Three ways to avoid greenwashing in your ESG marketing strategy
Three ways to avoid greenwashing in your ESG marketing strategy
As ESG (Environmental, Social, Governance) investing rapidly expands alongside political and public concerns regarding climate change, economic inequality, and social injustice, companies are facing greater pressure to demonstrate how they are generating profits sustainably and responsibly.
According to the Global Sustainable Investment Alliance, investments defined as “sustainable” make up more than 25% of all assets under management globally. However, ESG investing is still young and the factors by which shareholders, investment managers, and individual investors can accurately assess a company’s ESG commitment are still evolving. This lack of regulation leaves the door wide open for what’s known as “greenwashing.”
Greenwashing is the practice of marketing an organization’s products, activities, or policies as serious about ESG when in reality, they aren’t. Or a company marketing positive environmental outcomes that are exaggerated or even completely false. While looked down on, greenwashing is extremely prevalent in today’s corporate environment, and for good reason.
A Deutsche Bank study published in 2020 reviewed 1,600 stocks and millions of company announcements and climate-related media reports over two decades. The study found companies with a great proportion of positive press announcements (over a span of 12-months) outperformed the MSCI World Index by 1.4% a year and those with more negative news underperformed by 0.3%. These results highlight a clear incentive for greenwashing.
As ESG investing accelerates, greenwashing has become an increasingly important topic. Growing regulatory pressure and stronger public interest are creating a growing demand for transparent and standardized ESG data, reporting, and disclosure to weed out greenwashing.
While it will take time for these regulations to be established, here are a few ways to avoid greenwashing in your ESG marketing strategy today.
Avoid false claims and “tokens”
The core definition of greenwashing is when firms and funds share misleading claims about their products or ESG credentials. Unfortunately, due to the popularity of ESG investments, many companies are simply paying lip service to ESG factors through token gestures. For example, a company could claim to provide a cereal that includes antioxidants and natural fiber, yet also uses genetically modified corn, potatoes, and soy or berries full of pesticide residue.
In 2012, the U.S. Federal Trade Commission (FTC) created “Green Guides”, voluntary guidelines designed to help marketers avoid making misleading or unsubstantiated claims about their environmental practices. Here are a few examples the guides use to demonstrate this idea:
- A plastic package containing a new shower curtain is labeled “recyclable.” It is not clear whether the package or the shower curtain is recyclable. In either case, the label is deceptive if any part of the package or its contents, other than minor components, cannot be recycled.
- An area rug is labeled “50% more recycled content than before,” but the manufacturer only increased the recycled content from 2% to 3%. Although technically true, the message conveys the false impression that the rug contains a sizeable amount of recycled fiber.
- A trash bag is labeled “recyclable.” However, trash bags are not usually separated from other trash at the landfill or incinerator, so they are highly unlikely to be used again for any purpose. The claim is deceptive since it asserts an environmental benefit where no meaningful benefit exists.
The guide also cautions marketers not to make broad, unqualified claims that a product is “environmentally friendly” or “eco-friendly” as studies have found most of these claims are nearly impossible to validate. Companies can avoid this through these steps:
- Be specific: Use words, phrases, and ESG terminology clearly, correctly, and intentionally.
- Don’t lie by omission: Be sure to showcase the good and the bad. Avoiding the negative is the same thing as lying about it.
- Don't exaggerate: Be sure to represent the green qualities of your products or business as they realistically exist, not as you want them to be.
- Avoid making general claims: Don’t make generic statements such as “organic” if it isn’t certified organic.
- Be transparent: Your company needs to be able to back up its claims through transparent, substantiated data.
Share metrics & data
A key problem in the ESG investment world is the scarcity of regulations governing what ESG measures and risks companies must disclose and the patchy, inconsistent nature of ESG communications. However, investors are increasingly incorporating ESG data into their decision-making processes to gain a broad understanding of the companies in which they invest. This need for meaningful ESG data and clear information on sustainable practices is forcing companies to better demonstrate their outcomes.
Offering reliable, factual, consistent data gives investors the opportunity to track progress and gather the critical information they need for peer comparison and risk mitigation. Using financial data, industry benchmarking, and artificial intelligence can help companies capture vast amounts of structured and unstructured data. All of this data can be used to accurately report on ESG performance improvements and provide assurance to investors.
While companies don’t need to share their process, it’s important to share the concrete data and numbers. Putting numbers alongside pledges and policies to back up information helps provide honest communication with stakeholders. It’s important to note that companies will do best by owning their data and personally taking the lead on communicating this data with investors and stakeholders via ESG reporting and including this information in their ESG marketing strategy.
Consistent, transparent reporting
Currently, ESG reporting is not a regulatory requirement. Reporting is voluntary and often aspirational, yet companies provide these reports to satisfy a growing demand for ESG information. As more companies issue ESG reports, disclosure is expanding from simple financial material to the inclusion of metrics and data that track sustainability and corporate social responsibility.
However, reporting isn’t easy due to the lack of specific requirements, especially when making comparisons across companies and industries. This makes ESG reporting tricky to navigate as there are numerous disclosure frameworks. Still, it’s important to choose a leading reporting framework and move the process forward.
Company ESG reports should consistently and transparently share ESG-related risks and opportunities along with short- and long-term plans to improve on ESG focus issues. By proactively providing transparent ESG reporting and data, companies can present a comprehensive sustainability and value story. Additionally, reporting ESG information along with financial results ensures your sustainability story aligns with business strategy and financial performance.
Build trust with your investors
When developing your organization's ESG marketing strategy, don’t overlook the importance of creating a mission statement that will guide sustainable endeavors. Consider your company’s values, goals, and vision and communicate those through intentional word choices you can back up with consistent data and reporting. By implementing standardized, transparent reporting and consistent communication, companies can build trust with investors as well as external and internal stakeholders and, ultimately, ensure the longevity and success of the company.
ESG materiality assessments
With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.
An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.