What is Greenwashing? Why you should care and how to prevent it

While decarbonization has become the new buzzword in marketing in recent years, not all claims made are genuine: Greenwashing is on the rise and has taken many shapes and forms.

From companies making false claims about low-carbon products to neglecting certain types of emissions in their reporting or outright lying about the efficiency of their products…the list goes on.

But what exactly is greenwashing, how does it happen and why should you care?

In this article, we’ll explore greenwashing, its consequences, and how carbon accounting software can help your business prevent it.

What is Greenwashing?

Greenwashing refers to a deceptive marketing technique in which a company makes misleading or false claims about its products or initiatives to make them seem more environmentally friendly than they actually are. This includes understating a company’s carbon footprint or overstating climate action efforts.

In 2024 not a day passes without new regulations around the globe that aim at limiting carbon emissions somehow. Over 80% of consumers now prefer sustainable products, while more than 60% of investors prioritize investments in green technologies.

The result: Companies have to make environmental efforts if they want to stay relevant in the market.

From Aldi decarbonizing its product packaging, ThyssenKrupp reducing its material carbon emissions, and Spotify offering carbon offsetting for their shops, many companies are already taking meaningful climate action.

However, not all of these claims are genuine.

Many companies big and small engage in greenwashing to market themselves as more environmentally-friendly than they really are…or by outright lying about their efforts.

Greenwashing Examples

Greenwashing can be hard to spot and even harder to call companies out on it.

Here are some ways how organizations mislead the public:

1. Overstating the environmental benefits of a product or service
2. Using vague, misleading, or unverified claims to promote eco-friendliness
3. Understating the company’s overall carbon footprint
4. Promoting a single green aspect while ignoring other negative environmental impacts of a product
5. Neglecting scope 3 GHG emissions in carbon reports and disclosures
6. Solely relying on carbon offsets to claim Net Zero instead of achieving actual reductions

While the GHG Protocol has been crucial for developing today’s carbon accounting mechanisms, it has one major flaw: It does NOT require scope 3 emissions disclosure. And while governments are passing more regulations requiring full disclosure…it will take a while to adept.

This has always allowed for ways to simply neglect large amounts of emissions in product carbon footprint analysis and corporate carbon accounts. And of course…emissions that aren’t required to disclose…aren’t included in many reports.

Have you read something like “the most eco-friendly [insert product] on the planet” in a marketing campaign? How about good old “all natural ingredients”? These are rather big red flags you should look out for as a consumer and avoid in your marketing efforts as a seller.

Sometimes this is caused simply by poor knowledge about carbon emissions and reporting standards. In most cases, however, this is done intentionally to boost sales and without anything to show for it. Another reason is the attempt to lower carbon credit expenditures for excess emissions.

In its recent report on greenwashing, Carbon Market Watch released a study on 24 major corporations around the world with the devastating result: 90% of them are using shady tactics and meaningless Net Zero strategies to hide the fact that they are still not doing enough for the environment.

Among them are well-known brands with colorful sustainability reports such as:

• Amazon
• Apple
• Google
• Microsoft
• Nestle
• Volkswagen
• Walmart

Needless to say, this is just the tip of the iceberg and there are countless examples around the world with similar results.

Why is greenwashing bad for the planet?

Greenwashing hurts global environmental efforts and hinders advances in green technology and decarbonization. It also leads to poor purchase decisions by consumers and a competitive disadvantage for genuine companies.

Every type of deception and false claim hurts people and the integrity of businesses.

However, greenwashing has become a major problem in recent years.

As global warming continues and the world is itching closer and closer to overshooting the 1.5°C limit of the Paris Agreement, everything that hurts the integrity of our climate efforts…hurts the planet and everyone on it.

Making false claims of sustainability – and having success with it -means other companies that offer actual environmentally friendly products grow less. This hinders technological advancements and prevents a change in society toward Net Zero.

It also means customers are now starting to question many green claims by companies.

This not only applies to decarbonization but all aspects of environmental claims and efforts.

Prominent Examples of Greenwashing

Here are some infamous examples of well-known companies caught greenwashing and making false environmental claims:

Kohl’s and Walmart falsely market rayon textile products as bamboo

Kohl’s and Walmart, two of the biggest retailers in the US, were sued by the FTC in 2022 for falsely claiming many of their rayon textile products were made of bamboo. They were also charged for claiming the eco-friendliness of these products while actually releasing toxins and other chemicals in the production process.

Result: Both companies were ordered to pay penalties of $2.5 million and $3 million, respectively.

Coca-Cola & PepsiCo continue plastic pollution by moving targets

Not only are Coca-Cola and PepsiCo two of the world’s biggest plastic polluters, but they have also missed several recycling and decarbonization targets since 2009. Their solution so far: Change the targets or postpone the deadlines when it becomes clear they cannot be fulfilled.

This way, these companies never really miss their targets and can still claim to be on track on their Net Zero journeys.

Is Greenwashing Legal?

Greenwashing is not legal and many jurisdictions are moving against it with penalties and other regulations. Therefore, companies must be careful to disclose their emissions honestly and make only substantiated sustainability claims.

In many nations around the globe, authorities have put rules in place to guard against this form of misleading advertising. In the United States, for example, the FTC has crafted specific guidelines, aptly named the “Green Guides”.

While not legally binding, they are meant to ensure that companies don’t engage in deceptive or unfair environmental marketing practices, which can be punishable under Section 5 of the FTC Act.

However, it’s important to note that the legal consequences of greenwashing can vary. They depend on the laws of the specific jurisdiction, the extent of the misleading claim, and the ability to demonstrate that the company intentionally deceived consumers.

Even if greenwashing doesn’t always result in legal action, there’s a significant downside risk for companies. Consumer trust can be shattered, potentially causing long-term harm to a brand’s image. For this reason, many companies strive to steer clear of greenwashing, not only to avoid legal troubles, but also to prevent consumer backlash and stakeholder dissatisfaction.

To make a long story short: The least that will happen is a PR disaster that will cost you customers. In the worst case, this is joined by legal actions against your company.

Reegy’s carbon accounting and climate intelligence module will help you prevent greenwashing and win your customers’ trust.

Why greenwashing will hurt your company

Greenwashing can have serious implications for businesses, as it not only damages their reputation but also exposes them to legal and financial penalties. Moreover, it hinders the transition to a low-carbon economy and our efforts to stop climate change.

Regulatory Fines and Penalties

Many countries have enacted regulations to protect consumers from deceptive marketing practices, including greenwashing. In the United States, for example, the Federal Trade Commission (FTC) enforces the Green Guides, which aim to prevent misleading environmental claims. Companies found to be in violation of these guidelines can face significant fines and penalties.

In the European Union, the Unfair Commercial Practices Directive (UCPD) prohibits companies from making false or misleading environmental claims. National enforcement authorities have the power to impose fines and other sanctions for greenwashing offenses.

In the future, the penalties for greenwashing in the EU, UK, USA, and other regions will increase even further.

This doesn’t only include false marketing claims but also neglecting to report scope 3 emissions in full.

Legal Action

In addition to regulatory penalties, companies engaging in greenwashing can face legal action from consumers, investors, or competitors. This includes charges of false advertising, misrepresentation, or breach of contract, among other claims. If found guilty, companies may be required to pay substantial damages, in addition to the costs associated with litigation.

We don’t know about you, but we’d rather not be involved in any of that.

“You have to hold yourself accountable for your actions, and that’s how we’re going to protect the Earth.”

Julia Butterfly Hill

Loss of Consumer Trust

Nobody likes to be lied to. Consequently, even worse than financial penalties can be a loss of customer trust and loyalty.

This can result in declining sales, as eco-conscious consumers choose to take their business elsewhere. In the age of social media, negative news about a company’s environmental practices spread quickly, exacerbating the loss of trust and making it difficult to rebuild a positive brand image.

Investor Scrutiny

As investors increasingly prioritize environmental, social, and governance (ESG) factors when making investment decisions, greenwashing can have financial consequences. Companies found to be engaging in deceptive environmental practices may face divestment or exclusion from sustainable investment portfolios. Furthermore, investor lawsuits and reputational damage can lead to a decline in stock prices.

Increased Regulatory Scrutiny

Companies caught greenwashing may attract increased attention from regulatory authorities, who may impose stricter reporting requirements or more frequent audits to ensure compliance with environmental regulations. This increased scrutiny can lead to higher compliance costs and additional resources dedicated to meeting regulatory demands.

In short, greenwashing can be awful for your business and hurt you more than being honest and transparent about your carbon emissions. Let’s look at how you can prevent it and even increase brand loyalty in the process!

How Carbon Accounting Software can help prevent Greenwashing

Automated carbon accounting software like Reegy’s Eco Hub helps your business create accurate carbon reports and prevent greenwashing.

From tracking your emissions to disclosing them with the appropriate reporting framework, we take care of all the heavy lifting for you. In addition, we give you personalized and data-driven action plans that help you reduce your emissions.

Why your business will benefit from this you ask?

Because not only will you be able to submit regulatory-grade reports on the click of a button, but you can also be sure your decarbonization efforts are 100% transparent. No more greenwashing and win-win for you and the planet.

A few more ways our platform can help you:

Comprehensive Carbon Accounting:

With Reegy you can automatically calculate your carbon footprint across the entire value chain. This holistic approach ensures that all environmental impacts are considered, thereby minimizing the risk of greenwashing and also including scope 3 GHG emissions.

Transparent & Regulatory-Ready Reporting

Our investor-grade carbon and ESG reports can be shared with stakeholders, investors, and customers to showcase your efforts toward sustainability and counter greenwashing accusations. Publish them your way or use a pre-made landing page.

Benchmarking and Goal Setting

Our software enables businesses to set realistic, achievable sustainability goals by benchmarking their performance against industry standards and best practices. This process helps companies create an authentic roadmap for improvement and avoid greenwashing through unattainable or vague targets.

Third-Party Verification

Our platform supports third-party verification, ensuring that the data submitted is accurate and trustworthy. This way, you can increase the credibility of your company’s sustainability claims and prevent greenwashing.

Ready-made decarbonization templates

Reducing carbon emissions is hard. We get it. That’s why we provide you with AI-generated and human-verified action plans, decarbonization strategies, and actionable insights to reduce your environmental impact. This way you can make real progress toward sustainability and reduce the temptation to engage in greenwashing.

Putting it into perspective

Yes, greenwashing in any way, shape, or form is bad for companies, customers, and our planet. There is no way around it.

However, despite all the negative aspects, neglected emissions, and improper execution of decarbonization keep in mind: Any and every little bit helps to save our planet.

Any and every little bit helps to save our planet.

If you create great products that are environmentally friendly, don’t be afraid to market them as such. Even if they are not the “most eco-friendly thing ever made”, tell your customers about it.

If you have started your carbon accounting journey and noticed you did not disclose some significant scope 3 emissions, that’s okay. Republish the report with the corrected data and notify your stakeholders and the public.

Not only is this better than greenwashing…it also creates trust in your ESG expertise and that you are willing to improve.

Last but not least, we should remember to keep our public discussion fair and encourage, rather than blame. It is true that many corporations have neglected sustainability aspects for a long time, however, we cannot do it without them.

Conclusion

Greenwashing is not only a shady marketing technique but is also often caused by lacking data on corporate GHG emissions. It prevents real progress to fight climate change and will hurt your business in the long run.

Talk to us and let us show you how our platform can help you build a world-class climate program in no time!