Making false claims about sustainability is not always about a company trying to pull the wool over our eyes. Sometimes it’s due to departmental miscommunication.
The problems with greenwashing
STRATEGY: BIG IDEAS
The rise of environment, social and governance (ESG) measures and green investing has also been accompanied by greenwashing. Put simply, greenwashing is making false claims about the sustainability of an organisation or an investment.
There are two problems with greenwashing, says Rasche.
Christopher Niesche is a business journalist and content writer with over two decades experience reporting on topics such as finance, trade, fintech, management, accounting, small business and human resources.
Story Christopher Niesche
“(Greenwashing is) the disconnect between what companies say they do and what they do – between talk and action..."
“It's the disconnect between what companies say they do and what they do – between talk and action,” says Andreas Rasche, professor of Business in Society at the Copenhagen Business School, Centre for Sustainability.
It’s not only about false claims, but also misleading claims, such as exaggerations. Rather than an attempt to deliberately mislead, greenwashing is usually the result of poor management within firms: different departments such as legal and marketing not coordinating and doing crosschecks of data, for example.
– Andreas Rasche, professor of Business in Society at the Copenhagen Business School, Centre for Sustainability
The first is that it undermines trust, which he says is a key binding element between companies, consumers, and investors. “If trust is undercut then we all have a significant problem in the long run,” he says.
Rasche says a lot of people no longer trust investment funds with ESG labels because they feel they don’t really know what’s in them.
The second problem with greenwashing of emissions is that it distorts emissions data on an aggregated level, such as for a whole nation.
“Just imagine if 50% of all firms cheat in terms of their carbon emission statements, then we can simply not steer actions against climate change in a reasonable manner because we don't really know what the real emissions are,” he says.
Extractive industries such as oil and gas and mining often face greenwashing claims as do fast-moving consumer goods companies, because their brands are heavily advertised. “It just sneaks in because they over exaggerate their claims and, hence, they face greenwashing allegations,” Rasche says.
It’s becoming more of an issue in Australia, with the corporate regulator ASIC (Australian Securities and Investment Commission) saying it will take enforcement action in “egregious” cases of greenwashing. The regulator revealed in October 2022 that it is investigating multiple super fund trustees and listed companies for allegedly lying about their green credentials, as regulators crack down on greenwashing.
for anyone found greenwashing under the Fair Trading Act, per breach.
fine for companies
NZ$600,000
Up to
fine for individuals
Up to
NZ$200,000
New Zealand’s Commerce Commission released guidelines in 2020 to help businesses understand their obligations when making environmental claims. There are big fines under the Fair Trading Act for anyone found greenwashing with companies fined up to NZ$600,000 and individuals up to NZ$200,000 per breach.
Part of the problem is that so much interpretation can be applied to sustainability reporting, because there aren’t yet any universal standards. The European Union (EU) has developed the EU Taxonomy, which it says “creates a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment”.
The taxonomy effort will be an important tool in fighting greenwashing in the long run, because it takes away a lot of the interpretative flexibility in sustainability reporting, says Rasche, who works on ESG and sustainable finance.
While progress is being made in environmental reporting, reporting on social sustainability issues such as labour rights remains more difficult to standardise.
“We need to get to a point where greenwashing really is treated as the rare exception.”
– Andreas Rasche, professor of Business in Society at the Copenhagen Business School, Centre for Sustainability
Additionally, better regulation is needed, such as the new accounting rules for reporting non-financial regulation, which have been adopted by the EU. International accounting bodies are working on harmonised sustainability reporting standards, with the profession in Australia also taking part.
Companies also need to improve their management practices when it comes down to sustainability, which can very often come down to simple things, like better communication between departments to align reporting. They also need to provide sufficient resources for sustainability reporting, which can be a challenge for smaller organisations.
Even with these solutions, Rasche expects greenwashing will remain a problem in the coming years, just as there are still from time-to-time false accounting scandals.
“At the moment it’s about reducing the scale of it,” he says. “I think we need to get to a point where greenwashing really is treated as the rare exception and not something that rather commonly appears.”
– Shane Oliver, AMP Capital
“Raising rates [in Australia] won’t do much to improve the supply of petrol or electricity, or bring down lettuce prices.”
STRATEGY: BIG IDEAS
Why are we
fuelling inflation?
For the last quarter of a century there’s been a view held by some economists and many politicians that inflation is dead.
However, any of us who have been grocery shopping, booked a flight or filled the car with petrol in the past few months knows that inflation is very much alive.
Even so, we’re unlikely to return to the surging inflation of the 1970s oil price shocks – that saw inflation soar in Australia from 3.4% in 1972 to 12.3% in 1974 and New Zealand rise from 6.9% to 11.1% in the same period – in part because of the lessons central banks learned from that experience, says Shane Oliver, chief economist at AMP Capital.
Christopher Niesche is a business journalist and content writer with over two decades experience reporting on topics such as finance, trade, fintech, management, accounting, small business and human resources.
STORY CHRISTOPHER NIESCHE
Lessons learned during the economic tumult of the 1970s could stand Australia and New Zealand in good stead to avoid a recession this time round.
Central banks have responded with rapid and unprecedented series of large rate rises. The Reserve Bank of Australia has, this year, lifted the official cash rate from the pandemic emergency low of 0.1% to 2.85%. While the Reserve Bank of New Zealand has raised rates from 0.75% to 3.5%.
The rise of environment, social and governance (ESG) measures and green investing has also been accompanied by greenwashing. Put simply, greenwashing is making false claims about the sustainability of an organisation or an investment.
“It's the disconnect between what companies say they do and what they do – between talk and action,” says Andreas Rasche, professor of Business in Society at the Copenhagen Business School, Centre for Sustainability.
It’s not only about false claims, but also misleading claims, such as exaggerations. Rather than an attempt to deliberately mislead, greenwashing is usually the result of poor management within firms: different departments such as legal and marketing not coordinating and doing crosschecks of data, for example.
Rasche says a lot of people no longer trust investment funds with ESG labels because they feel they don’t really know what’s in them.
The second problem with greenwashing of emissions is that it distorts emissions data on an aggregated level, such as for a whole nation.
“Just imagine if 50% of all firms cheat in terms of their carbon emission statements, then we can simply not steer actions against climate change in a reasonable manner because we don't really know what the real emissions are,” he says.
It’s becoming more of an issue in Australia, with the corporate regulator ASIC (Australian Securities and Investment Commission) saying it will take enforcement action in “egregious” cases of greenwashing. The regulator revealed in October 2022 that it is investigating multiple super fund trustees and listed companies for allegedly lying about their green credentials, as regulators crack down on greenwashing.
The rise of environment, social and governance (ESG) measures and green investing has also been accompanied by greenwashing. Put simply, greenwashing is making false claims about the sustainability of an organisation or an investment.
“It's the disconnect between what companies say they do and what they do – between talk and action,” says Andreas Rasche, professor of Business in Society at the Copenhagen Business School, Centre for Sustainability.
The taxonomy effort will be an important tool in fighting greenwashing in the long run, because it takes away a lot of the interpretative flexibility in sustainability reporting, says Rasche, who works on ESG and sustainable finance.
– Andreas Rasche, professor of Business in Society at the Copenhagen Business School, Centre for Sustainability
“(Greenwashing is) the disconnect between what companies say they do and what they do – between talk and action..."
Part of the problem is that so much interpretation can be applied to sustainability reporting, because there aren’t yet any universal standards. The European Union (EU) has developed the EU Taxonomy, which it says “creates a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment”.
Additionally, better regulation is needed, such as the new accounting rules for reporting non-financial regulation, which have been adopted by the EU. International accounting bodies are working on harmonised sustainability reporting standards, with the profession in Australia also taking part.
Companies also need to improve their management practices when it comes down to sustainability, which can very often come down to simple things, like better communication between departments to align reporting. They also need to provide sufficient resources for sustainability reporting, which can be a challenge for smaller organisations.
Even with these solutions, Rasche expects greenwashing will remain a problem in the coming years, just as there are still from time-to-time false accounting scandals.
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