Published on
March 6, 2024
January 5, 2023

Noun: “misleading or deceptive publicity disseminated by an organization so as to present an environmentally responsible public image.”

Last month, Europe’s three primary financial regulatory agencies, together with the European Supervisory Authorities (ESAs) announced a Call for Evidence on greenwashing. The ESAs consist of The European Banking Authority (EBA), The European Insurance and Occupational Pensions Authority (EIOPA), and The European Securities and Markets Authority (ESMA). Together they announced the gathering of information on greenwashing risks and practices in banking, insurance sector and financial markets.

The Commission requested this information due to the exponential growth in demand for sustainable investment products. Naturally, this growth is a positive trend, but on the other hand, it increases the risk of greenwashing. Greenwashing is deceitful as it misleads investors and consumers who are genuinely looking for sustainable products and services. Green products are often sold at a premium. At the same time, when greenwashing comes to the surface, it can seriously damage any company’s reputation. Think for example of large HSBC. The bank highlighted how it had invested $1tn in climate-friendly initiatives such as tree-planting and is helping clients hit their climate targets. At the same time, the bank is still a major contributor to CO2 emissions, investing in fossil fuels and thermal coal mining.

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Count of companies with greenwashing risk exposure

Greenwashing: the basics

Greenwashing is the act of providing the public or investors with misleading or outright false information about the environmental impact of the products and operations of a company. It is the process of conveying a false impression about the environmental impact of a company, making the company seem “greener” than it actually is. When a company emphasizes the sustainable aspects to overshadow the damaging practices it would also be considered greenwashing. It can start as small as misleading labels, up to cherry-picking data or even hiding complete tradeoffs and anything in between…

The name and practice originate from the ’60s when the hotel industry performed one of the most blatant examples of greenwashing. Hotels would place notices in rooms to ask guests to reuse towels to “save” the environment, while in reality, hotels would benefit from lower laundry costs.

More recently green washing is often used by big carbon emitters, trying to leverage and rebrand themselves as being environmentally friendly. Renaming, rebranding or repackaging are often giving the impression that products or services are sustainable. A big company that recently has contributing to greenwashing was IKEA. An investigation found that IKEA has been using illegally sourced wood from the forests of Ukraine’s Carpathian region. This area is home to endangered species such as bears, lynxes, wolves, and bison. Shockingly, the illegal timber was certified by the world’s leading green labelling system for timber: the Forest Stewardship Council (FSC). Another recent example of greenwashing by a big company is Innocent Drinks. The company’s advertisements showed animated characters encouraging people to "get fixing up the planet" by buying Innocent drinks. Innocent Drinks is owned by Coca-Cola, which with 3 million tons of plastic packaging a year, is the worst plastic polluter in the world.

Mislabeled

Probably the easiest way to mislead the customer is with label. A few examples:

-        If the plastic packaging of a product is labeled “recyclable”, it’s unclear if the product or the packaging is recyclable. Either way, the claim is false when parts of the product are not recyclable.

-        A label that reads “50% more recycled content” might come across as very sustainable, while in reality the recycled content might have only increased from 2% to 3%...

-        Some trash bags are made from recyclable materials and therefore labeled “recyclable”. This claim is in theory not false, but in reality, trash bags won’t be separated once they are at the landfill and are thus very unlikely to be reused.

-        “Biodegradable” comes across as very friendly for the environment, but that doesn’t have to be the case. The word only means that the product will decompose over time but doesn’t mean it’s quick or clean. It also doesn’t say anything about the production process.

-        The term “environmentally friendly” is one of the most damaging forms of greenwashing, as the term has no legal basis and can be claimed for the weakest reasons.  

For example, globally well-known clothing brand H&M, is known for its “conscious choice” labels. Investigation found that 96% of the claims made by the brand are not holding up.

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Proof wanted

In most instances, when greenwashing practices are happening, the company often doesn’t provide evidence to back up green claims, whilst a genuine green company will provide details and data to proof the sustainability claims.

In some sectors greenwashing is easier to notice than in others. Hence, the ESAs issued the call for evidence in the financial sector. Greenwashing in this sector can lead to undermined trust in sustainable finance and the capacity of the financial system to channel private capital into sustainable investments. The ESAs are aiming to collect information from stakeholders on the scale of greenwashing and the areas of high greenwashing risks, but also on examples of potential greenwashing practices in the financial sector.

All information will be used in a progress report to the EU commission in May 2023 and a final report a year later.

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Worldwide, regulators have been ramping up efforts against greenwashing lately: The EU has a “Sustainable Finance Disclosure Regulation (SFDR) framework, the U.S SEC (Securities and Exchange Commission) implement new ESG Fund Disclosure rules, Australia recently offers anti-greenwashing guidance and Singapore implemented new reporting and disclosure rules for ESG funds.

In the past months, high-profile greenwashing-related actions have taken place: A police raid into the Deutsche Bank’s investment department and an investigation from the SEC into ESG funds at Goldman Sachs.

It’s safe to say that rules to target greenwashing are increasing, but the need to monitor is not fulfilled. We need a more detailed understanding of the practices that will help foster the reliability of sustainability-related claims. (Prop)tech can play a big role in this as the technology can help investors and stakeholders understand the true energy footprint of a property or other assets. Prop-tech can provide different sets of data, like air quality monitoring, carbon tracking and energy usage. This can help leaders understand where they need to iterate or improve as they work towards their goals but can also give the customer insights into a company’s real footprint as opposed to what they pretend to be.

Who's going to change ESG?

The larger the company the greater the chance of success.

Japan, US + South Korea are the countries with the most patents in the field- focusing on consumer discretionary technology.

Large companies that generally don’t have a high proportion of income from ESG (e.g. Toyota) are starting to apply for the largest number of ESG patents- interesting as people are now beginning to take note.

We have deeper insights + high-quality dealflow + access to global network of investors actively looking into this space.

Interested to work with us?

We distill the noise and get things done. With global insights + coverage we can help drive ROI from your strategy.

Should you wish to get more insights or get access to opportunities in our global network please do reach out:

hello@theproptechconnection.com


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References:

https://www.zerosmart.co.uk/post/twelve-examples-of-greenwashing

https://www.investopedia.com/terms/g/greenwashing.asp

https://www.esgtoday.com/european-regulators-launch-greenwashing-study/

https://www.forbes.com/sites/forbesbusinesscouncil/2022/01/11/what-proptech-has-to-offer-the-esg-investment-boom/?sh=3b3192a05e8d

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