Non-profit Planet Tracker identifies widening range of greenwashing practices, which may require greater regulatory involvement as well as investor vigilance.
Investors looking to avoid misallocating capital to unsustainable business models should now be alert to at least six shades of greenwashing, the practice of making unsubstantiated or overstated claims about their products’ environmental credentials to deceive consumers and investors.
The challenge for investors and regulators of identifying exaggerated claims by firms about their transition to sustainable and climate-positive practices has grown rapidly. An EU Commission assessment found that 53% of 150 claims about products’ environmental characteristics in 2020 were based on “vague, misleading or unfounded” information.
A report launched at last year’s COP27 also slammed greenwashing and weak net-zero pledges, with UN Secretary-General Antonio Guterres stating there must be “zero tolerance” for net zero greenwashing and warned that current loopholes for net zero commitments are “wide enough to drive a diesel truck through”.
Regulators, including the US Securities and Exchange Commission (SEC), UK Financial Conduct Authority (FCA), the European Securities and Markets Authority (ESMA), and the Australian Securities and Investment Commission (ASIC), have taken steps to address issues surrounding greenwashing despite ramping up efforts.
The ‘Greenwashing Hydra’ report by non-profit Planet Tracker suggests an uphill challenge for regulators in tackling greenwashing as the practice has become “increasingly sophisticated”.
The report identifies six different types of greenwashing which contribute to making the issue tougher to tackle.
John Willis, Director of Research at Planet Tracker, said the report shows “how prevalent [greenwashing] is and how sophisticated it’s becoming”.
He also warns that the practice is leading to a misallocation of funds, with parties trying to attract financing which are inaccurately promoting themselves as green or sustainable.
“That means money hasn’t gone to something that is genuinely green – it’s pretty serious.”
Slaying the green hydra
The six types of greenwashing identified in the report are greencrowding, greenlighting, greenshifting, greenlabelling, greenrinsing, greenhushing.
Greencrowding – which the report describes as companies hiding in a crowd to avoid being exposed for greenwashing – is the most prevalent, according to Willis.
Greencrowding involves a number of companies and trillions of assets, he said, noting that firms in carbon-intensive industries including steel, energy, cement and chemicals are likely to be found guilty of engaging in this form of greenwashing, given their cutely challenging pathways to decarbonisation. Greencrowding offers companies operating in these sectors a strategy to avoid scrutiny from the public and investors, Willis said.
To address the issue, regulators and policymakers are ramping up their efforts. A document seen by Reuters revealed that the EU has drafted plans to require companies to support green claims about their products with detailed evidence. This would include a crackdown on companies promoting their products as “climate neutral” or “containing recycled materials” if such labels are not substantiated.
Red light for greenlighting
Greenlighting is one form of greenwashing that regulators are having success in curtailing, with advertising standards bodies increasingly cracking down. The practice, whereby companies publicise green initiatives to draw attention away from environmentally damaging activities – came into focus last year when the UK’s Advertising Standards Authority (ASA) banned advertisements by Oatly, ruling that four claims made by the company in previous advertisements were “misleading”.
Planet Tracker highlighted the role advertising standards bodies play in addressing this form of greenwashing, with a rising number of regulators flagging their discomfort with greenlabelling – whereby marketers call something green or sustainable, but a closer examination reveals this to be misleading – a sign that the practice should “disappear over time”, according to Willis.