As companies worldwide trumpet their ESG credentials and pledge net zero, many are failing to make good on their promises. Corporate greenwashing is rife, and it’s fuelling climate change with companies continuing to put profit before the planet, but time is running out.
Corporate greenwashing claims endure
Greenwashing involves organisations making unsubstantiated and misleading sustainability claims, and in 2023, it is thriving.
In 2020, the European Commission conducted an extensive analysis of greenwashing and found in nearly 50% (42%) of cases, company green claims were either “exaggerated, false, or deceptive.” Meanwhile, in 37% of cases, their claims included “vague and general statements,” using words such as “eco-friendly” and “sustainable” with little to back them up. In half of the cases, companies failed to provide sufficient information for consumers to assess the accuracy of their green claims.
Research shows consumers, who are increasingly climate-informed, are voting with their money, or at least trying to, believing businesses must provide more sustainable offerings that are “clearly and credibly labelled and advertised.” Yet many companies attempt to circumvent this and maintain their customer base without changing or enhancing their sustainability strategies. This is called “green hushing” and occurs when companies intentionally don’t publicise their environmental plans to avoid scrutiny or criticism. South Pole, a climate consulting firm and carbon project developer, found 72% of the 1,200 private companies it surveyed were guilty of this kind of practice.
The importance of traceability and transparency
Across the world, the imperative to transition toward greater sustainability is gaining traction, and companies are, to varying degrees, demonstrating their efforts. However, it’s also true many of these sustainability efforts are considered to fall under the banner of greenwashing. Some believe carbon capture and storage technologies fall into this bracket.
The technology is receiving significant investment, and in 2022, the global figure reached $6.4 billion. This is especially true in the MENA, where efforts are ramping up. Indeed, the main projects in the Middle East: Saudi Arabia, Qatar and the UAE, currently make up around 10 per cent of the 40 million tonnes of CO2 captured globally, and there are big plans to scale up these efforts, with Saudi Arabia targeting 44 million tonnes of CO2 by 2035.
Yet, the technology has been the subject of significant scepticism regarding its legitimacy as a decarbonisation strategy. Likewise, when it comes to the success of these projects, the research, for the time being, at least, doesn’t paint a pretty picture. A recent IEEFA report found that of the 13 flagship CCS projects that make up around 55% of total global carbon capture capacity, the majority either failed or vastly underperformed. Aside from the lack of results, many environmentalists and climate experts have suggested investment in these kinds of projects simply prop up big oil and are a diversion away from cutting emissions. This is partially evidenced by an IEEFA report, which found between 80-90% of the CO2 captured and stored in the oil and gas sector is reused to extract more fossil fuels through enhanced oil recovery (EOR).
Similarly, regarding companies’ renewable energy, research shows many companies are overexaggerating their claims. Renewable Energy Credits (RECs), which companies are beginning to move away from, is a particular culprit, with a 2022 paper published in Nature Climate Change finding widespread REC usage has led to “an inflated estimate” of the effectiveness of mitigation efforts. Purchase Power Agreements (PPAs) have exploded in the last few years as an alternative, but still, the variability of non-renewables, like wind and solar, means the power supply is often balanced with fossil fuels. “24/7 clean” PPAs are increasingly being highlighted as a solution here, which seek to match supply and demand for renewable power more accurately.
Carbon offsetting, on the other hand, while emerging largely in the early 2000s, has risen in popularity in recent years. Carbon offsets are climate action projects intended to reduce, remove or avoid greenhouse gas (GHG) emissions. Through paying toward such projects, many companies have claimed carbon neutrality, yet, studies show that, in many cases, offsets are another form of greenwashing and can even worsen global heating. This was demonstrated through an investigation by The Guardian, which alleged that more than 90% of the Verra rainforest offset credits, the world’s biggest carbon credit certifier, were worthless.
With companies aware of the “bad reputation” of offsetting, insetting has emerged, where companies offset emissions through projects in their own supply chains. However, the New Climate Institute (NCI) says they’re just as contentious and lack robust methodologies.
Combating corporate greenwashing
As UN Secretary-General António Guterres outlines, there are varying levels of rigour and loopholes regarding the criteria and benchmarks for many net-zero commitments. In the UAE, for example, there are no specific rules regarding “green marketing.” Instead, regulations more broadly require companies not tomake false or misleading claims intended to exaggerate, or involve fraud and deception. However, data from a Sustainability Advisory survey suggests these regulations do not go far enough to bolster consumer confidence, with 75% of the respondents admitting they find it difficult to trust product and business sustainability claims.
Robert Mitchley, Senior Associate at BSA, said that he expects this approach will be “developed further” in the near future through new advertising laws “specifically related to environmental claims coupled with further requirements for validation certification through accredited agencies before products or new projects are approved.” This development, he said, will likely be in line with the proposed Green Claims Directive in Europe as “the economic strength of consumers to help governments reach their ambitious climate change goals has become a key tool for such governments.”
The recent Green Claims Directive by the European Commission demonstrates the increasing regulatory scrutiny being applied to greenwashing. The directive aims to ensure the transparent communication of environmental claims, with the proposed new rules requiring independent verification and scientific evidence. However, the directive is not without criticism. Many argue that a “months-long” lobbying effort has “substantially watered down” measures, now “too vague” to sufficiently address the problem. For example, the directive does not include terms such as “carbon neutrality” or ban carbon offsetting.
Speaking about the evolution of greenwashing legislation, Imad Alfadel, ESG Practice Lead, Renoir Consulting, said that while new, it is likely to spread to other jurisdictions and suggested that companies “would be wise” to prepare for that. Further, Alfadel recommended implementing robust governance mechanisms to prevent making false or misleading claims about the environmental impact of a product or service, which can lead to reputational damage.
“Organisations that have embarked on a genuine ESG transformation journey, and use recognised global reporting standards to be transparent about their performance, are much less likely to go down this path,” he said.
He also pointed to guidelines and frameworks, such as the European Union’s Ecolabel, to help companies avoid greenwashing: “This helps consumers make informed choices about the products they buy,” he said, “while the EU Sustainable Finance Taxonomy provides clarity and transparency for investors, companies, and policymakers on which economic activities can be considered environmentally sustainable”.
So, as governments worldwide begin to clamp down on greenwashing, it’s never been more clear that transparency and accountability are paramount, transition plans must be continually reviewed and updated, and legislation and regulation must be robust and wide-reaching.