Although corporate greenwashing has existed for decades, climate change concerns have more consumers pointing fingers and demanding sustainable solutions. Their cries are obviously being heard as companies face increasing legal actions to address false sustainability claims.
Today’s corporations are being held accountable for reducing their ecological footprint and adhering to transparency regarding their efforts. Of course, those that lie about their practices and organizational measures face significant litigation threats.
What Is Environmental, Social and Governance Responsibility?
Consumer buying behaviors have changed over the years. A recent study found 85% of people now shop for sustainable products and over one-third are willing to pay more for green goods and services.
To meet the demand, businesses have adopted the environmental, social and governance (ESG) model — parameters investors use to understand a business’s profitability based on efforts to become socially responsible. Broken down into parts, ESG criteria are as follows:
- Environmental: Highlights a company’s role in environmental stewardship and how it offsets its carbon footprint to benefit nature
- Social: Analyzes how organizations treat others — stakeholders, suppliers, clients and employees — with respect to customer service, inclusion, funding projects for underserved communities, human rights and labor standards
- Governance: Evaluates corporate adherence to set standards and policies, including best practices, transparency, leadership, corruption, lobbying and auditing
Companies should care about meeting ESG criteria for improved sustainability since compliance could ultimately sway consumers. Additionally, investors are more likely to finance businesses aligned with environmental stewardship, presenting numerous growth opportunities.
Corporate Greenwashing Under Fire
Despite calls for greater ESG, many corporations continue to greenwash their stakeholders and consumers. Greenwashing is inaccurate messaging to deceive stakeholders about the organization’s environmental practices.
For example, Starbucks developed strawless lids for cold drinks to make consumers feel they are reducing their plastic waste. However, the new cup continues to contribute to the world’s plastic crisis while increasing greenhouse gas emissions during manufacturing and incineration.
Of course, Starbucks is just one of many businesses falsely claiming or outright lying about their efforts to improve the environment. According to a recent Google Cloud survey, 58% of organizations admit to understating their adherence to ESG — and they are being called out.
At the recent COP27 in late 2022, the United Nations (UN) issued a stark warning against companies, stating zero tolerance for those accused of making bogus pledges of net-zero operations. By COP28, the UN wants companies to cover all aspects of their emissions contributions from the supply chain to financial activities.
Rising Lawsuits Addressing Corporate Greenwashing
In some countries — like the United States — corporations have little choice but to follow ESG as rising litigations addressing corporate greenwashing have imposed financial burdens and reputational ruin. In March 2021, the Securities and Exchange Commission (SEC) developed the Climate and ESG Enforcement Task Force to provide oversight of greenwashing claims, investments and compliance.
Per new rules issued by the SEC in 2022, businesses must furnish detailed reports regarding climate-related claims periodically. The required disclosures include the company’s emissions, progress toward climate goals and any risks that could hinder their operations, such as natural disasters. Additional provisions comprise disclosures by funds and advisors that factor ESG into their investment considerations and an 80% investment of corporate assets into their ESG promise.
The latest SEC rules and regulations are in place to protect investors from greenwashing claims. However, several corporations have had difficulty following through. For instance, Burt’s Bees is currently awaiting a court ruling after advertising natural ingredients through responsible sourcing — yet, their products contain environmentally-toxic chemicals.
Walmart and Kohl’s also settled a Federal Trade Commission complaint in April 2022 after falsely stating several products were made by converting rayon to bamboo in eco-friendly processes. However, these processes employ harmful substances and release contaminants. Addressing greenwashing through legal measures remains tricky as organizations and courts must still determine what is acceptable in sustainable advertising.
For example, Coca-Cola recently won its greenwashing lawsuit after the Earth Island Institute sued them for false sustainability advertising. The presiding judge stated it was not up to the courts to decide if a company is simply touting green goals or conducting a sustainable business correctly. Regardless of Coca-Cola’s win, companies are still trying to understand their messaging limitations and how to modify their practices to appease consumer and stakeholder interest in sustainability.
Corporate Greenwashing Is No Longer Acceptable
Corporations may have been off the hook for greenwashing claims in the past. However, consumers and investors have clarified that is no longer the case. Companies must now adhere to sustainable practices and remain transparent about their efforts and ecological footprints.
Jane Marsh works as the founder and editor-in-chief of Environment.co where she covers environmental news and sustainable living tips.