Written by Roberta Guevska
Greenwashing, the process of conveying a false impression or providing misleading information about how environmentally sound a company’s products are, has been an emerging phenomenon for the last few decades. Delmas and Burbano (2011) define it as “the collision of two different firm behaviours, which occur when firms have strong positive communication about their environmental contribution while still having poor environmental performance”. This allows for unethical behaviours within organizations that are rarely monitored – to gain bigger financial profit, influence outcomes, and solicit trust. A lot has changed, though, since the European Commission (EC) first introduced the European Green Deal (EGD) in late 2019, aiming to transform the European economy and turn Europe into the first climate-neutral continent by 2050 (Lentfer et al., 2021). Considering this event, unsubstantiated claims deceiving consumers into believing that a product is environmentally friendly to have never seemed more tempting to producers in every possible sector. One could not forget to mention that there are certain strict rules and technical standards for sustainability in the face of the EU Taxonomy for sustainable activities. Nevertheless, greenwashing is a present problem and might make implementing the EGD and reaching its objectives even more difficult. This article aims to explore the newly introduced criteria and examine this problem. Furthermore, it will explore what has been and what is currently being done to prevent EGD from turning into another form of marketing spin deceptively used to persuade the general public.
To begin with, the notion of greenwashing dates back to 1986 when the term was examined by Jay Westerveld concerning the “save the towel” practice that various hotel chains used. In his words, the whole concept was rather ironic and had little to no influence beyond saving hotels money in laundry costs. Another point worth mentioning is that during this period consumers used to keep themselves informed mainly with television, radio, and print media, so they could not fact-check the way we can today (Edwards, 2022). All this has changed with the emerging digitalization and rise of social media in the early 2000s. One could easily open any search engine and dive into any topic and product of interest. The abundance of information is a double-edged knife though: oftentimes it serves as a perfect technique for any company to spread alleged health claims regarding their products.
In this context, companies that have been involved in greenwashing on a wide scale have already made a plethora of headlines in the past. Such accusations act against consumers’ interests and harm to a great extent any company’s reputation. Although the way businesses apply greenwashing practices over the years has changed somewhat, the results of it could be now even more harmful than a decade ago – from losing customers’ trust to being held accountable in court, all this could worsen the well-being of consumers, producers, and most importantly, the planet itself. Having said that, currently, companies have to account for the enormous part of their online presence and the negative effect of comments and reviews of dissatisfaction. Especially now that the demand and pursuit of greener practices are higher than ever, numerous European corporations face an influx of litigation for misleading environmental and health claims. This could contribute to an avalanche of difficulties with the implementation of the European green policies part of the EGD and, what is more, it could negatively affect the public opinion towards the EU itself (Edwards, 2022).
Environmental management certification and environmental performance in the EU: Greening or greenwashing?
Closely related to the alleged problems in implementing environmental management certification, the EC developed a well-suited technique – also known as the EU Eco-Management and Audit Scheme (EMAS) – a management instrument aimed at companies and other organizations to examine, report, and improve their environmental performance. To this end, EMAS is built upon three fundamental principles – performance, credibility, and transparency. The scheme supports organizations in finding the most suitable tools to ameliorate their ecological performance. Participating organizations willingly are committed to both assessing and minimizing their influence on the environment. In this regard, providing publicly available information on any company’s environmental performance is an essential aspect of EMAS. (European Commission, 2020a) Organizations achieve greater transparency both externally through the environmental statement and internally through employees’ active involvement. EMAS’ strict requirements include legal compliance with all environmental legislation, checked by a verifier and a public authority (Edwards, 2022).
Main drivers for greenwashing and the effect of greenwashing on EU citizens
In order to further analyze the phenomenon of greenwashing and how it affects the sustainable financial industry, it is necessary to consider the specific drivers of this process. The huge growth in green bonds is seen as a significant contribution to the lack of confidence faced by green bond investors (Delmas & Burbano, 2011). This, therefore, leads to more socially irresponsible investments. Having said that, one could not resist, but question the reason for the commitments of various companies in greenwashing despite the known risks. Exactly the same matter was investigated by Delmas and Burbano in their study on greenwashing stimulators back in 2011. It analyzes the driving forces of greenwashing through information gathered from management, strategy, sociology and psychology in order to accurately understand greenwashing and its background circumstances for companies, consumers, and investors (Zaman, Miliutenko, and Nagapetan, 2010).
Next, several theoretical developments have stated the increased number of companies that recognize the competitive advantage of promoting sustainable practices (Dimitrieska et al., 2017). However, environmental statements made by various corporations are oftentimes expressed relatively vaguely and may include misleading information in an effort to attract a ‘green’ audience (Dimitrieska et al., 2017). One could easily notice that there is growing distrust of green practices among consumers and investors. Therefore, it could be argued that greenwashing is one of the biggest challenges to sustainability and green development, yet it is a topic that is still not widely understood (Torelli, et al., 2019).
Environmental reporting has seen a radical shift lately and it is often seen as a decisive tool in demonstrating sustainable performance (Hedberg and Malmborg, 2003). In these reports, organizations declare systematically the state of the environmental burden caused by their activities and environmental efforts that mitigate them. Therefore, environmental reporting includes those statements that contain information about corporate social responsibility or sustainability practices. However, there is a lack of uniform standards for the standardization and evaluation of green investments and practices, which delays the process of mobilizing capital to meet sustainability objectives (European Commission, 2019). In response to this, the EU has created a new Taxonomy Regulation to increase green investments (European Commission, 2019). The EU Taxonomy consists of a relatively simplified classification system that has become legally binding for all EU Member States in December 2021.
Its main objective was to serve as a guide through investments in green projects. For that reason, the EU Taxonomy laid out a set of six environmental objectives (European Commission, 2020a). According to the regulation, an investment can only be qualified as European Taxonomy aligned if it substantially contributes to one or more of these objectives and does not significantly harm any (European Commission, 2020a). By implementing this new regulation, the EU ensures that all Member States follow a uniform set of criteria in terms of green investing.
Yet another essential purpose is to meet the emission reduction target set by the Paris Climate Agreement and the United Nations (UN) 2030 Agenda involving seventeen Sustainable Development Goals (SDGs) to slow down climate change, limit the emissions of greenhouse gases, and fight biodiversity loss. It constitutes a uniform classification system of sustainable economic activities to favour green investments (European Commission, 2019), which would also greatly benefit the goals set out in the EGD. The European legislator considered that these achievements would be possible through a coherent understanding of the concepts that make up the term ‘sustainable’. For this purpose, the EU Taxonomy, a common classification system for sustainable economic activities, was created (Zych, et al., 2021).
Last but not least, it should be emphasized that one of the main purposes for which this qualification system has been established is to counter greenwashing activities by supplying investors, legislators, and individuals with clear definitions of which activities can be marked as sustainable. These efforts are targeted at private investment and possible subsidies or other forms of support at the state level.
As stated by the European Commission, the regulation in question aims to achieve six environmental objectives, which involve climate change mitigation, adaptation to climate change, sustainable use, and conservation of water and marine resources, transition to a circular economy, pollution prevention, control and conservation and restoration of biodiversity and ecosystems. (European Commission, 2022) These objectives can be achieved by identifying a specific list of environmentally sustainable activities (Zych, et al. 2021). Consequently, a Delegated Act has been issued in addition to the EU taxonomy, which will apply from 1 January 2022.
Greenwashing in terms of the European Green Deal – future developments
As we all know, the EU has a long history of being a pioneer in developing policies to tackle climate change. It adopted a climate change strategy as early as 1992 and endorsed the goal of limiting global warming to 2 degrees Celsius above pre-industrial levels in 1996. (Jaeger, 2011) Later on, in 2001, the EU strengthened its credentials as an international leader in addressing climate change when it secured enough followers for the Kyoto Protocol to enter into force despite the withdrawal of the United States (Siddi, 2020). Ambitious domestic policies backed up the EU’s global role as an activist for the reduction of human impact on the planet, and to fight climate change. In 2005, the EU launched the Emissions Trading Scheme (ETS), the world’s most important greenhouse gas emissions trading scheme and the flagship of the EU’s climate policy (Froggatt, 2015). Two years later, it also adopted a comprehensive climate legislative package that included the 20-20-20 targets of reducing greenhouse gas emissions by 20% compared to 1990 levels, increasing the share of renewable energy use to 20%, and improving energy efficiency by 20% (Siddi, 2020). Moreover, at the 2009 UN Climate Change Conference in Copenhagen, the international community did not manage to reach a global agreement on restricting greenhouse gas emissions. Still, the EU carried on to pursue its domestic climate targets and drafted new ones for 2030. The Paris Climate Agreement of December 2015 is considered a big triumph for EU diplomacy and encouraged the Union to adapt its emission reduction, renewable energy, and energy efficiency goals upwards. Last but not least, in December 2019 the newly elected EC President Ursula von der Leyen came up with a bold document in terms of sustainability goals and climate action – the European Green Deal. This instrument aimed to make energy transition one of the EU’s most important goals and could be better conceptualised as a roadmap of key policies for the EU’s climate agenda, based on which the Commission has started and will continue to develop legislative proposals and strategies from 2020 onwards (Siddi, 2020).
In connection with its objectives and the EU Green Deal, the EC presented in early 2020 the European Green Deal investment plan, which would mobilise at least 1 trillion euros of sustainable funding over a period of ten years (European Commission, 2020a). It has also become evident that this sustainable financing will support investments toward the recovery from the economic damages brought by the COVID-19 pandemic.
In order to meet the European Green Deal criteria as well as the international commitments the EU has made, the financial sector has a key role in steering private investment into the transition to a climate-resilient and resource-efficient economy to complement public spending. The current levels of investment are insufficient to support an environmentally and socially sustainable economic system (European Commission, 2020b). The Commission considers that the financial sector should re-orient investments towards more sustainable technologies and businesses, finance growth in a sustainable manner over the long term, as well as contribute to the creation of a low-carbon, climate-resilient, and circular economy (Sundqvist, 2022).
Finally, with the European Green Deal, which supports long-term green financing, and the shortly presented climate law, low-carbon adaptation has been recognized as a key EU policy as a means for achieving climate neutrality. ‘Greenwashing’ and misleading marketing claims of allegedly eco-products tend to undermine this objective, and these phenomena have come under scrutiny. This new legal framework represents a worthwhile beginning, but it is not yet fully mature. It should well consider the specific needs of the European citizens and the actual risks greenwashing has for them. Moreover, all these forms of eco-legislation should not harm the market and economy but rather support them and act in favour of the planet’s well-being. To that extent, green practices shall not just be established to suit only a specific strategy, but policies should be developed to encourage a system based on green techniques that would lead to a genuine and fair future for the generations to come (European Parliament, 2022).