What is greenwashing and why is it a problem?

Yes, without a doubt. These days, there are “organic”, “fair” and “sustainable” versions of just about every mass-market product. From carbon-offset flights to sustainable palm oil and beef from “Brazilian wellness farms”, as Kathrin Hartmann writes in “The Green Lie”. This has become particularly noticeable in the area of financial products over the last year or two. Customers, especially institutional investors, are demanding sustainable products. But if you cannot “deliver” you have to fake it in order to meet expectations and stand out from your competitors. Numerous studies by the Global Sustainable Investment Alliance show that there has been a huge increase in the number of financial products claiming to be sustainable.

Presumably, the EU would not introduce a regulation on such products (the so-called Taxonomy Regulation) if there was not a problem. The problem is that the Paris Agreement on climate change requires the financial sector to invest in “green” industries. To really be “Paris-compliant”, you cannot just fake it.

It’s not the immorality of consumers being misled or the fact they are becoming increasingly distrustful that makes it an issue. After all, for the most part, no-one is actually lying. However, when it comes to the climate and biodiversity crisis, we are talking about a global problem that is threatening our very existence. And by faking a solution, we are just kicking the can down the road. We cannot simply fudge a solution. And the longer we put it off, or settle for pretend solutions, the greater the cost will be. It is not about the ethics of business models, but about the need to transform an economy which is still largely based on the externalisation of social and environmental impacts. Real prices, that are prices which internalise harmful production methods, require transparency throughout every supply chain. Speaking of harm, greenwashing is detrimental to everyone, not just to the companies – they themselves agree. By engaging in it, they are destroying their most important asset: their credibility and with it, their image.

Since March, the SFDR has been part of a larger regulatory framework. This is an action plan for sustainable finances of the European Commission. From now on, managers of “sustainable” products shall explain to what extent sustainability considerations were taken into consideration. Going forward, the SFDR will be flanked by a taxonomy that will clarify what products and services can be considered sustainable or not. The regulators are considering the creation of a European eco-label for financial products as well as the expansion of the reporting requirements of non-financial information. We welcome these steps that are being taken because they may prevent greenwashing.

When companies make statements like this, consumers must start by checking whether they are referring to their internal processes or their products. What is the good of installing solar panels on the roof and serving organic meat in the canteen if their production methods remain the same? Or if they have simply added two sustainable products onto their usual ten unsustainable ones. This applies especially to the food industry. Also, you should not believe everything you see and read. Terms are often used to try and create a false impression: too often, words like “traditional”, “hand-crafted” and even “artisanal” are used to dress up manufacturing processes which are in fact industrial. Frequently, sustainability is nothing more than words; or we unwittingly buy eggs or meat from factory farms because of the happy chicken or funny piggy beaming at us from the label. The main thing here is to try and cultivate a healthy distrust and look for credible labels. Or simply ask the retailer! So, be informed and insist on transparency.

The 2008 financial crisis brought home to many people that we cannot carry on as we are, and the current Covid crisis is having the same effect. People have realised that we have to focus not just on price and returns, but ecological and social factors as well. They are now demanding real change and insisting on transparency. Both must become essential components of every company’s and every bank's sustainability strategy. Consumers are not as naive as they once were.

The following thoughts, perhaps: