Defend Truth


Greenwashing is rampant and when it becomes fraud, companies must pay the price


Emma Schuster is Climate Risk Analyst at non-profit shareholder activism organisation Just Share.

How much can companies lie in the name of advertising or reputation and get away with it; and what is the threshold for when this rampant practice will attract serious social and legal penalties?

Climate action is on every government and corporate agenda, but the world is far behind where it should be in acting to avoid the worst impacts of climate change. This is thanks at least in part to corporate advertising and lobbying that has cynically misled the public about climate science and climate action for decades.

“Greenwashing” and “environmental, social and governance (ESG) factors” are becoming everyday terms, popping up increasingly in mainstream discourse. What do they mean? In short, if ESG integration is the practice of incorporating non-financial factors into business processes, then greenwashing is the art of pretending to do so.

But the benign-sounding “greenwashing” is a broad and vague term that covers all manner of misdeeds, from overzealous marketing campaigns to financial fraud and outright criminal behaviour.

In June this year, the Good Governance Academy launched its global ESG Exchange on the JSE in an effort to set a new global benchmark for ESG reporting. One of its core aims is to remove greenwashing from sustainability reporting — which is rife with it. The academy intends to launch similar indices on other stock exchanges in the future.

Initiatives like the ESG Exchange are part of a growing global effort to address rampant greenwashing and we should all be behind them. Although imperfect, this combined endeavour is a rational response to the widespread practice of dishonesty in corporate disclosures. However, we can only hope to reign it in if greenwashing attracts real consequences that are commensurate to the behaviour.

Time for consequences

Corporates are, ever-so-slowly, starting to be held accountable. The US Securities Exchange Commission has included greenwashing in its 2022 list of priorities for examinations and investigations, and the term is also appearing more and more on court rolls around the world.

At least five legal challenges have been brought in the last four years alleging that greenwashing by fossil fuel companies (and a meat producer in one case) violates either consumer protection or advertising laws. There have also been several rulings from advertising and competition authorities requiring the withdrawal of adverts and in one, the banning of fossil fuel adverts in subway stations.

The most shocking recent example was when Deutsche Bank had its headquarters raided by German police in June as part of an investigation into allegations of greenwashing by a whistleblower from DWS (a German asset manager that is 80% owned by Deutsche Bank). Prosecutors said that there was evidence that DWS had been greenwashing.

But, while these cases are promising, most have a way to go before they are decided. Outside of the courts, we are yet to see companies having to answer for their rhetoric, despite the most egregious greenwashing in the news, on social media and in companies’ annual reports.

This is most likely because it is not always straightforward to allocate appropriate liability to greenwashing. The law is slow to catch up (often due to deliberate corporate lobbying) and companies and industries are quick to adapt to increasing levels of scrutiny.

Last year, the CEO of ExxonMobil was questioned by the US Congress about the company’s role in covering up and undermining climate science since the 1980s. He denied it, despite exposure over the years of decisive evidence that the company has deliberately covered up and undermined climate science to stall government climate action.

Lying under oath attracts liability, but that still doesn’t get to the root of the problem — which lies just beyond the grasp of consequence.

Meanwhile, greenwashing continues apace as public pressure on companies to demonstrate that they are acting to address global crises like climate change grows. In one form or another it now is almost a routine: eat, sleep, greenwash, rendering the entire concept of ESG vulnerable to legitimate cynicism.

Reckoning with ESG

The central question facing the industry now turns on what ESG integration is actually trying to achieve and why it so often goes wrong. How much can companies lie in the name of advertising or reputation and get away with it; and what is the threshold for when this rampant practice will attract serious social and legal penalties?

The lines are being drawn and redrawn as to what society will and won’t accept.

For the less subtle critics, the fact that ESG is problematic means it should be abandoned altogether. For example, when ExxonMobil was included in the top 10 of S&P 500’s ESG Index, and Tesla was excluded from the list, Elon Musk tweeted that “ESG is a scam. It has been weaponised by phony social justice warriors.”

He was right to be annoyed about ExxonMobil’s inclusion, but it is companies like ExxonMobil that have weaponised ESG, by mastering the art of greenwash. ExxonMobil made it onto the list because the S&P assessment does not account for companies’ greenwashing.

So ESG is ripe for review, but it is not yet time to abandon it. Measures like the Good Governance Academy’s ESG Exchange are there to help refine ESG, but more emphasis is needed to address the other side of that — the consequences for greenwashing.

Perhaps we need to be better at breaking greenwashing into its component parts. If investors are making decisions based on false claims, then call it what it is — fraud. And penalise it appropriately. DM


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