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Greenwashing

The act of making false or misleading claims about the environmental benefits of a product, service, technology, etc.

What is Greenwashing?

Greenwashing is where a firm spends time and money advertising and marketing that their goods or services are environmentally friendly (when in fact, they are not!). In other words, greenwashing is the act of making false or misleading claims about the environmental benefits of a product, service, technology, etc.

 

Greenwashing

 

What is Considered Greenwashing?

A firm is deemed to be greenwashing if they spend large amounts of time and money in advertising and marketing their “green” goods or services rather than using that time and money in actually implementing environmentally friendly practices.

 

Rationale Behind Greenwashing

The society is shifting towards being more environmentally conscious. With the shift in consumer preference towards more environmentally friendly goods or services, firms that do not incorporate environmentally friendly practices in their business model are being punished by consumers.

The shift to being more environmentally conscious is pressuring a significant number of firms to adopt environmentally friendly practices. The demand for firms to go “green” is causing a corresponding increase in the number of businesses that claim green credentials when in fact there is very little to none.

Apart from consumer pressure causing firms to engage in greenwashing, the practice also helps a firm in generating positive public relations and to boost a firm’s brand image. Being a firm that says they are environmentally friendly is instantly more attractive than a firm that does not care about, or is actively destroying, the environment.

 

The Seven Sins of Greenwashing

In 2008 and 2009, researchers at TerraChoice went to big-box retailers in the United States, Canada, Australia, and the United Kingdom and noted down products that were making an environmental claim.

In the United States and Canada alone, 2,219 products were making 4,996 green claims. Of the 2,219 products that made the claims, over 98% committed to at least one of what TerraChoice Environmental Marketing referred to as “The Seven Sins of Greenwashing.” In other words, 98% of products were guilty of greenwashing.

The seven sins of greenwashing, according to TerraChoice, are as follows:

 

#1 Sin of the Hidden Trade-Off

Environmental issues that are emphasized at the expense of another potentially more concerning issue. For example, the harvesting of paper is not necessarily environmentally friendly because it came from a sustainably-harvested forest.

 

#2 Sin of No Proof

Environmental claims that are not backed up by factual evidence or third-party certification. For example, products that claim a certain percentage of the product come from consumer-recycled content without providing any factual data or details.

 

#3 Sin of Vagueness

Environmental claims that are lacking in specifics and are deemed meaningless. For example, the term “all natural” isn’t necessarily “green” – mercury, uranium, and arsenic, to name a few, are naturally occurring.

 

#4 Sin of Worshipping False Labels

Creating false certifications or labels to mislead consumers. For example, creating a fake certification to mislead consumers into believing that the product went through a legitimate green screening process.

 

#5 Sin of Irrelevance

Unrelated environmental issues to the product are emphasized. For example, saying a phone is “CFC-free” when CFCs are already banned by law.

 

#6 Sin of Lesser of Two Evils

Environmental claims on products that have no environmental benefits to begin with. For example, saying cigarettes are organic.

 

#7 Sin of Fibbing

Environmental claims that are blatantly false. For example, saying that a diesel car emits zero carbon dioxide in the air.

 

Example of Greenwashing Campaign: British Petroleum

British Petroleum’s first move to becoming “green” started in 1997 when it quit the industry’s climate change denial group and acknowledged a link between global warming and fossil fuels. By 2000, the company hired advertising firm Ogilvy & Mathers to launch a $200 million rebranding campaign.

The firm rebranded the name British Petroleum to BP and adopted a new slogan: “Beyond Petroleum.” The firm also changed its brand image into a green, yellow, and white sunburst that is meant to depict a “warm and fuzzy feeling” about the Earth. BP also greenwashed itself by working with green groups and decorating its gas stations with “green” images.

Despite British Petroleum’s attempt to greenwash, the company remains an oil company that derives its revenues from polluting the air and destroying the planet. Through many controversial oil spills over the past two decades, such as the Deepwater Horizon oil spill, British Petroleum’s attempt to greenwash itself has died down.

 

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Corporate Social Responsibility (CSR)
  • ESG (Environmental, Social and Governance)
  • Indemnification
  • Safe Harbor Arrangement

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