Environmental, social, and governance risks and opportunities

ESG Accelerates Greenwashing

From a scientific perspective there is no such thing as a truly sustainable company, with or without evidence of a high ESG rating
ESG law

A growing number of American businesses and consumers are looking to invest in and purchase ESG friendly companies and their products and services. Companies have responded with ESG disclosures touting the environmental and social benefits of what they’re selling.

Sidestepping for a moment those companies that set out to intentionally deceive other about their ESG bonafides, from time to time, what companies think their ESG claims mean and what others really understand are two different things. Knowledgeable sustainability attorneys can help companies avoid greenwashing including making ESG claims that mislead stakeholders and the public.

Greenwashing, which is often described as is conveying a false impression or providing misleading information about how a company’s products or services are more environmentally sound, is now a term being applied more broadly to ESG (.. yes, from environmental only to also include social and governance); and sometimes in the EU termed “sustainable washing.” Greenwashing is considered an unsubstantiated claim deceiving other businesses and consumers into believing that a company including its products and services are ESG friendly.

The term greenwashing is a play on “whitewashing,” which means attempting to conceal unpleasant or incriminating facts about something.

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The compound word greenwashing was coined by Jay Westerveld in a 1986 essay responding to a card in a hotel room that read, “Save Our Planet: Every day, millions of gallons of water are used to wash towels that have only been used once. You make the choice: A towel on the rack means, I will use again ..” He noted that often little or no effort toward reducing energy waste was made by the hotel, although towel reuse saved them laundry costs. He concluded the real objective was increased profit labeling this and other profitable but ineffective environmentally conscientious acts as greenwashing.

The hotel industry’s “save the towel” campaign was of course not the first modern greenwashing. The Keep American Beautiful anti littering campaign was founded by beverage manufacturers and others in 1953, partly to forestall regulation of disposable containers.

In 1999, the word “greenwash” was added to the Oxford English Dictionary. And while today it has a broader definition including not only environmental claims but also matters of ESG.

There have been a few government actions against companies alleged to have overstated ESG investment successes and as regulators catch up there are high profile investigations taking place both in the U.S. and EU, but more significantly where in the past there might have been a single print story about a charge of greenwashing seen by Wall Street Journal subscribers alone, today, viral social media can descend upon a company and do real reputational damage with millions of views in minutes. That may be the real risk.

The difficulty in making ESG disclosures is that the emergent field of ESG is still ill defined with no widely accepted standards, it is almost entirely unregulated, and many of the matters under the large ESG umbrella are complex. Smaller businesses and even large corporations without a deep bench of internal ESG expertise need to be particularly cautious of greenwashing in ESG claims. 

Just how sustainable a particular company really is can be a matter of debate. From a scientific perspective there is no such thing as a truly sustainable company, with or without evidence of a high ESG rating. No business organization will score high in every ESG factor, so a proper perspective requires a broader declaration that may include artistic and philosophical perspectives.

There is a little direction provided by the FTC’s 2012 update to its Green Guides, the most recent update of the Guides, but that document is at this point more of a historical reference; although it does valuably  offer guidance on materials and energy sources that are “renewable,” and “carbon offset” claims.

However, with the expected new statutory and regulatory ESG mandates likely to be effective in 2022, will come dramatically more risk, including government enforcement and private party litigation.

With proper company wide efforts buttressed by good legal counsel companies can avoid greenwashing, mitigating risk and ensure their ESG assessments and disclosures are efficacious in doing their part to save the planet and its people.

About the Author

Nancy Hudes and Stuart Kaplow, two Maryland attorneys who are among the principals at ESG Legal Solutions have combined forces, joining together to publish this blog leveraging their focused experience and legal knowledge for business interests in the ESG space.

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