The growing risks of greenwashing

A firm that makes beauty products announced that it was selling its green tea seed serum in “paper bottles” but these turned out to be plastic, with just the external wrapping made of paper.

Customers accused the brand of “greenwashing” – the process of businesses leading consumers or stakeholders into believing that their practices, products or services are more environmentally positive than they actually are.

In this case, the company apologised after consumers said it was misleading them, the BBC reported last year.

Greenwashing continues to be in the spotlight, with the Monetary Authority of Singapore announcing on Thursday that funds sold to retail investors here under the label of meeting environmental, social and governance (ESG) standards will now have to back up their claims.

The move comes amid new disclosure and reporting guidelines issued by the central bank, which will take effect from next January.

National University of Singapore business professor Lawrence Loh said greenwashing can involve selective disclosure where a company embellishes information related to positive environmental performance, or conceals data about its negative environmental impacts.

Prof Loh, who is also director of the Centre for Governance and Sustainability, said: “In the corporate world, there is a rush to be green now, especially to label any possible products or even the company as conforming to environmental, social and governance (ESG) metrics.

“Due to the rising attention accorded by consumers and investors, companies tend to resort to misleading marketing materials that oversell the sustainability aspect – it often pays to put a green spin on everything they do.”

This includes companies that use biodegradable plastic bags that do not actually break down as advertised.

It can also refer to firms that use paper bags that are not necessarily better than plastic as they are not recycled in the end.

Indeed, in the rush to respond to a growing consumer awareness on the negative impacts of plastics, many businesses are switching to other non-plastic packaging materials which might not necessarily be better for the environment, said WWF-Singapore head of market transformation Stefanie Beitien.

Singapore, being a small, open economy, is a vibrant playground for most global brands and hence is open to some levels of greenwashing that have become rampant, added Singapore Management University assistant professor Aurobindo Ghosh.

This includes footwear and fast-fashion brands that encourage frequent purchases and have poor track records concerning chemical use and recycling.

The Singapore Exchange has taken the right step in mandating ESG reporting for listed companies, he noted, but some issues still need to be addressed.

For one thing, a Refinitiv report pointed out in 2019 that many more companies in Asia have stated sustainability as a goal than those that actually set up verifiable targets.

“This opens up avenues for greenwashing through lofty green claims that are not achievable with current tested and scalable technology,” he said.

But why is greenwashing an issue and what sort of consequences are there if firms make themselves out to be greener than they really are?

“One of greenwashing’s worst consequences is the undermining of confidence in legitimate sustainability initiatives,” said Schroders Asia-Pacific head of sustainability strategy Mervyn Tang.

“The growing interest in sustainability is driving a wide range of great initiatives across the world, from decarbonisation efforts to the development of sustainable finance products that channel capital towards companies conducting such initiatives, and greenwashing poses the risk of derailing this hard-earned momentum.”

SGX RegCo chief executive Tan Boon Gin said in a speech this month that in the long run, the genuinely green companies and products may end up failing, because the market may choose lower-cost greenwashed companies if it cannot tell the difference.

A study by WWF-Singapore and Accenture found that 30% of consumers said competing claims have confused them, while 20% of Singapore consumers said they do not trust businesses’ sustainability claims at all. — The Straits Times/ANN

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