What is Greenwashing? What can Companies do to Avoid Greenwashing?

According to a new study from RepRisk, a global leader in ESG data technology, there has been a 12% decrease in greenwashing risk globally across all sectors from June 2023-2024. This kind of decrease is a first in the last six years

RepRisk’s third annual greenwashing report has stated that the general downward trend is most likely caused because of increased regulatory measures. Additionally the companies might also be not engaging in such practices out of fear of pushback from stakeholders, particularly consumers, investors, and regulators. While the prevalence of incidents of Greenwashing has seen a downward trend, the number of severe greenwashing cases has globally increased by 30%, indicating there is still work to be done.

What is Greenwashing?

According to Investopedia, Greenwashing is the process of conveying a false impression or misleading information about how a company’s products are environmentally sound. Greenwashing involves making a vague claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do.

In addition, greenwashing may occur when a company makes an attempt to emphasise sustainable aspects of a product in order to hide its involvement in environmentally damaging practices.

The term Greenwashing is a play on the term “whitewashing” which indicates the use of false information with an aim to hide a wrongdoing, error or an unpleasant situation to make it seem better than it is in reality. Greenwashing is done through the use of environmental imagery, misleading labels and hiding critical information.

According to India’s Consumer Protection Act 2019, Greenwashing means any deceptive or misleading practice, which includes concealing, omitting, or hiding relevant information, by exaggerating, making vague, false, or unsubstantiated environmental claims. It also includes use of misleading words, symbols, or imagery, placing emphasis on positive environmental aspects while downplaying or concealing harmful attributes.

Examples of Greenwashing

Some of the examples of unsubstantiated claims that would be considered greenwashing are as follows:

A plastic package containing a new shower curtain is labeled “recyclable.” It is not clear whether the package or the shower curtain is recyclable. In either case, the label is deceptive if any part of the package or its contents, other than minor components, cannot be recycled.

Suppose a area rug is labeled “50% more recycled content than before.” In reality, the manufacturer might have increased the recycled content to 3% from 2%. Although the claim might be technically true, the message conveys the false impression that the rug contains a significant amount of recycled fibre.

A trash bag which is labeled “recyclable” could also be considered greenwashing. This is because trash bags are not ordinarily separated from other trash at the landfill or incinerator, so they are highly unlikely to be used again for any purpose. The claim is deceptive because it asserts an environmental benefit where no meaningful benefit exists.

What does Consumer Protection Act 2019 ask of companies to prevent greenwashing?

According to the Consumer Protection Act in India, the companies are required to substantiate their environmental claims, and provide adequate disclosures.

Under substantiation of environmental claims, the law requires of companies to comply with the following obligations for featuring advertisements that make such claims:

Generic terms such as’ clean’, ‘green’, ‘eco-friendly’, ‘eco-consciousness’, ‘good for the planet’, ‘minimal impact’, ‘cruelty-free’, ‘carbon – neutral’ and similar assertions are not be used without adequate qualifiers and substantiation.

While using technical terms like Environmental Impact Assessment (EIA), Greenhouse Gas Emissions, Ecological Footprint, a company has to use consumer friendly language and explain the meaning or implications of technical terms.

All environmental claims have to be backed by verifiable evidence.

The rules for adequate disclosures include:

– All environmental claims have to be accurate and disclose all material information either in the relevant advertisement or communication or by inserting a QR Code, URL (or any such technology or digital medium), which will be linked to relevant information.

– While making disclosures in relation to environmental claims, data from research must not be cherry picked to highlight only favourable observations while obscuring others that are unfavourable.

– Any person making an environment related claim should specify whether it refers to the good (as a whole as part), manufacturing process, packaging, manner of use of the product or its disposal; or service (or part thereof) or the process of rendering the service.

– Comparative environmental claims that compare one product or service to another must be based on verifiable and relevant data that is disclosed to the consumers. Comparative claims must disclose exactly what aspects are being compared.

– Specific environmental claims such as Carbon Offsets, carbon neutral, Compostable, Degradable, Free-of, Sustainability claims, Non-Toxic, 100% Natural, Ozone-Safe and Ozone-Friendly, Recyclable, Refillable, Renewable, and similar assertions must be supported by disclosure about credible certification, reliable scientific evidence, or independent third-party verification.

– The law also requires that disclosures made in relation to the environmental claims must be easily accessible to the consumer and not contradict the relevant environmental claim.

Guidance for Companies to avoid Greenwashing with Illustrations

Considering the fact that greenwashing is not desirable by a company’s stakeholders and the government, the Guidelines for Prevention and Regulation of Greenwashing, 2024 have been issued by the Central Consumer Protection Authority.

According to this, the following should be kept in mind while making environmental claims:

1. Truthfulness and accuracy

Environmental claims must be truthful and accurate. They must be based on verifiable information by means of certificates by statutory authorities, certificates by credible authorities or internal verifiable evidence.

Illustration 1: “Our packaging is made from 100% recycled materials.” Without verifiable evidence or certification, this claim might be misleading.

Illustration 2: “Energy-efficient technology for a greener tomorrow!” Without providing specific data or comparisons, this claim may lack substance.

2. Clarity and unambiguity

Illustration 1: “Go green with our product!” The claim is unclear and ambiguous, as it doesn’t specify what does the word ‘green’ convey or how the product is environmentally friendly. Hence case adequate qualifiers and substantiation should be provided.

Illustration 2: “Harnessing the power of sustainable technology!” In relation to such a claim, specific details about how the technology is sustainable should be disclosed.

Illustration 3: “Made with minimal impact on the environment!” Without specifying what “minimal impact” means, this claim may downplay or ignore certain environmental concerns associated with the product.

3. Fair and meaningful comparisons

Illustration 1: “Our energy-efficient light bulbs outperform all others!” The claim lacks context and does not specify which bulbs are being compared. For fair and meaningful comparisons, the company should compare its bulbs to others with similar characteristics and intended uses.

Illustration 2: “Chemical-free cleaning for a safer environment!” This claim may mislead consumers by implying that other cleaning products are unsafe.

Illustration 3: “Our product is greener than the competition!” Without providing specific details about which environmental attributes being compared, this claim can be misleading.

4. Claims should be absolute and relevant

If a claims pertains to a specific feature, part or stage then the fact that the claim relates only to relevant feature, part or stage should be fully disclose that is relevant for such product.

Illustration 1: “A packaged product is labelled with an unqualified claim, “recyclable.” It is unclear from the type of product and other context whether the claim refers to the product or its package.”

Illustration 2: “A product in a multi-component package, such as a paperboard box in a shrink-wrapped plastic cover, indicates that it has recycled packaging. The paperboard box is made entirely of recycled material, but the plastic cover is not it may be misleading. The accurate claim could be paperboard box-recycled packaging”.

Illustration 3: “A marketer advertises on the bottle of its Hand wash as “biodegradable” without qualification. The advertisement shall makes clear that only the Hand wash, and not the bottle, is biodegradable.”

5. Use of imagery without substantive changes

Any form of visual environmental claim attempting to manipulate the consumer into believing that a product or service is environmental responsibility or eco-friendliness, without providing relevant details or context.

Illustration 1: A detergent advertisement showcases a family happily playing in an open grass ground, with the tagline, “Gentle on Clothes, Gentle on Nature.” Without directly stating environmental friendliness, the imagery implies a connection between the product and a more eco-conscious lifestyle.

6. Endorsement by environmental organisations or experts or other endorsers

Claims suggesting endorsements, certifications, or seals of approval that (i) are non-existent, (ii) are intentionally misleading, or (iii) originate from non-official bodies and lack recognition from credible authorities then it is misleading; shall not be made.

Illustration 1: “Recommended by leading environmental experts!” This claim implies an endorsement by environmental organisations. This may violate the Guidelines, if there is no backing as specified above.

Illustration 2: Labelling a product as “certified organic” without proper certification from recognized organic certifying bodies, creating a false advertisement.

Illustration 3: An electronic product affixing counterfeit energy efficiency labels on appliances to give the impression that they meet certain standards when, in reality, they do not have.

Conclusion

Environmentalism and ESG criteria have become important considerations for investors, and other stakeholders. While this has made many companies focus and improve upon their sustainability claims, several of them have just changed the appearance of their products to gain trust of its customers while misleading them. Greenwashing might have worked for companies initially for profit-making, however it is an unethical practice and can end up being the downfall of companies and the planet alike.