Greenwashing: what it is and how to avoid it
Have you ever heard of the term “greenwashing“? Greenwashing is a term coined by combining “green” and “whitewashing” (to deceive or disguise) to create the image of eco-friendliness. International Monetary Fund (IMF) defined it in their 2021 Global Financial Stability Report as “deceptive marketing used to persuade the public that an organization’s products, aims, and policies are environmentally friendly.” Why has this term gained attention?
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As the terms SDGs (Sustainable Development Goals) and sustainability have become more widely recognized by the general public, companies have begun to publicize their sustainability activities to promote themselves, and stakeholders such as investors and consumers have begun to evaluate companies based on this information. Investors are incorporating ESG (Environmental, Social, and Governance) perspectives into their analysis of companies to invest in, selecting companies that mitigate investment risks such as climate change. Consumers who are concerned about environmental and social issues may choose services and products from companies that are leading the way in sustainability. Corporate sustainability efforts are now linked to higher sales and increased corporate value. However, it has been pointed out that some products, services, and activities in the world that claim to be sustainable may not really be sustainable, and products, services, and activities that are ambiguous or for which no supporting data is provided are now called greenwash.
The word greenwashing was a word coined in 1986 by American environmentalist Jay Westerveld in response to hotels claiming that reusing towels in hotel rooms instead of replacing them with laundered towels was environmentally friendly but kept the other parts of hotel operations as business as usual (BAU). That meant that the claim was deemed misleading overall.
Sustainability investments grew at a compound annual growth rate of 12% between 2016 and 2020 (Figure 1), and investments to achieve carbon neutrality and create a sustainable society are expected to continue to grow. Greenwashing, which includes unsubstantiated or misleading representations of environmental performance, is also considered a risk in ESG investing, and regulations against greenwashing are being tightened in Europe. Corporate valuation guidelines are being developed to exclude greenwashing. In the Philippines, the Bangko Sentral ng Pilipinas (BSP) adopted the IMF definition when they published BSP Circular 1149 on August 2022 and included that the concept “covers the dissemination of misleading information, whether intentional or not, regarding a company’s environmental strategies, goals, motivations, and actions that can induce false positive perception of a company’s environmental and social performance. The term greenwashing is often used in the broader sustainability context.” The BSP also requires banks to avoid greenwashing when setting out transition plans which describe how portfolios and loan books could become progressively compatible with a move to a climate-neutral economy.
About the contributor
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Jonas Marie Dumdum is an ISC consultant for Nomura Research Institute Singapore – Manila Branch. He is also a climate reality leader and sustainability science and strategy advocate who has worked on projects that tackled various environmental issues such as climate change and sustainable energy.
