Greenwashing and Sustainability Reporting

22 October 2023

By Peter Watts, Director, Watts Sustainability

One welcome trend in the sustainability world has been the recent regulatory focus and growing awareness of greenwashing. Greenwashing refers to the deceptive or exaggerated marketing and communication efforts by organisations to portray themselves as environmentally responsible, sustainable, or ethical, while their actions do not align with these claims.

Sustainability, ESG and integrated reports have been with us for many years now, and it is pleasing to see that this is an accelerating trend with co-operatives and mutuals around the world starting to report on their sustainability efforts. Sometimes, this is driven by legislation and sometimes by a desire to better connect with customers, employees, members and others to tell their stories.

Co-operatives and mutuals have a few advantages over other types of companies, in that being member and community accountable, they usually have a strong social impact story to tell. Even so, communications around sustainability should be planned carefully and within the bounds of a sustainability strategy.

With sustainability reporting, several challenges persist, including a lack of full standardisation and greenwashing risks due to frequent absence of regulation and limited enforcement. These days, corporate reputations and the careers of CEOs can be quickly damaged by public disclosures of a ‘say-do gap’, and those reputations will be even more closely scrutinized as rigorous disclosure obligations on an organisation’s ESG performance become more common through legislation in many countries around the world.

It is easy to inadvertently greenwash without intentionally meaning to mislead. Saying that, however, plenty of organisations use messaging nefariously to misrepresent their sustainability efforts.

During 2022 and 2023, policymakers have taken greenwashing a bit more seriously with either new laws or specific guidance on the applicability of existing laws in contexts including the UK, EU, US and Australia.

For the first time, some companies found themselves in legal hot water for exaggerating or falsifying their sustainability claims, which might explain why some brands have decided to retreat into their shells rather than talk about their sustainability progress this year – so-called ‘green hushing’.

Some common ways in which greenwashing can work its way into sustainability and ESG reports and how to prevent it:

1. Vague language

Some companies use vague and non-committal language in their ESG reports without providing concrete actions or targets – frequently, this can be well-meaning and not intentionally trying to greenwash.

How can this happen inadvertently?

A sustainability report is a key external communications activity – and it can be easy to get tripped up with some ill-defined terms. For example, can you readily define – ‘environmentally friendly’, ‘planet positive’ and even the word ‘green’?

How to avoid greenwashing when choosing language

When using terms like green, sustainable, eco-friendly, etc., – you should think about how you would justify this if asked to give examples and to substantiate. Try to be specific and use standards, labels and third-party verifications to help make your argument.

2. Cherry-picking data, exaggerating achievements and diverting attention

Showing positive ESG metrics while ignoring or downplaying negative ones – e.g. emphasising reduced carbon emissions while neglecting to mention increased water consumption or waste generation. Another tactic is to draw attention to one positive aspect of a company’s operations while deflecting attention from more significant environmental or social issues – e.g. a company might heavily promote a charity partnership while neglecting to address labour exploitation concerns in its supply chain.

How can this be done inadvertently?

Everybody wants to tell a positive story, and a sustainability report is a valuable way to connect with your customers, members, communities, employees and others. It is only too easy to treat it like a marketing activity rather than a transparency initiative and not provide the whole truth.

How do we avoid greenwashing when using data?

It is important with sustainability reporting to give the complete, rounded picture – even if you highlight progress. Frameworks such as the Global Reporting Initiative (GRI) and TCFD  guide how data should be reported, and many reporting frameworks are becoming legal requirements, particularly for larger co-ops and mutuals.

3. Lack of verification and assurance around ESG claims

Some companies may make unverified claims in their ESG reports without third-party verification or audits to substantiate their claims. When we talk about verification and assurance – this can mean checking the content of the sustainability report itself as well as claims made about products and services.

How can this be done inadvertently?

Verification and assurance come with cost and time considerations – for smaller organisations, this might be too restrictive. Larger organisations, especially when already investing in sustainability resources, may not always appreciate the benefit of a third set of eyes.

How do we avoid greenwashing when making claims on ESG?

One solution might be enhancing the role of verification and assurance – and making sure that when using third-party verifiers – they, as well as being savvy in checking numbers, are also literate in the world of sustainability jargon and are aware of the latest laws and guidance around greenwash and the perils that this can pose. Third-party verification and assurance add credibility to ESG reports.

For those co-operatives and mutuals which are too small to budget for verification and assurance of their sustainability reports – they should take time to check and double-check their output before publishing.

For more information, please contact Peter Watts at [email protected].

Peter Watts is attending the BCCM Leaders’ Summit in Brisbane on 26 October 2023 and will host a workshop together with a panel of senior members of BCCM member organisations.  Together, they will examine strategies for avoiding greenwash with a focus on the co-op and mutual sector in Australia.

The BCCM supports its members to achieve their sustainability goals and undertake robust sustainability reporting including through its work on Mutual Value Measurement©, an ESG Community of Practice, the Co-operatives and Mutuals Climate Declaration and its work with the Australian Competition and Consumer Commission (ACCC) on developing guidance for Australian businesses to avoid greenwash.

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