What is Greenwashing and Why is it Dangerous?

• A comprehensive overview of greenwashing

• Reading between the lines to detect greenwashing

• The role we play as consumers and investors

What is Greenwashing?

With sustainability becoming an imperative element of a company’s business model, the prevalence of greenwashing has undoubtedly increased. Greenwashing is an attempt by companies to create social and environmental campaigns and initiatives despite not actually having the infrastructure of these programs in place. Greenwashing occurs when a company spends more resources on creating advertisements and green claims rather than investing in real initiatives. Furthermore, greenwashing is apparent when a company disproportionately praises a small, rather negligent sustainability initiative instead of more comprehensively integrating ESGs into their bottom line. Greenwashing is a dangerous tactic that can negatively impact the perception of stakeholders, due to its deceiving nature. With consumers increasingly seeking out the sustainable option, greenwashing causes them to actually choose products that are not good for the planet — in turn hurting it further.

How to Detect Greenwashing

With so many competing elements influencing the outcome of a CSR initiative, it is challenging to determine what is greenwashing and what is not. Using the Greenwashing Index can assist in determining the extent to which a company’s initiative is truly environmentally successful. When analyzing an advertisement or campaign, it is important to dig deeper than surface level, and to never take anything at face value. The first thing the Index advises, is to consider the word usage and determine if it truly aligns with the general dialogue of the company. Another key strategy for determining if a project is truly sustainable, is to validate claims made by the company — are the claims relevant to the work the company does? Can they be proved and validated? If statements appear vague, or cannot be confirmed, chances are they are either entirely or partially fabricated. The importance of the Greenwashing Index is to help consumers determine the validity of claims that companies are increasingly making in regards to their environmental campaigns.

What You Can Do

Methods, such as the Greenwashing Index, will continue to be important for both consumers and employees as they navigate an increasingly “green” market. With rising demand for companies and products that prioritize the environment and social good, greenwashing will continue to increase as non-green companies attempt to stay relevant in their respective sectors. While the demand for sustainable businesses is incredibly positive, it is imperative that customers do their due diligence in analyzing whether or not a company is truly green. 

The increase in greenwashing that has occurred over the past several decades has emerged from a very positive phenomenon — the increasing demand from stakeholders for more environmentally and socially conscious products and services. Its effects, however, are detrimental. Without consumers being able to identify when a company is being misleading, no real environmental progress will be made. With that being said, consumers and employees are beginning to challenge what companies are telling them, and questioning about sustainability reports. Consumers are pushing back against greenwashing, and demanding that a company deliver on their environmental mouth talk. 

Paying attention to greenwashing is a key focus at Physis. Our analysts meticulously analyze company reports, initiatives, and track records to ensure that your investments are true to your values. Join Physis today!