European Union: What Is Greenwashing And How To Avoid It?

What is Greenwashing?

Greenwashing refers to the use of advertising and marketing strategies by a business to imply that it is more environmentally friendly than it is in terms of environmental sustainability. Today, the increasing sensitivity of consumers to environmental issues and the preference for 'eco-friendly' and 'sustainable' products over other products brings along competition among businesses to appear environmentally sensitive, and this situation causes companies to tend to make themselves look more environmentally friendly by exaggerating their environmental performance or presenting them with misleading information.

The term was first used by Jay Westerveld in 1980 against hotels that adopted recycling/reuse practices only to reduce costs but did not have a recycling policy.

Types of Greenwashing

Companies pursue multiple strategies when guiding consumers about the environmental benefits of their products or services. The most commonly used strategies within the scope of 'Green Washing' are as follows:

Greenhushing: Companies underreport or hide sustainable credentials to avoid scrutiny.

Greenrinsing: When a company regularly changes its ESG (Environmental, Social, Governance) targets before achieving them.

Greenlabeling: The labeling of an essentially unsustainable product as green or sustainable, e.g. a laundry detergent brand's advertisement for 2022 was banned for this reason.

Greenlighting: The highlighting of a particularly green feature of a business's products or activities to draw attention away from its environmentally harmful actions.

Greenshifting: When companies reduce the climate crisis to consumer behavior and shift responsibility to individuals.

Greencrowding: When a company hides within a group and is slow to adopt sustainability policies (e.g. the 20 largest single-use plastic waste producers are members of the Alliance to End Plastic Waste global alliance).

Dealing with Greenwashing

As a result of the enactment of various regulations and practices around the world, such as the 'Green Deal', the 'Paris Agreement', and the 'EU Commitment to Net Zero', the urgency to take action to combat climate change has arisen. The emergence of such an urgency has forced businesses to make open-ended commitments to comply with these regulations and practices, to set ambitious targets such as 'carbon-neutral', and 'zero emissions', and to adopt 'environmentally friendly' marketing strategies. However, the time and investment required to achieve these goals and implement these practices has led businesses to engage in 'Green Washing' activities. Whatever the reasons for 'Green Washing' activities - which are mainly based on competitive advantage and economic reasons - the potential for harm to consumers, investors, and shareholders is clear. Indeed, for a business, investing in fake green initiatives will be costly in the long run, for example in terms of legal sanctions, potential fines, rebranding, and rebuilding trust with consumers. The business may be sued for misleading claims, as many leading businesses around the world have been sued and ordered to pay damages for 'sustainable claims'. From another perspective, in the process of potential partnership or investment negotiations, the fact that the business has faced, or is likely to face, legal risks due to negative media reputation, and falsity in marketing claims during due diligence will be a deterrent for potential partners, financiers or investors.

To prevent all this and reduce the negative impact on the environment and businesses, the European Commission has published the 'Directive on Empowering Consumers For The Green Transition' in line with the 'Green Claims Directive' to deal with 'Green Washing' and promote transparency. (See also: https://www.europarl.europa.eu/doceo/document/TA-9-2024-0018_EN.pdf.)

The Directive covers all products and services marketed in the EU, regardless of the origin of the business, and companies can be subject to fines, sanctions, and product recalls if they fail to comply with its directives.

Directive on Empowering Consumers for Green Transformation

The European Parliament adopted a new legal regulation, the 'Directive on Empowering Consumers for a Green Transformation', with a vote on January 17, 2024. The directive bans a range of commercial practices and 'Greenwashing' strategies, including the use by businesses of unproven claims such as 'environmentally friendly' or 'carbon neutral', or marketing a product as having a reduced environmental impact based on environmentally friendly plans.

The directive builds on the EU's existing rules aimed at protecting consumers from unfair commercial practices such as false advertising and providing consumers with information about products and was finalized in line with the 'Green Claims Directive' by the EU Commission in March 2022 to amend aspects of the green transition. Key elements of the directive include regulations aimed at making product labels clearer by prohibiting the use of environmental claims that are not supported by evidence, rules that sustainability labels should only be based on official certification schemes, and provisions mandating a harmonized labeling scheme to place greater emphasis on products with extended warranty periods, focusing on product durability.

Under the scope of the Directive:

It prohibits the practice of presenting a product with generic and vague environmental claims such as 'eco-friendly', 'natural', 'carbon neutral', or 'eco', or using this as a marketing strategy without evidence of environmental performance.

Consumers must be informed about which products are more durable and repairable. Attributes such as environmental impact, durability, and repairability have been added to the list of products that sellers or manufacturers are prohibited from misleading consumers.

Sellers or producers marketing the sustainability of products will be required to provide information about the products they are comparing and the method of comparison with other existing products.

Practices such as using labels that are not based on a certification program; presenting requirements imposed by law on all products as a distinguishing feature of that product; failing to inform the consumer about a feature or practice that limits the durability of a product; making false claims to the consumer about the durability or repairability of a product; and persuading the consumer to replace a product earlier than necessary have been added to the list of prohibited commercial practices.

Although the Directive obliges consumers to provide information at the point of sale, the Directive does not provide for any other obligation to make products more durable or repairable.

The Directive will need to be ratified by the Council of the EU in January 2024, after being approved by Members of the European Parliament. Following the Council's approval, Member States will have 2 years to transpose the Agreement into their laws.

Steps to be Taken by Companies for Environmental Transformation

Review all marketing strategies and environmental product claims, audit these claims, and redefine strategies accordingly;

Regularly monitor and update newly determined strategies;

Provide scientific studies and certifications to substantiate environmental claims;

Informing employees and providing training about the new legal regulations and 'Greenwashing'.

In addition, authorities should require businesses to conduct at least an Environmental, Social, and Governance (ESG) audit and publicly publish the results. In order to increase transparency and avoid misinforming the public, companies reporting their ESG activities will increase the accountability of the company and increase its value.

Especially in the first quarter of the 21st century, when climate change has a significant impact, legal regulations to be implemented by the management will play a critical role in preventing prevent environmentally damaging activities. In this framework, 'Green Washing' activities can be prevented through strong corporate governance, effective risk management practices, increasing people's awareness of the environment and health, and strengthening domestic policy through international agreements.

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