How to spot a greenwasher?

In a world where green initiatives are in vogue, brands across the globe are showing off their environmental credentials in awareness that not “being green” is a tough feat these days. However, not all that glitters is gold, and not every claim of sustainability is genuine. This practice, known as greenwashing, can mislead consumers and investors alike. To combat the most outrageous examples of greenwashing, industry initiatives like the Science Based Targets initiative (SBTi), and regulatory measures such as the EU’s Sustainable Finance Disclosure Regulation (SFDR), and the Corporate Sustainability Reporting Directive (CSRD) have been introduced.

Despite these efforts the responsibility of spotting greenwashing still largely falls on consumers and investors. So, the question remains: how can one spot greenwashing?

Rely on Labels wisely

Fortunately, there are several aids to help consumers make more informed choices. One such aid are labels, which can be a reliable source depending on the organization behind it. Generally, a product is claimed carbon neutral when the company calculates the CO2 emissions generated throughout the product’s life cycle and offsets this footprint through purchasing carbon credits from projects globally. The effectiveness of such carbon credits can vary significantly depending on the nature of the underlying project. Some labels hold genuine meaning and can guide consumers toward more sustainable options, such as Fair Trade, Rainforest Alliance, Energy Star, or Global Organic Textile Standard. However, it's crucial to be discerning when it comes to labels. If a label is specific to just one brand, its significance may be limited. For instance, carbon neutrality labels have gained in popularity, but they come with a mixed reputation.

Reducing the complex topic of carbon emissions to a mere label might not fully capture its intricacies, and many consumers may not understand the concrete meaning of such labels. However, amidst the vast array of products we navigate daily, these labels can offer valuable guidance to support purchase decisions when used wisely.

Delve into financial sustainability claims

The hype to market products as sustainable has also extended into the finance sector. The introduction of the SFDR enables the categorization of products’ sustainability claims, with funds labelled as Article 9 being the strictest category, typically indicating genuine sustainability aspirations. Nevertheless, it’s always crucial to inquire about a fund’s sustainable objectives and how they are integrated into the investment strategy and process. All this vital information should be readily available on the product’s website disclosure or in an annex to the prospectus.

Scrutinize the company's business model

Understanding a company’s fundamental business model is equally essential. Some sectors inherently contribute to high pollution levels, such as oil and gas, cement, and fast fashion. For example, when a garment company promotes its “conscious” clothing line, it’s worth questioning whether this really offsets a business model that is rooted in high volume, high consumption and high disposability. Conversely, there are companies operating in high-polluting sectors that genuinely strive to transform their business model to reduce emissions.

Watch out for indicators of greenwashing

While determining whether a company genuinely reduces its emissions is a complex task, there are some indicators to watch out for, such as:

• Limited accessibility of sustainability-related reporting to the public

• Lack of historic reporting available, hindering year-on-year comparisons and reporting consistency.

• Vague sustainability road maps with generic wording about strategies and a lack of concrete action plans, targets, or progress.

• Reporting that focuses solely on the company’s direct emissions, or lacks clarity on the type of emissions reported (direct or indirect)

Remember the power of consumers and investors

Recognizing that the responsibility for tackling climate change cannot solely rest on consumers and investors is important. Companies, banks, regulators and governments must all play their part. However, as consumers and investors, we have power, and wielding that power responsibly is a critical factor in the race to achieve net zero. Spotting greenwashing requires vigilance and critical thinking. By taking the above steps, you can contribute to a more sustainable future and support companies that are genuinely committed to making a positive environmental impact.