Many businesses have begun promoting their goods and services as “green” or “eco-friendly” as concerns about climate change and environmental sustainability have grown. While some of these claims may be legitimate, others are examples of “greenwashing” — a term used to describe the making of false or exaggerated environmental claims. Greenwashing comes in many different forms. Sometimes businesses will use ambiguous or meaningless terminology to misrepresent the environmental friendliness of their products. Other times, they will assert that their goods or services are environmentally friendly without supplying any supporting data. For instance, a business may claim that a portion of a product is created from recycled materials without mentioning that this amount is insignificant or that the recycling process is inefficient. As an alternative, a corporation may assert that a product is “carbon neutral” without mentioning the fact that its operations are still quite polluting.
The Cambridge Dictionary describes greenwashing as “behaviour or activities that make people believe that a company is doing more to protect the environment than it really is.” It is a process that tends to portray a company’s goals, policies, and/or goods as environmentally friendly and, more broadly, its environmental, social, and corporate governance (ESG) concerns, despite behaviour that may include direct actions or even omissions that just give lip service to the environment. Ioannis Ioannou, George Kassinis, and Giorgos Papagiannakis, showed that with enhanced accountability and transparency, customers would probably respond in different ways depending on how well they understand the causes of a firm’s inability to carry out their objectives. Customers may be tolerant of businesses that made an honest effort to achieve their goals but fell short; but they may also be less understanding of businesses that tried to gain an advantage by inflating their credentials. The simple lesson is that an industry’s social goals must be implemented in the same shade of green.
Greenwashing is an issue that hurts not only customers and slows down a genuine green transition—indeed, it can lead to scepticism of any environmental claim—but also businesses themselves, with consequences that can damage their brand and bottom line. Loss of reputation can harm relationships with current and potential consumers and potentially result in a decrease in shareholder investment, besides the danger of legal action. Sustainable investments are essential to achieving the Green New Deal’s objectives and the battle against climate change. Sustainable finance plays this role by refocusing private capital flows on projects that add economic value without harming the environment. Due to this, the fight against financial greenwashing has recently been discussed in numerous forums, including Cop26, where the significance of environmental information has been verified by science and produced by reliable and independent third parties acting based on public data.
The entire European regulatory framework that is subsequently emerging on this subject, from the 2018 EU Action Plan for the Financing of Sustainable Growth to the Sustainable Finance Disclosure Regulation, which went into effect in March 2021 and regulates disclosure in the field of sustainable finance, aims to guide the difficult transition to a green economy. The most important thing is to comply with investors while the financial industry demands projects that have favourable outcomes on the environment and society. To achieve the goals of ecological transition and energy independence, it is necessary to standardise throughout Europe the disclosure of environmental or social aspects of financial products. With a medium- to long-term strategy that blends economic research with environmental and social analysis, sustainable investment strives could limit greenwashing and produce value for the investor and the whole of society.
The investor, whether a financial institution, a banking operator, or an ordinary citizen, will be reassured that their investment will respect the goals of sustainable development, such as climate change mitigation and adaptation, pollution reduction, ecosystem protection, biodiversity preservation, and the adoption of the circular economy. The practice of “greenwashing” undermines the efforts of people and businesses dedicated to sustainability and ecologically friendly business practices. Fortunately, the issue of greenwashing has several remedies. Increasing company openness and accountability is a crucial first step in combating greenwashing. Consumers must make more informed decisions about the items they purchase by encouraging businesses to be more transparent and honest about their environmental impact. Governments and regulatory agencies can help enforce labelling requirements and hold businesses accountable for their promises.
Promoting education and knowledge about sustainable development and the effects of “greenwashing” is another possibility. We can develop a more knowledgeable and empowered consumer base by educating consumers about the value of sustainability. Collaboration across industries can also support better accountability and openness. Companies may contribute to verifying that their environmental claims are impactful and relevant by collaborating to set clear standards and guidelines. This may support customer trust and level playing fields within the sector.
Finally, one crucial way to combat greenwashing is by encouraging sustainable activities. Consumers may support the development of a more sustainable future by supporting businesses that genuinely value sustainability and environmentally sound business practices. It might serve as a warning to businesses that value profits before the environment. In general, governments, businesses, and consumers must work cooperatively to advance more openness, education, and support for sustainable practices to find peaceful solutions to the problem of greenwashing. Together, it is possible to create a more sustainable and environmentally conscious future for all by working toward a common objective.