Greenwashing vs Corporate Responsibility

With the increase in information and education about environmental issues, people are more aware of the negative impacts their actions have on the environment, from pollution to deforestation and climate change. People are beginning to understand how their individual choices, both what they consume and how they consume it, can affect the environment in the long term. This includes everything from the use of single-use plastics to the preference for local and sustainable products.

Additionally, events such as natural disasters, droughts, floods, and the loss of biodiversity are becoming more present in the public consciousness. These events serve as reminders of the importance of protecting and preserving the environment.

These factors have led to a considerable decrease in the consumption rates of some companies, whose economic activities affect the environment and health, as people opt for more environmentally and socially responsible alternatives. Therefore, many companies are adopting more sustainable and transparent practices in response to public pressure and government regulations. This includes, among other things, reducing carbon emissions, eliminating harmful chemicals, and using recycled materials in their products.

However, not all corporate sustainability initiatives are as genuine as they seem. This is where the concept of greenwashing arises, a practice in which companies "deceive" (intentionally or not) consumers and other interested parties, into believing that their products or policies are environmentally responsible when they are not. This trend has become increasingly common as the demand for sustainable products and services rises. Therefore, it is crucial for both consumers and companies to be alert and know how to identify greenwashing practices to make informed decisions and truly adopt the required efforts to contribute to the care and preservation of the environment.

What is greenwashing?

The term "greenwashing" refers to the practice of gaining an unfair competitive advantage or being deceptive by marketing a product (service, policy, or activity1) as environmentally friendly when, in fact, basic environmental standards have not been met.2 In other words, greenwashing involves a company giving an image of being environmentally responsible without a genuine commitment to practices that can truly be considered as sustainable.3

Greenwashing can be carried out through various strategies, the most common being marketing strategies. This type of marketing uses green colors or nature-related images or phrases to convey a commitment to sustainable practices to the market. It can also include superficial actions that appear eco-friendly but do not significantly impact the company's environmental footprint. Finally, greenwashing can involve "dressing up" sustainability reports to meet certain regulations in some countries or to fulfill commitments made to creditors or investors.

A well-known case of greenwashing was the "Diesel Dupe," where several car manufacturers, mainly in Europe, were accused of manipulating their diesel vehicles' emissions tests to appear compliant with environmental standards while actually emitting much higher levels of pollutants. This scandal came to light in 2015 when it was discovered that certain diesel vehicles were equipped with devices that manipulated emissions during lab tests but emitted significantly higher levels of pollutants under normal driving conditions. This led to significant legal repercussions, fines, and a loss of trust in the automotive industry.4

Similarly, in 2021, global furniture giant Ikea was accused by the non-profit organization Earthsight of using unsustainably sourced wood in some of its products, including tables, chairs, beds, and wardrobes. Earthsight traced the sales of wooden furniture back to forests linked to illegal logging in protected areas of Russia. The wood supplied to Ikea was certified by the Forest Stewardship Council (FSC) as coming from responsible sources. The FSC is an independent, non-profit organization aimed at supporting responsible wood harvesting by offering companies a sustainability certification visible to consumers. Ikea denied any wrongdoing but announced a temporary ban on wood from Siberia and Russia and subsequently stopped using the specific questioned supplier. Ikea continues to use FSC certification for its products and it committed to eliminating deforestation related to key materials by 2025.

Another case occurred in 2023 when the UK advertising regulator banned a series of ads from certain petrochemical and hydrocarbon companies for exaggerating their progress towards net zero5 and their production of alternative fuels, such as biofuels.6 This resulted from claims by many non-profit organizations that the published ads were false. For instance, Climate Rebellion accused one of the companies of hiding the true negative impact on the environment and deceiving the public by promoting false solutions to the climate emergency. The platform pointed out not only the greenwashing advertising campaigns of the company but also the development of controversial new technologies such as fossil hydrogen, carbon capture, synthetic fuels, or unsustainable green hydrogen projects, which economic, energy, and environmental viability was highly questionable.

What factors incentivize greenwashing?

Among the main factors motivating companies to engage in greenwashing practices are7:

• More profits: Companies can charge more and increase their profits by promoting their products as green or, even if they don't charge more, attract more consumers and increase sales.
• Competitive advantage: Companies can use greenwashing as a strategy to differentiate themselves from competitors.
• Lack of clear regulations: Mainly in developing countries, such as Guatemala, where there are no clear regulations and guidelines on environmentally friendly products or services and/or no authority to enforce them, companies can make vague claims about their products or services without being held accountable.
• Formal regulatory compliance: Greenwashing can be a way for companies to appear compliant with environmental regulations without making substantial changes to their business.

What are the risks of greenwashing for companies?

It is important to address greenwashing in the current business context as it brings negative consequences not only for consumers or users but also for companies. Among the consequences for companies are:

Legal risks:

• Non-compliance with regulatory aspects8: A good portion, if not all companies, are required to have an environmental instrument approved by the Ministry of Environment and Natural Resources (MARN). For this, it is necessary to present an environmental impact study or a similar environmental diagnosis according to the company's activity. The purpose of the environmental instrument is to prevent, mitigate, and restore environmental damage, as well as to regulate works or activities to avoid or reduce their negative effects on the environment. Based on the environmental instrument, environmental authorities determine the type of environmental license to be obtained, which will dictate the actions and environmental commitments the company must take to mitigate its environmental impact.

If the company does not have its environmental instrument approved by MARN, or if the environmental instrument is based on false information, or if the company does not comply with the actions contained in the environmental license or related resolution, or fails to meet any other environmental commitment, it may be sanctioned with fines of up to Q. 100,000.00. Additionally, the project, work, industry, or activity could face closure if it fails to comply with environmental regulations.