2021 saw a raft of new regulations from both government and regulatory bodies designed to curtail ‘greenwashing’ – the act of a corporation claiming it does more for the environment than it is does in practice.
In September 2021, the Competition Markets Authority (CMA) published a new ‘Green Claims Code’ outlining how organisations can avoid misleading customers on sustainability. Three months later, the Advertising Standards Authority (ASA) issued its own guidance after it announced its intention to crackdown on misleading claims in the transport, waste, and foods sectors – Ryanair, Innocent Drinks, Quorn, and Oatly have already been identified as providing misleading information as a result.
Investors are equally concerned about greenwashing. This year, large companies will be required to follow mandatory TCFD reporting standards, designed to standardise reporting and make it easier for investors to spot organisations who claim they care about ‘ESG’ but fail to account for, measure, and consider sustainability in their decision-making.
This blog identifies 5 common areas where companies fall foul to greenwashing and outlines steps they can take to reduce that risk.
Learn what ‘eco-friendly’ really means
2021 was the death of the term “environmentally friendly”. The new CMA and ASA rulings make it virtually impossible for companies to prove that their impact – when accounting for the “full life cycle of the product” – is positive on the planet. Given that most products and services do have an environmental impact of some sort, claims like “good for the planet” or “eco-friendly” will make you particularly vulnerable to claims of greenwashing. To ensure this risk is minimised, companies should familiarise themselves with the CMA code and ASA guidance. In general, they require you to: Be specific. Account for the full life cycle of a product. Ensure your claim is measurable. And use independent or third-party endorsements where you can.
Reporting and risks
From 6 April 2022, over 1,300 of the largest UK-registered companies and financial institutions will have to disclose climate-related financial information – in line with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD). Ensuring your reporting follows TCFD recommendations – even if your company is not required to by law – can provide investors with accurate information they need to make decisions and ensure you minimise the chance of greenwashing.
In addition to TCFD, there are a number of reporting standards to help organisations understand and communicate their impacts on sustainability via reporting. This includes the Global Reporting Initiative, Sustainability Accounting Standards Board, or the SDG Compass. Disclosing all information related to sustainability (such as risks and dependencies) allows you to better communicate with investors. It also ensures your organisation has fully explored sustainability across your businesses, allowing you to identify key areas to act on, further reducing your chances of greenwashing.
Have measurable KPIs
Organisations that measure their impact and dependency on the environment are often best placed to create effective KPIs to aid improvement. KPIs can be those which focus on mitigating the impact
you have on the environment (such as reducing noise-levels), or those which ensure you adapt to become less reliant on natural resources (such as adopting a circular economy framework). According to the Social & Human Capital Coalition, to ensure your KPIs are robust they should be:
- Specific: KPIs should reflect simple information about what is being measured.
- Measurable: KPIs should be objectively verifiable.
- Attainable: KPIs and their measurement units should not be impractical or too expensive to collect and maintain over time.
- Relevant: KPIs should reflect information that is meaningful.
- Time-bound: KPIs should be tracked over a set period of time, in order to demonstrate whether they have been met. KPIs on emissions should also be based off Science-Based Targets, which are the most robust and well-respected form of targets, because they are determined by climate science. Following this KPI method, can ensure you have robust target which focus on achieving genuine change and reduce your risk of greenwashing.
Corporate governance and implementation
In addition to reporting, organisations can demonstrate they are taking genuine action on climate change through structures of implementation. Implementation of sustainability targets can be achieved through effective corporate governance systems, designed to motivate and incentive internal stakeholders. Making sure you can demonstrate you have a system in place to ensure your entire corporation is contributing towards the success of sustainability goal not only reduces your risk of greenwashing but motivates your organisation to enact change.
Clearly outlining who is accountable for sustainability at a Board level, as well as providing incentives and renumeration initiatives – such as linking performance (salaries and bonuses) to achieving targets – reassures external stakeholders you take sustainability seriously while motivating internal ones.
Third-party audit and endorsement
Third-party endorsement is another fantastic way to avoid the pitfalls of greenwashing. When communicating to investors, it is regular practice to ensure an audit of financial reports. Before issuing a sustainability report, directors of a company should feel comfortable that they are putting out information that has been through the same rigour and challenges as financial information. Once again, this can reassure stakeholders that your organisation is truly taking its impact and risks seriously.
Third-party endorsement of your sustainability claims also reduces the risks of falling foul to CMA and ASA regulations. By using third-party ratings and metrics, or receiving endorsement of your strategy, means you build trust in your statements among consumers and regulators.
Conclusion
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