EU Sustainable Finance Disclosure Regulation will cause investment firms to be more accountable for their environmental, social and governance claims. There will be a trickle-down effect from companies making environmental claims that investment firms use to base their green investment claims. If investment firms get into trouble for making inaccurate claims about their environmental investment opportunities, they might claim… “Garbage in – garbage out” and point enforcement folks to the companies that provided the environmental information.
The International Consumer Protection Enforcement Network (ICPEN) is concerned about greenwashing and are encouraging cooperation between over 65 member countries. They recently reported…
The European Commission and national consumer authorities released the results of a screening of websites (“sweep”), an exercise carried out each year to identify breaches of EU consumer law in online markets. This year, for the first time ever, the sweep focused on ‘greenwashing’, the practice by which companies claim they are doing more for the environment than they actually are. The “sweep” analyzed green online claims from various business sectors such as garments, cosmetics and household equipment. National consumer protection authorities had reason to believe that in 42% of cases the claims were exaggerated, false or deceptive and could potentially qualify as unfair commercial practices under EU rules. ‘Greenwashing’ has increased as consumers increasingly seek to buy environmentally sound products.
The US Federal Trade Commission has been prosecuting greenwashing cases for several years. They have also gone after companies that have sold “worthless green certifications.”
The US Securities Exchange Commission announced on May 4th, 2021, the creation of their Climate and ESG Enforcement Task Force. The expected outcome of this effort is hotly debated. I personally found the last line of their press release most interesting…
In addition, the Climate and ESG Task Force will evaluate and pursue tips, referrals, and whistleblower complaints on ESG-related issues, and provide expertise and insight to teams working on ESG-related matters across the Division. ESG related tips, referrals and whistleblower complaints can be submitted here.
I have been working with whistleblowing hotlines, whistleblowers and talking to enforcement professionals for 25 years. The number of concerned people and estimates of existing greenwashing leads me to believe that environmental whistleblowing could eclipse all prior types.
Many think that enforcement focus is primarily the investment community and publicly traded companies. They may be underestimating the supply chain trickle-down effect on companies that are not publicly traded. Vogue recently reported, “For the fashion industry, investigations mean more scrutiny on complex global supply chains, and more pressure to be transparent about limitations as well as environmental progress. This is not just a concern for publicly traded companies.”
Industry experts have been guiding the evolution of effective environmental reporting for years. Alison Taylor, Executive Director at Ethical Systems, Advisor at BSR, Adjunct Professor at NYU Stern School of Business, shared this thought with me… “I would just say that ESG reporting is growing up, and more rigor is welcome, as it will help investors and other stakeholders drive accountability. Having said that, there is a risk that legalistic approaches will stymie innovation on areas where evaluation and performance are still nascent, notably supply chain oversight.”
Not all motivation to prevent, find and fix environmental reporting problems comes from enforcement. Bad public relations can be more financially damaging than a large settlement with the enforcement community. And the press is actively seeking environmentally related infractions to report on because their readers want it.
The enforcement community may be late to the dance but it is my belief that they will turn heretofore greenwashing, wailing, and gnashing of teeth into enforcement action. If that happens, the logarithmic growth of proper ESG reporting and ESG activities in organizations might just become exponentially logarithmic. This whole process is daunting for companies trying to get it right. The maturation of the ESG profession and compliance/ethics professionals will help improve reporting accuracy. Standards such as SASB, GRI, and TCFD will help organizations with materiality determinations and the accuracy of reporting data. The development of systems that will collect ESG data based on these standards will provide effective dashboards for monitoring and more accurate reporting which will help reduce greenwashing. We shall all hang on for what is likely to be a wild ride.
Perfect greenwashing enforcement storm forecast
EU Sustainable Finance Disclosure Regulation
US SEC ESG Enforcement Taskforce
ICPEN coordination of international enforcement of over 65 countries
US FTC greenwashing and bogus environmental product certifications crackdown
The supply chain greenwashing trickle-down effect
Environmental reporting industry experts defining expectations
Aggressive press and public relation fiascos