Greenwashing 3.0 by Erb Institute

Greenwashing 3.0 Why addressing greenwashing remains as important as ever (and what can be done about it) Ivey Centre For Building Sustainable Value & Erb Institute: Issue Brief

Wren Montgomery, Tom Lyon, Julian Barg, Matthew Lynch

Overview Greenwashing – any communication that misleads people into adopting overly positive beliefs about an organization’s environmental performance, practices, or products – has rapidly become one of the most prominent issues in corporate sustainability. Society is facing growing, urgent crises – climate change, biodiversity loss, and increasing inequities. The private sector has an essential role in addressing these issues. In response, many businesses have been applauded for their major commitments to act, such as setting net-zero climate targets. However, if these commitments are simply a cover for continuing business as usual, i.e., greenwashing, then resulting delays and lack of progress will have major consequences for the future prosperity and well-being of society.

Greenwashing 3.0: Why addressing greenwashing remains as important as ever (and what can be done about it)

Introduction: What is greenwashing? This issue brief summarizes recent published research of the authors, who along with colleagues around the world, have been investigating the evolution of the greenwashing phenomenon. This research provides critical insights into how greenwashing can be identified and avoided. The brief covers the following key elements: • An overview of greenwashing and its current prominence. • A model of corporate miscommunication, which helps to explain the evolving complexities of greenwashing. • The emergence of a new form of greenwashing built around “futurewashing” (i.e., empty promises about future performance, such as net-zero pledges). • Key elements of the action agenda preventing greenwashing, for business, policy makers, and those seeking to hold greenwashers to account. This work was supported by an Ivey Centre for Building Sustainable Value Climate Action Fellowship and the Social Sciences & Humanities Research Council (SSHRC). Greenwashing is an umbrella term for a variety of misleading communications and practices that, intentionally or not, induce false positive perceptions of an organization’s environmental performance (see Figure 1).

Simply stated: Organizations imply that they are acting more sustainably than they really are, ranging from slight exaggeration, to vagueness or distraction, to full untruth.

Figure 1 – Common forms of Greenwashing3 VAGUENESS

Making broad or poorly defined claims.

MISLEADING SYMBOLS

Visuals exaggerate organization’s greenness.

JARGON

Information can’t be understood by customers.

NO PROOF

Supporting information is hard to find.

POLITICAL SPIN

Boasting green commitments while lobbying against environmental laws.

SELECTIVE DISCLOSURE

Emphasizing a few points instead of full sustainability impact.

EMPTY STATEMENTS

Exaggerating achievements and policies.

INCONSISTENT ORGANIZATIONAL PRACTICE

Acting environmentally in some arenas but not others.

DUBIOUS CERTIFICATIONS & LABELS

Using voluntary or internal certifications that don’t genuinely drive action.

Less than a decade ago, growing stakeholder demands for transparency and eco-labeling seemed to suggest the end of greenwashing. An entire book was devoted to what comes “after greenwashing”1 and one of the author’s widely cited research papers foresaw the “end of greenwash”.2 Despite this optimism, today, green claims are multiplying rapidly in the corporate race towards investing using environmental, social, and governance (ESG) criteria and “net zero” emissions reduction commitments. In response, popular concern about greenwashing is soaring, with news articles on the topic expanding from under 300 annually a decade ago to well over 2,000 in 2021 (see Figure 2).

Greenwashing 3.0: Why addressing greenwashing remains as important as ever (and what can be done about it)

Figure 2 – The changing attention to greenwash over time

This growing focus certainly seems to be justified. For example, U.K.-based non-profit InfluenceMap found that over 55 per cent of global ESG funds exaggerated their sustainability claims, and 70 per cent failed to meet their ESG targets4. As a result, regulators have also had to pay further attention to greenwashing. The European Parliament recently endorsed the development of a new directive targeting greenwashing.

The directive would ban the use of general environmental claims like “environmentally friendly”, “natural”, “biodegradable”, “climate neutral” or “eco” if these do not come with detailed evidence. It would also ban environmental claims that are based solely on carbon offsetting schemes.5 North American regulators are also increasing their scrutiny on these issues.6 The Canadian Competition Bureau recently fined a major coffee maker $3M CAD regarding its claims on coffee pod recycling7, and is currently investigating the climate claims of Canada’s largest bank.

The Evolution of Greenwashing: A Model of Corporate Miscommunication Greenwashing – and our understanding of it – has changed over time. The authors’ recent paper8 represents this evolution in a ‘Model of Corporate Miscommunication’. The model highlights the increasing breadth and sophistication of greenwashing, as well as the growing circle of stakeholders and intermediaries involved.

Greenwashing 3.0: Why addressing greenwashing remains as important as ever (and what can be done about it)

Greenwashing 1.0:

Figure 4 - Greenwashing 2.0: Dynamic management of Multiple Stakeholders and Issues

STATIC COMMUNICATION TO CONSUMERS The initial phase of greenwashing (see Figure 3) was primarily targeted at consumers, often through misleading advertising or packaging. This has been well investigated and analysed by researchers over the past two decades and remains the focus of current and emerging consumer protection regulations targeting greenwashing. Figure 3 - Greenwashing 1.0: Static Communication to Consumers about Products

The key features of this more sophisticated greenwashing include:

Greenwashing 2.0: DYNAMIC MANAGEMENT OF STAKEHOLDERS, ISSUES, AND INTERMEDIARIES Greenwashing 2.0 represents many current practices and approaches of greenwashing (and research understanding of these practices). Greenwashing has become broader, new techniques and mechanisms have been added, and further stakeholders or intermediaries have become involved and/or been impacted by greenwashing (see Figure 4). At the centre of this new greenwashing model is the expanded set of stakeholders that firms are engaging with, beyond just consumers. Pressures are increasing from employees, government, social movements and others for firms to step up their green credentials and reporting. Greenwashing 2.0 is built on dynamic and interactive relationships with stakeholders, meaning that greenwashing is no longer a one-way process occurring in a vacuum. Rather, firms constantly interact with their environment, and respond to demands and critiques from stakeholders.

• Targeted messages to various stakeholders beyond consumers, which builds on the fact that different stakeholder groups can be segmented and receive information in different ways, and tend to interact mainly with stakeholders holding similar views – a trend significantly amplified by social media. • A complex role played by intermediaries including government, media and certifying bodies that both scrutinize and endorse corporate claims, which may facilitate greenwashing. • The variety of different ways that firms are now rewarded or punished for greenwashing. This growing sophistication has created strategies that make greenwashing harder to identify, include blame shifting, denial, and doubt. For example, polluting firms may redirect accountability towards consumers, or manipulate the narrative by contrasting their carbon emissions with those of larger polluters. They may also dispute the feasibility of stricter environmental regulations and cast doubt on their responsibility for climate change. Companies may even depict themselves as part of the solution, rather than part of the problem, if they highlight emerging technologies or pilot facilities without actually incorporating them into their main business operations.

Greenwashing 3.0: Why addressing greenwashing remains as important as ever (and what can be done about it)

Greenwashing 3.0: CREATING NARRATIVES OF THE FUTURE There is now a new paradigm of greenwashing emerging that the authors have framed as Greenwashing 3.0. Greenwashing 3.0 is driven by a central focus on long-term environmental commitments, especially regarding climate targets. “Net zero by 2050” commitments are by nature long-term promises, rather than verifiable statements about current performance, and open up a whole new world of greenwashing mechanisms. This is an important area for critical attention, given the explosion of net-zero commitment-making. As of May 2023, more than 8,300 businesses globally have made commitments to net zero under the United Nations’ Race to Zero Campaign.9 While this may seem encouraging, for much of the period of commitment-making, an established definition of what constituted a legitimate net-zero commitment did not exist. This ambiguity has now been largely addressed (see section below on net-zero targets), but the level to which these thousands of commitments meet these criteria is certainly not clear. It also possible to speculate that with so many companies making these commitments, some firms felt “safety in numbers” to make a commitment without concrete plans or intentions to deliver real change. In fact, the National Advertising Division of the Better Business Bureau recently rejected the net-zero claims of JBS, the world’s second-largest food company, because they were not backed by concrete plans.10 This is a fast-moving agenda, and the associated greenwashing has not yet been comprehensively investigated in the academic literature. However, it is possible to identify some key features of this new paradigm of greenwash (see Figure 5). Figure 5 - Greenwashing 3.0: Creation of Narratives about the Future

Greenwashing 3.0: Why addressing greenwashing remains as important as ever (and what can be done about it)

A central element is the involvement of investors. Many investors have concluded that climate change and sustainability risks and opportunities are now critical drivers of the future value of companies in which they are investing. It is now standard practice that investors expect companies to report against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).11

Investors are starting to make capital allocation decisions based on current and future climate performance. In theory, this should be a driver of improved sustainability performance; however, this also raises the stakes by increasing the rewards for greenwashing. The involvement of investors adds further intermediaries, such as auditing, credit rating, and speciality evaluation firms, that are involved in scrutinizing but also in many cases endorsing questionable corporate behaviours.

1. Driving Accountability: Greenwashing Assessment Tool The increasing complexity and sophistication of greenwashing makes it harder for those seeking to identify and call out its occurrence, such as NGOs and consumer groups. A key recent development was an international consortium of researchers and practitioners developing a tool for assessing greenwashing13. This is provided as a freely available online resource (link below). The tool seeks to provide the first actionable resource for analysing the quality and truthfulness of corporate environmental claims. The authors believe that the tool has widespread potential for “… highlighting efforts that seek to delay or distract from real solutions that are urgently needed today to tackle multiple climate and environmental crises”.14 Download report

Here are some examples of climate-related actions that are based on greenwashing12: • Companies and governments emphasize unproven technologies such as geoengineering, carbon capture and storage — instead of tested, ready solutions like renewables and energy efficiency. This distracts from the urgency of the climate crisis and slows down action. • Companies commit to net-zero emissions but continue to invest or finance major expansions in new fossil fuel projects. • Companies pursue net-zero goals largely through voluntary carbon offsets. Carbon offsets aim to balance out emissions by paying for activities that store carbon, like forest preservation. But while the concept looks good on paper, it’s not nearly as effective as directly reducing companies’ emissions. • Companies accept climate science but continue to support lobbying groups and politicians who engage in climate denial or seek to water down climate change policy. Government action on climate thus becomes more difficult.

2. Corporate Action: Avoiding Greenwashing There is a common narrative that the current major focus on greenwashing may have a chilling effect on corporate sustainability action because even companies acting in good faith fear being labelled a greenwasher. This argument should be treated with skepticism: there are well-defined good practices for how companies can avoid greenwashing. The Greenwashing Assessment Tool was also designed to help firms committed to sustainability prevent greenwashing in their communication strategies and practices and informed the development of Figure 6.

Key Recommendations for Addressing Greenwashing The model presented in the previous section provides insights into why greenwashing continues to evolve and proliferate. It shows how the current corporate response to the climate crisis may be enabling additional greenwashing on a grand scale, that will ultimately impede society’s ability to address this crisis. In this final section we highlight key elements of the action agenda to address greenwashing: 1. 2. 3. 4.

An assessment tool for organizations seeking to hold greenwashers to account. Actions that businesses can take to avoid greenwashing in their practices and communications. Guidance for business on setting a “science-based” net-zero commitment. The need for regulators to increase vigilance and use a range of approaches to manage the changing nature of greenwashing.

Greenwashing 3.0: Why addressing greenwashing remains as important as ever (and what can be done about it)

Figure 6: How to avoid greenwashing

GREENWASHING ELEMENTS This figure is developed from the Network for Business Sustainability article “How to Avoid Greenwashing” by Noémi Nemes, Maya Fischhoff, and Abby Litchfield, originally published in September 2022.15

GREENWASHING ELEMENTS

HOW TO AVOID GREENWASHING

VAGUENESS

Making broad or poorly • Avoid unclear terms (“green,” “eco-friendly”) and support claims defined claims. with evidence, e.g., sources or 3rd party review. • State whether claims refer to part or all of product.

MISLEADING SYMBOLS

Visuals exaggerate organization’s greenness.

• Ensure visuals and symbols represent degree of sustainability impact. • Consider combined effect of colors, pictures, icons, sounds, and layout; be sure it doesn’t exaggerate your claims.

JARGON

Information can’t be understood by customers.

• Explain claims or actions using language that consumers can easily understand.

NO PROOF

Supporting information is hard to find.

• Verify claims with strong, independent, easily accessible evidence.

POLITICAL SPIN

Boasting green commitments while lobbying against environmental laws.

• Avoid lobbying to weaken or block environmental laws. • Don’t affiliate with thinktanks, trade associations and other groups that spread sustainability disinformation.

SELECTIVE DISCLOSURE

Emphasizing a few points instead of full sustainability impact

• Assess sustainability footprint using all life cycle stages (including material production and end-of-life disposal). • Share all information about social and environmental performance claimed, including limits or negative impacts: Transparency improves trust and helps you get ahead of public criticism.

EMPTY STATEMENTS

Exaggerating achievements and policies.

• Only promise improvements you plan to achieve. • Don’t overstate commitments or spotlight minor actions. • Spend more on achieving a goal than on marketing it. • With net-zero claims, take real action: set emissions targets to eliminate fossil fuel use, publish interim targets, and don’t rely on offsets.

HOW TO AVOID GREENWASHING

INCONSISTENT ORGANIZATIONAL PRACTICE

Acting environmentally • Make sure green claims reflect sustainability focus across the in some arenas but not entire organization (products; practices; vision). others.

DUBIOUS CERTIFICATIONS & LABELS

Using voluntary or internal certifications that don’t genuinely drive action.

LIES AND IRRELEVANCIES

Misleading and • Make sure messaging represents scientific consensus (e.g., on missing the big picture. climate change). • Clearly communicate whether action is voluntary vs. required. • Avoid making the public feel “green” about a choice that’s dangerous (e.g., “greener” cigarettes) or highly controversial (e.g., natural gas).

• Only apply seals/labels verified by an independent body. • Only use certifications that are transparent about their scope and inspections; ensure rigorous enforcement of standards and adequate complaint and objection procedures. • Conduct regular due diligence to make sure claims are genuine.

3. Corporate Action: Net-Zero Commitments without Greenwashing Key organizations, including the United Nations16 and the Science Based Targets Initiative (SBTi)17, are reaching consensus on a “science-based” definition of net zero for business that aligns with the conclusions of the Intergovernmental Panel on Climate Change (IPCC) and the goals of the Paris Climate Agreement. Net zero requires a company to aggressively reduce its GHG emissions (including those of its value chain i.e., Scope 3), ideally to zero. If there are residual emissions, then those can be balance with removals by 2050 or earlier. For most companies, this objective also requires an intermediate milestone of halving their emissions in the next decade. Integrity Matters, the report From the United Nations’ High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities18, provides further specificity for a company to be considered and recognized as net-zero aligned when: • Its pledge, targets, and pathway to net zero are generated using a robust methodology consistent with limiting warming to 1.5°C with no or limited overshoot verified by a third party (for example, by the SBTi). • Its pledge and progress reporting should cover all scope emissions and all operations along its value chain in all jurisdictions, with any omission properly reported and documented. • It is demonstrating progress by achieving or exceeding its interim targets with reports that are verified by a credible, independent third party based on publicly available data. All net-zero pledges should include specific targets aimed at ending the use of and/or support for fossil fuels in line with net zero greenhouse gas emissions pathways modeled by IPCC and IEA that limit warming to 1.5°C. In addition, the use of carbon offsetting as a primary tool for achieving corporate climate goals is facing significant criticism, especially when used as a screen for avoiding direct action to reduce a company’s own operational and supply chain emissions. This is compounded by ongoing concerns about the integrity and additionality of many carbon offsetting schemes.

Greenwashing 3.0: Why addressing greenwashing remains as important as ever (and what can be done about it)

4. Regulatory Action: Addressing a complex problem on multiple fronts With greenwashing remaining a widespread and consistent problem, regulatory scrutiny remains critical. Multiple regulatory tools are needed to address the issue, and there are emerging examples of how these tools can evolve to address the changing nature of greenwashing. Consumer protection legislation remains an important tool for addressing false claims, and it is already being used successfully. The new proposed EU Directive provides a broader framing of “empowering consumers for the green transition”, aiming to “…help consumers make environmentally friendly choices and encourage companies to offer them more durable and sustainable products.”19

This approach seeks to have a more systemic influence on the relationship between companies and consumers, which may be more impactful in the longer term than simply policing false claims.

Endnotes 1

Bowen, F. (2014). After Greenwashing. Cambridge: Cambridge University Press.

Lyon, T. P., and Montgomery, A. W. (2015). The Means and End of Greenwash. Organization & Environment, 28(2), 223–249.

NBS (2022)

Quinson, T. (2021). Regulators Intensify ESG Scrutiny as Greenwashing Explodes. Bloomberg.com.

European Parliament (2023). Parliament backs new rules for sustainable, durable products and no greenwashing. https://www.europarl.europa. eu/news/en/press-room/20230505IPR85011/parliament-backs-new-rules-for-sustainable-durable-products-and-no-greenwashing, accessed May 24 2023.

ampproject.org/c/s/www.corporateknights.com/leadership/carbon-neutral-net-zero-global-greenwash-crackdown/?amp, accessed May 24 2023. 7

Competition Bureau Canada, Keurig Canada to pay $3 million penalty to settle Competition Bureau’s concerns over coffee pod recycling claims, https://www.canada.ca/en/competition-bureau/news/2022/01/keurig-canada-to-pay-3-million-penalty-to-settle-competition-bureausconcerns-over-coffee-pod-recycling-claims.html, accessed May 16, 2023.

As the Greenwashing 3.0 paradigm shows, the influence of investors and financial markets is also emerging as a key front in the fight against greenwashing. This highlights the growing importance of securities regulators, too. A useful example of the potential approach here is the new Climate and ESG Task Force within the Division of Enforcement of the U.S. Securities and Exchange Commission, established “…to identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-related disclosure and investment.”20 The Task Force will “…identify potential violations including material gaps or misstatements in issuers’ disclosure of climate risks under existing rules, and disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.”21

Corporate Knights (2023). Carbon neutral’ and ‘net-zero’ claims face global greenwash crackdown, https://www-corporateknights-com.cdn.

Montgomery, A. W., Lyon, T. P., & Barg, J. (2023). No End in Sight? A Greenwash Review and Research Agenda. Organization & Environment, 0(0). https://doi.org/10.1177/10860266231168905

United Nations Climate Change, Race to Zero Campaign, https://unfccc.int/climate-action/race-to-zero-campaign , accessed May 28, 2023.

10 https://www.jdsupra.com/legalnews/nad-finds-net-zero-claims-by-jbs-1887481/ 11 https://www.fsb-tcfd.org/ 12 NBS (2022). 13 Nemes, N.; Scanlan, S.J.; Smith, P.; Smith, T.; Aronczyk, M.; Hill, S.; Lewis, S.L.; Montgomery, A.W.; Tubiello, F.N.; Stabinsky, D. An Integrated Framework to Assess Greenwashing. Sustainability 2022, 14, 4431. https://doi.org/10.3390/su14084431, accessed May 4 2023. 14 Nemes et al. (2022). 15 Nemes N.; Fischhoff, M; Litchfield, A. (2022), How to Avoid Greenwashing, Network for Business Sustainability, https://nbs.net/how-to-avoidgreenwashing/, accessed May 28, 2023. 16 United Nations’ High‑Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities, 2022, “Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions,” https://www.un.org/sites/un2.un.org/files/high-level_expert_group_ n7b.pdf, accessed March 7, 2023. 17 Science Based Targets Initiative (SBTi), 2021, Corporate Net-Zero Standard, https://sciencebasedtargets.org/resources/files/Net-ZeroStandard.pdf , accessed February 22, 2023. 18 United Nations (2023), Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities And Regions – Report from the United Nations’ High-Level Expert Group on the Net Zero Emissions Commitments Of Non-State Entities, https://www.un.org/sites/un2. un.org/files/high-level_expert_group_n7b.pdf, accessed May 23 2023. 19 European Parliament (2023). 20 US Securities & Exchange Commission (SEC) (2023) Enforcement Task Force Focused on Climate and ESG Issues, https://www.sec.gov/ securities-topics/enforcement-task-force-focused-climate-esg-issues, accessed May 23 2023. 21 SEC (2023).

Greenwashing 3.0: Why addressing greenwashing remains as important as ever (and what can be done about it)

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