A Problem in Sustainable Development
Company-led operations and activities have a huge impact on the environment, society and legislation. In return, companies should assume more responsibility for protecting the environment and move towards sustainable development goals. On June 17, environmentalists from South Korea, Australia and other countries pointed out that SK Group had exaggerated its LNG project in the Barossa-Caldita gas field offshore Australia. SK Group claimed that carbon capture and storage (CCS) in the project could achieve near-zero carbon dioxide emissions, but it proved to be misleading and technically infeasible. One term for this scandal is greenwashing. This report will discuss the problem of green bleaching and explore its potential solutions.
What is green bleaching
In 1986, American environmentalist Jay Westerveld (Jay Westerveld) invented the term “greenwashing” to describe the misleading behavior of hotels that reuse towels but cause other serious damage to the environment. Greenpeace added in 2020 that greenwashing refers to false disclosure of the company’s environmental management or the environmental benefits of its goods or services.
TerraChoice, an environmental marketing company acquired by UL, divides green bleaching into the following seven categories:
• Hidden trade-offs
This happens when a company emphasizes a specific environmental benefit at the expense of one or more serious aspects. For example, Google is accused of washing green because its 2013 “paperless” campaign aims to establish Google’s environmental image while distracting consumers from its serious e-waste problem.
• No evidence
Such companies are usually unable to provide evidence or third-party certification for their green claims. One of the common cases is that the paper product manufacturer AJM Packaging Corporation describes its products as Nature’s Own Green Label products, but cannot prove the authenticity of its claims. As a result, the U.S. Federal Trade Commission (FTC) accused the company of violating the committee’s consent order in 1994 and fined $450,000.
This accuses those green statements that are too broad or specific and are more likely to mislead consumers or cause misunderstandings.
• Worship false labels
This happens when a company intends to mislead its consumers by creating a false image of its products bearing the green certification agency label. For example, in 2015, Water and Sanitation (WASH) sued the Rainforest Alliance for agricultural certification for deceptively marketing its rainforest certified products that can be grown sustainably.
• It doesn’t matter
This happens when a company discloses some unhelpful or irrelevant environmental information about its products. For example, the European Commission (EC) has banned the use of chlorofluorocarbons (CFC) in products since 1997. If a company sells its products as CFC-free products, it does not actually make any additional efforts to the environment.
• Two evils, whichever is the lesser
This is related to advertising that the product itself is not actually environmentally friendly. One of the best examples is the Volkswagen [VOW:GR] emission scandal that began in 2015. According to the U.S. Environmental Protection Agency, the “clean diesel” engine emphasized by Volkswagen does not exist, but has been carefully programmed to meet laboratory emission tests.
The last explanation states that some companies simply make inaccurate statements in terms of environmental or social sustainability, just like the SK Group did.
Drivers of Green Bleaching
From the perspective of external supervision, pressure from NGOs and government agencies has pushed companies, especially brown companies, because any NGO protests or public scandals will damage the company’s reputation and damage its profitability. In addition, governments around the world have participated in committing to a net-zero transformation and establishing new ESG regulations to monitor the company’s ESG performance. Therefore, companies like to take shortcuts, abide by laws and regulations, and further evade punishments and penalties for “green washing”.
In terms of external drivers of the market, the main participants are consumers and investors. Research conducted by EC shows that 77% of consumers are willing to pay higher prices for environmentally friendly products. However, this induces the company to go green to establish a perfect brand image. The EC survey also showed that the respondents believe in the positive impact of investing in environmentally friendly companies. Half of the respondents asked for more environmentally friendly products on the market, which means that if the company operates green, the company’s stocks will have better liquidity. In addition, the ability to deal with climate issues has received more attention, and companies may conduct green bleaching to meet higher external expectations.
Internal driving factors are mainly related to the company’s organizational characteristics and management style. On the one hand, some companies in the brown industry are more likely to conduct green cleaning, such as energy or chemical materials under the GICS classification. This is because brown industries generally perform poorly in the environment, but the public has too high expectations for environmental protection. On the other hand, green drifting may be related to managers who may have psychological preferences or behavioral tendencies (such as narrow decision-making frameworks or optimistic biases) when making decisions. Managers’ compensation plans can also lead to short-termism and lead to green-washing issues.
Green bleaching solution
• Disclosure rules
The solution aims to improve the transparency of the organization’s environmental performance. At this stage, this still relies on the enforcement of the government and regulatory agencies. In 2012, the U.S. Federal Trade Commission issued a green guide, urging the disclosure of specific environmental benefit statements, and prohibiting content that is misleading or false. In addition, the 2019 Climate-Related Financial Information Disclosure Task Force (TCFD) provided companies with voluntary disclosure guidelines and called on companies to disclose more information, including their governance, climate-related strategies, risk management, and indicators and targets. In addition, other disclosure requirements have been issued in recent years, such as the Nature Related Financial Disclosure Working Group (TNFD) established this year.
• Stricter eco-labeling process
Although eco-labels have been criticized for promoting green bleaching, the contribution of standardized labeling agencies to alleviating green bleaching cannot be denied. The environmental labeling of the Luxembourg Financial Labeling Agency (LuxFLAG) has established a strict labeling process by conducting due diligence on funds. This process ensures that fund issuers truthfully and faithfully disclose environmental performance and comply with Luxenberg’s stock regulations. It also requires each applicant to submit an interim and annual sustainability report every year after obtaining the eco-label to check its legal status.
• Social media review
Although individuals have negligible power over greenwashing, they can censor workflow automation companies by sharing key cases and their comments on these issues through social media. Once the green washing scandal spreads online, people will be forced by news on social media, and bloggers and Twitter will lead their opponents against the company. Andreas Hoepner, head of the EC data team, pointed out that mood nowcasting has the potential to deal with green drift. In his sentiment analysis, if sentiment nowcasting shows bad signals, people tend to have a negative attitude towards news, and vice versa. Therefore, the company can avoid taking on the reputational risk of a green washing scandal. After all, this method may be the most likely way to alleviate this problem.