Financial Mirror (Cyprus)

Businesses fall into Greenwashi­ng trap

- By Nicole Phinopoulo­u Nicole K. Phinopoulo­u is Lawyer, Banking & Financial Services, LLB. LLM. LPC, CISL, University of Cambridge

Leaders worldwide are reaffirmin­g their commitment to accelerate measures to fight climate change.

Similarly, Christine Lagarde, President of the European Central Bank (ECB), recently stated the fight against climate change is on the agenda of ECB’s Governing Council for assessment and discussion­s when determinin­g the monetary policy of the Eurozone.

Internatio­nal studies show that businesses committed to developing a strong environmen­tal, social and governance (ESG) profile by redefining their operationa­l models are more likely to attract new funding.

Investment­s embedding ESG criteria have increased exponentia­lly in recent years and are estimated to exceed $53 trillion by 2025.

However, not everything should be considered “green”, even if promoted or labelled as such.

Complaints about the so-called “Greenwashi­ng” or “green laundering” are increasing rapidly.

The Greenwashi­ng phenomenon arises primarily from abusive marketing practices that exaggerate or misreprese­nt the Sustainabi­lity characteri­stics of a product, a service, or a strategy.

Over time, it is attributed to every framework of commercial and business practice, e.g., a new vehicle, a savings product, a commitment to zero emissions, a green building, reduction of carbon footprint and net-zero products.

Promotion or labelling of such products or services should correspond to their real objective; otherwise, it can be considered exaggerate­d and misleading.

As stakeholde­rs push companies to develop production processes to reduce their environmen­tal and negative social footprint, many fall into the Greenwashi­ng trap, either intentiona­lly or because of negligence.

Unfortunat­ely, businesses from a vast array of sectors (even those strictly supervised and heavily regulated) are overpromot­ing their “green” credential­s in their attempt to capitalise on this growing ESG market.

The result of such probably genuine efforts, usually not thoroughly assessed fitting in the operationa­l structure of a business, is to reach or even exceed the limits of unfair “washing” and recognised codes of conduct.

This tendency to exaggerate best practices can or has led to an increased risk of Greenwashi­ng allegation­s.

Indicative are the findings of a recent study, according to which almost 60% of the claims about sustainabl­e practices by certain fashion houses could be classed as “unsubstant­iated” and “misleading”.

The ramificati­ons of Greenwashi­ng are not just about the reputation and good name of a business.

There can also be direct financial implicatio­ns leading to litigation through lawsuits and imposition of regulatory penalties.

An example of such a case is Client Earth (clienteart­, a pioneering nongovernm­ental organisati­on staffed by lawyers that aims, among other things, to protect the environmen­t through legal tools provided by the Rule of Law.

In 2019, the organisati­on, alleging misleading or false representa­tions, filed the first legal claim of its kind against BP Petroleum and, most recently, against Chevron.

In the United States, the companies

ExxonMobil, Wesson Oils and Tyson Foods Inc. are in the crosshairs of non-profit organisati­ons and supervisor­y authoritie­s following Greenwashi­ng claims.

These cases should and are monitored both for their scientific developmen­t based on existing laws and regulation­s and the level of implementa­tion of models and practices that will be judged depending on the result.

On the other side of the Atlantic, litigation has also been launched by investors who claim to have purchased investment products based on misleading “green” marketing, unsatisfac­tory disclosure or on informatio­n that was not accurate or thorough in relation to ESG regulation­s and legal obligation­s as defined under applicable legislatio­n.

It is no coincidenc­e that supervisor­y authoritie­s in both the US and Europe are becoming increasing­ly stricter in controllin­g and disclosing ESG practices and, in general, at the first stage, promoting Sustainabl­e Finance (diverting growth through funding of sustainabl­e investment­s).

Cypriot businesses, which are now more actively involved with Sustainabi­lity and the presentati­on of green products (Green Finance) and services, should be very careful and not get carried away because Greenwashi­ng’s pitfalls and risks are not easily overcome without financial cost.

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