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As climate issues continue to loom large around the world, people are becoming familiar with the term greenwashing — when a company markets itself as more sustainable than it actually is. This tactic impacts investors and consumers alike because it’s designed to mislead people through a variety of means: mislabeling, the use of vague terminology, making claims about green actions or outcomes that can’t be verified (or are found to be deceptive).

The term greenwashing is derived from the notion of whitewashing, which is when a company or individual conceals wrongdoings by presenting a cleaned-up, but deceptive version of their actions.

One reason companies engage in greenwashing is to attract consumer and investor dollars. According to the 2023 Business of Sustainability Index, 68% of consumers claimed they would spend more money on environmentally friendly products. But some companies engage in greenwashing to avoid environmental regulations.

Identifying the Different Types of Greenwashing

Before you buy products marketed as sustainable or eco-friendly, or invest in a green company that makes similar claims, it may help to know some of the red flags of greenwashing.

Many of these can be convincing, so in order to decide whether a company is engaging in actual greenwashing or not, you may have to do your own research.

Here’s what to look out for when purchasing a product, or investing in a company that claims to embrace sustainability or ESG investing strategies (i.e., environmental, social, and governance practices):

•   Vague language: Labels such as “eco-conscious,” “clean,” or “100% sustainable” don’t actually mean anything in terms of a company’s manufacturing processes or adherence to environmental criteria. Be sure to research ESG standards that reflect actual environmental practices.

•   Imagery: If a polluting company uses marketing images of flowers, trees, beaches and so forth, they may be trying to appear more environmentally friendly than they really are. Be sure to check whether the product lives up to the advertising.

•   Greenwashing a traditionally polluting product: Companies may attempt to improve the branding of a product by making it seem more environmentally friendly without actually changing much or anything about it.

•   False associations: Brands can make it seem like they are endorsed by a third party when they really aren’t, or the third party is simply their own subsidiary.

•   Green products from a polluting company: A company might make a product that has a lower environmental impact, such as an electric vehicle, but manufacture it in a way that creates significant waste and greenhouse gas emissions.

•   Fabricated data: Companies might fund research that will have results that make them look better, or make data up completely.

Again, because socially responsible investing has grown so rapidly, and many companies want to attract the attention of investors and consumers with a green sensibility, there is commensurate growth on the greenwashing side, so it does pay to be cautious when making choices.


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Example of Greenwashing

Greenwashing is increasingly on the radar of regulatory bodies that protect consumers and investors, but some watchdog organizations lack the resources to hold companies to account. A few examples of what would be considered greenwashing are described on the U.S. Federal Trade Commission (FTC) website:

•   A company labels a trash bag they are selling as “recyclable.” Although this may be true, it’s unlikely that a trash bag full of trash will be emptied and then recycled on its own. This label makes the product appear to have an environmental benefit, but in reality it doesn’t.

•   In another example, a company labels a product as having 50% more recycled content than a previous product did. This makes it sound like a significant amount, but in fact the company may have increased the recycled content from 2% to only 3%, so there has been hardly any change in reality.

•   A company labels a product as “recyclable” but they don’t say specifically whether all parts of it are recyclable, just some parts, or just the packaging.

Other real-world examples include: An oil company that’s known for environmental negligence releases advertisements that state their dedication to a carbon-free future — or companies promising to do environmental cleanups, but failing to actually follow through on those promises.

You can compare these to alternative or solar energy companies that are making a difference.

Recommended: A Beginner’s Guide to Invest in Solar Energy

The Negative Impact of Greenwashing on a Company

Although in the short term greenwashing might benefit a company if it leads to more people buying their products, the risk is that negative consequences can quickly outweigh those gains. If consumers realize the company is engaging in greenwashing, rather than adhering to established ESG frameworks, there can be a big PR backlash, and serious reputational damage.

Companies can also face legal ramifications for their misleading claims. And investors interested in true impact investing may take their business elsewhere.

In the long term, the biggest negative consequence is the actual environmental impact of manufacturing practices that are not, in fact, green or sustainable. Companies rely on clean water and air, quality soil, and a stable climate to operate. A thriving economy requires a healthy planet, and greenwashing ultimately doesn’t support either.

6 Ways to Avoid Greenwashing

Whether purchasing products or investing in companies, if you are looking for the most sustainable options, there are a few ways to avoid greenwashing.

1. Clear and Transparent Language

Watch out for vague terms and language. If a brand makes sustainability claims, look for specifics such as certifications, verifiable third-party endorsements, industry credentials, and details about exactly what the brand is doing.

2. Evaluate the Data

If a brand uses statistics and numbers to back up its sustainability claims, make sure the numbers are backed up with credible data.

3. Compare Similar Products

A company may make sustainability claims when in fact their product has basically the same environmental impact as their competitor’s. Compare ingredients, packaging, and manufacturing information to see whether one product is really better than another.

4. Look Beyond the Final Product

Even if a company is improving the impact of its products, it may not be addressing the waste and emissions associated with its operations or supply chain. If this is the case, they may be just making changes for marketing purposes. Check out a company’s website and/or watchdog groups to learn how much effort is going into sustainability at the corporate level.

5. Look for Goals and Timelines

If a company is truly implementing a comprehensive sustainability plan, it would include measurable goals and timelines. Ideally those would be available to investors and consumers, in the interest of transparency.

6. Verify Ingredients and Materials

Some terminology and product labels can be misleading. For instance, a company might say that their product is made from organic cotton or recycled plastic, when in fact only a small percentage of the cotton or plastic is organic or recycled and the rest is not.

The FDA has no guidelines for what the term “natural” means, and according to the USDA the term simply means that a product is “minimally processed” with “no artificial ingredients.”

Greenwashing vs Green Marketing

There is nothing wrong with a company telling the story of its environmental initiatives and the steps it is taking to produce products more sustainably. That’s green marketing at its best and most transparent. By contrast, greenwashing is when a company attempts to cover up their bad practices.

Actual green marketing may include:

•   Certifications and endorsements from established regulatory organizations

•   Clearly labeled manufacturing processes

•   Recyclable, compostable, or biodegradable materials (but watch out for these labels, sometimes a product can actually only be composted or biodegrade in very specific conditions that aren’t realistic).

•   Products free from toxic chemicals

•   Use of renewable energy

•   The use of transportation measures such as EVs

•   Purchase of carbon offsets for any unavoidable emissions

•   In-office programs and measures such as renewable energy, LEED certified buildings, on-site composting, or elimination of single use plastic

•   Doesn’t use too much packaging, and ideally avoids plastic packaging

•   Circularity programs that allow consumers to send back the product for repair or reuse

•   High-quality manufacturing made to last rather than one-time or short-term use

•   Fair trade and ethical labor practices

•   Environmental programs outside the company, such as donations or volunteer efforts

The Takeaway

Greenwashing is a marketing tactic some companies use to align themselves with the growing consumer and investor desire for sustainable products and investments. It’s related to the concept of “whitewashing,” which means covering up the truth with a positive-sounding story.

Investors committed to sustainability can look for red flags of greenwashing before deciding whether to invest.

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FAQ

What is ESG greenwashing?

ESG greenwashing is the practice of using marketing tactics to exaggerate an organization’s environmental, social, or governance efforts in order to attract customers, employees, investors, or positive media attention.

What are the three most common kinds of greenwashing?

Three common types of greenwashing are the use of environmental imagery, misleading labels and language, and hidden tradeoffs where the company emphasizes one sustainable aspect of a product — while still engaging in environmentally damaging practices.

Photo credit: iStock/fizkes

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