The greenwashing risk to corporate sustainability

Public interest in sustainability can make or break a brand these days, so it is no surprise that corporate enterprises are positioning their products, services and values to reflect this global shift in attitude.

However, in this drive to showcase a company’s environmental, social and governance (ESG) credentials, some organizations are being accused of taking things too far and misleading the consumer or “greenwashing”. In some instances, this can result in bad PR and a hit to the company brand, in others in can lead to steep fines as well.

What considerations would a company, and in particular its legal department, want to take, when formulating sustainability claims and what efforts are being made by the European Commission (EC) to standardize corporates’ claims, alongside guidance from other global regulators?

Corporate considerations

It’s important that companies, and particularly their boards, take greenwashing seriously because the consequences, if they fall foul of government or public opinion, can be dire.

Any company looking to formulate and promote sustainability goals should have a clear strategy that sets out what they want to achieve and how this will be reliably measured. This needs to be communicated and understood across all relevant business units.

It’s also important to make sure the sustainability strategy resonates with the overarching corporate strategy. For example, a multinational clothing retailer would look more credible recycling materials to provide free school uniforms in developing countries than it would launching an initiative to save the polar bears (despite both being worthy causes).

Legal implications

Regulators around the world are seemingly tightening their guidance and regulations related to corporate sustainability claims. By having all companies substantiating green claims via more uniform methods, the hope is that green claims will become more reliable, comparable and verifiable.

The European Commission is preparing an initiative on substantiating green claims. This will mean that businesses will be required to use standard methods for quantifying any claims they make about their sustainability efforts.

When the report is released (it was planned for the second quarter of 2022 but, at the time of writing, remains unpublished), companies should review the proposal and, where needed, adapt their claims using these standards.

Other regulations worth reviewing are the US Federal Trade Commission, which provides guidelines for consumers on how to differentiate greenwashed claims; the UK’s Competition and Markets Authority’s Green Claims Code; The Netherlands Authority for Consumers and Markets (ACM), which issued its sustainability guidelines in January 2021; and various other jurisdictions’ legislation relating to fair competition and advertising.

How the GC can help move the needle on sustainability

A company’s General Counsel (GC) should communicate regularly with the C-Suite to ensure they are attuned to all sustainability efforts and claims, across all business units, and make sure they stand-up against local laws and regulations.

They should also check any sustainability claims in the company’s marketing, branding and PR efforts can be backed-up with real results and data.

A GC that has familiarized themselves with their company’s supply chain and operations may also be able to flag any concerns with the board before they become a major issue.

Finally, working with service providers that specialize in global sustainability can bring added assurance, particularly for multinationals with a large global footprint.

A greener future

Greenwashing seems to be the result of corporate organizations jumping on the bandwagon of environmental sustainability, though it can apply to social and governance claims as well. Though not all companies are trying to deceive: some misleading claims can be the result of poor communication of strategy.

It’s reassuring to see that governing bodies are cracking down on false claims and holding companies to account. By doing so, companies will be encouraged to undertake meaningful sustainability strategies, which impact the societies around them, rather than just their bottom line.

Authors

• Julia Dingenouts, Legal Consultant, Deloitte Legal
• Hester Kok, Legal Consultant, Deloitte Legal
• Simone Pelkmans, Partner, Deloitte Legal