Greenwashing, the accuracy in a claim of ‘sustainability’
Greenwashing has become a hot headline in the news and a viral topic on social media in the last two years. The term, first coined by Jay Westerveld in the 1980s, is a “marketing gimmick” that takes advantage of people’s interest in the environment and ethical business practices.
While the Dieselgate mega scandal in 2015 has not yet subsided, the second volume of the mega scandal related to greenwashing has emerged. In Bavaria, one of the cases of alleged greenwashing that is now a hot topic of discussion is DWS.
Reuters reports that recently, the Deutsche Bank business unit was sued by a group of consumers for alleged greenwashing practices with misleading statements in their marketing materials. The DWS case is an important lesson for many companies in conveying their claims regarding sustainability.
The lawsuit claims that DWS marketing materials told investors that they invested 0% in controversial sectors like coal. Whereas, in the same material, they also stated that the ownership of the funds may include companies with revenues of up to 15% in the industry. This is contradictory.
This claim has long since been questioned by the public. Previously, DWS was investigated by BaFin (a German financial authority) based on a report from a whistleblower and former executive, Desiree Fixler. The whistleblower reported that the company was greenwashing with claims that more than half of its assets were invested using Environment, Social, and Governance (ESG) criteria.
At the European Compliance and Ethics Conference 2022 (ECEC) held between October 11 and 12, 2022, Fixler said that companies need to treat sustainability as a challenge in compliance, rather than as a marketing maneuver.
To comply with ESG and avoid misleading information that manifests into greenwashing, any non-financial claims or reports related to ESG must be based on accurate evidence.
“I think the investigation (of DWS-red) has educated many other companies that there is a difference between aspirational statements and financially material statements. Today, sustainability drives a big portion of the company’s business and you have to be as painfully accurate about your non-financial disclosures as you are with your financial disclosures”, she explained.
“And I think companies get that the sustainability officers or sustainability office should not sit in the marketing department. The role of this officer has evolved. It should be thought of as a risk management job, a compliance,” she continued.
Company tips to avoid greenwashing
Given the high prevalence of greenwashing cases, complying with ESG policies is admittedly a challenge for many companies. The lure of investment prospects for companies that implement this policy is impossible to resist.
To date, more than 3,000 investors with total assets under management of $100 trillion have signed commitments to include ESG aspects in their investment decisions. This causes many companies to make unilateral claims that they have implemented the policy in their organizations which ultimately fall into the practice of greenwashing.
Summarizing the results of ECEC’s interview with Desiree Fixler, here are some practical tips for companies to not fall into greenwashing practices.
- Walk the talk
If the organization is genuinely dedicated to adopting ESG, the assertions made public must reflect the company’s integrity. Companies must be able to put these claims into action, beginning with their organizational processes, products, and supply networks. Don’t incorporate principles in the products and services you sell if your company doesn’t live by or practice them.
- Make clear and measurable claims
Companies should claim that their organization has a clear and measurable alignment with ESG principles. This clearly means that the company defines the claim in a general sense; although ESG is still a new principle with many new terms. Measurable means that the company must take into account the ability of its organization to implement ESG principles. Companies must have clear parameters or metrics in determining the success of their ESG activities. In addition, companies also need to disclose what data they use and how they collect it.
- Company-wide strategy
Ensure that the company’s ESG approaches, ambitions, and strategies are broadly aligned and become principles that are followed by all divisions and employees of the company. Thus, every business unit within the company must have a common view in applying this principle down to the micro level.
Related to the participation of all company stakeholders in the big ESG program, another benefit that can be obtained is the existence of social control. With a shared understanding of ESG in a company, every employee is allowed to become a whistleblower so that the program can run according to its initial commitment.
The role of an internal whistleblower also makes it easier for investors to conduct compliance tests on the company before they decide to invest in it.