Earlier this year, Sierra Club released ‘The Dirty Truth About Utility Climate Pledge’, describing many utility climate pledges as ‘greenwashing’ after analyzing 50 companies’ plans to retire coal, stop constructing new gas plants, and build new clean energy. According to the Sierra Club, most of these climate plans were designed to mollify the public instead of reducing carbon emissions.
Greenwashing’s aim is to make people believe that the company is doing more to protect the environment than it really is. The term ‘greenwashing’ was initially coined in 1986 by environmentalist Jay Westervel who argued that the hotel industry promoted reusing towels as an eco-friendly strategy when, in fact, it was a cost-saving measure. As more consumers become environmentally conscious, greenwashing is becoming a widespread phenomenon across many industries.
Image Source: Sierra Club, The Dirty Truth About Utility Climate Pledges
In the financial sector, green bonds and green funds are issued by companies claiming to be eco-friendly. For example, ESG (Environmental, Social, and Governance) funds are portfolios investing in companies that aim to have eco-friendly, sustainable, and social impacts in the world. However, six of the 20 largest ESG funds have invested in ExxonMobil, the largest U.S. oil firm. Two of these funds own stakes in Aramco (a Saudi Arabian oil company) and one holds shares in a Chinese coal-mining company. ESG funds, marketed as investing in sustainability and the environment, have substantial investments in fossil fuels and other business interests with negative environmental impacts.
In April, New York City filed a lawsuit against Exxon, BP, Shell, and the American Petroleum Institute for attempting to influence customers to think their companies’ actions are not harmful to the environment when they have actually worsened the climate crisis. The lawsuit states that one Shell online campaign describing the company as using cleaner energy solutions is defrauding because it doesn’t mention the company’s main business, fossil fuel extraction, and development.
Greenwashing is also a prevalent practice in the food and farming industry. PETA helped consumers to file a lawsuit in federal court against Vital Farms, a leading seller of pasture-raised eggs and poultry. Consumers suing the farm state that, “Vital Farms is no different from factory poultry except that the chickens are fed grass instead of feed. Male chicks are slaughtered and hens are debeaked for egg production.” According to PETA, Vital Farms is deceiving consumers and investors while selling its products at a much higher price than regular eggs.
Sierra Club’s “Dirty Truth” report suggests three ways to reach meaningful climate goals: (1) be legally binding; (2) apply to all subsidiary companies; and (3) include a short-term target by 2030. Last year the EU prepared a draft taxonomy that defines and distinguishes environmentally sustainable economic activities. The taxonomy, so-called ‘Delegated Act’ can help to prevent greenwashing by classifying and labeling environmentally sustainable economic activities by industry. These definitions are expected to apply to EU companies starting in 2022.
In the United States, federal regulation of greenwashing is currently achieved in two ways: Regulating deceptive advertising through Section 5 of the FTCA (Federal Trade Commission Act); and private lawsuits enforcing the Lanham Act. The Biden administration is working on new measures to reduce and control greenwashing, such as creating new climate change units at Treasury Department, Federal Reserve, and the Securities and Exchange Commission.
Despite these legislative efforts to stop greenwashing, businesses’ desire for shortcuts and loopholes will persist. Companies that turn away from the truth and choose greenwashing, however, risk negative publicity and potential lawsuits when their actions are discovered.
