Modulo 3: ESG and Climate Change

Aula 1

First, I'd like you to understand extended producer responsibility as a solution to promote better
stewardship of environmental resources. Second, I want you to understand greenwashing. First, I'm
going to provide you with some context about America's waste and recycling challenges. Second, I'd
like to give you a brief introduction to the idea of product stewardship. Third, I'm going to focus on
the idea of extended producer responsibility and other new initiatives to promote better product
stewardship. Finally, we're going to talk about greenwashing. First, I'd like to provide you with a bit of
context about the US waste and recycling stream. So this chart which comes from the Environmental
Protection Agency shows us by material the total amount of municipal solid waste generated in 2018.
292.4 million tons is no small amount of trash. The biggest component of this clearly is paper and
paperboard, followed by plastics and food, as well as other sources like yard trimmings, metals, and
glass. But paper, plastics, and food are really the biggest of the three. What is actually going into
landfills, it's slightly different. Paper and paperboard are not the largest component here, instead food
and plastics are. As you can see, the amount of material going into landfills all the way going back to
1960 through 2018 has increased by more than 50 million tons, and you can see from the different
colors that the amount of paper and paperboard is going down, the amount of food is going up, and
the amount of plastics in yellow is going up. Keep that in mind because we are going to be focusing
today a lot on plastics. What's being recycled? Not surprisingly, paper and paperboard is about
two-thirds of what's being recycled in the United States. Despite the fact that we all throw our
single-use plastic containers and glass jars and bottles into the recycling bins, in fact, plastics and
glass each constitute less than five percent of the materials that we recycle in the United States. This
chart shows us how municipal solid waste is managed in the United States and how that's changed
over time from 1960 to 2018. What I take from reading this chart, is that recycling is growing but so is
landfilling. So we need to be looking with open eyes at the way in which we manage our waste
products. The US recycling stream is also changing. As you can see here, paper and paperboard in
blue really dwarf everything else in terms of what is recycled in the United States. The yellow wedge
of plastics, even though it's grown a little bit, is really very small, as is the orange wedge that
represents glass. When we think about how we manage our waste, there's a hierarchy of waste
management. At the top, the ideal is source reduction, don't use it in the first place. One step below
that is recycling, if you use it, make sure to use it again. Third, would be energy recovery, something
like burning a material in order to capture the heat to power other processes. Treatment and disposal
are at the very bottom. I want to take a moment now to focus on plastics. When we think about
plastics, think about all the plastics that you use in a day or a week, bottles, jars, containers, as well as
things that maybe you don't think about using in the traditional sense , but plastic packaging. Plastics
also are part of durable goods like appliances and furniture, and plastics can be part of non-durable
goods, like disposable diapers or trash bags, disposable cups, medical devices, and other household
items. How has plastics waste management changed over this period from 1960 to 2018? You can see
that there has been an increase in the amount of plastics that are recycled on a year-by-year basis.
Composting in yellow is virtually invisible. Combustion with energy recovery, burning it in order to
get energy from the heat that is produced, has increased. But by far more than anything else, plastics
end up in landfills. The data are actually quite striking. In the year 2018, the last year for which the
EPA provides data, only 8.7 percent of plastics produced were recycled, about three million tons. In
that same year, 18.5 percent of all municipal solid waste landfilled was plastic, 27 million tons. So the
ratio of what's recycled to what's put into landfills is really quite striking. What are some of the main
challenges when we think about plastic waste? First, there can be a real lack of an end market. Only in
the past several years did countries like the United States and Japan stop selling their waste plastic to
developing nations including China. Second, there's a lack of technology. There are many different
types of plastic resins that go into products. In some cases, products are made from a single resin or a
single type of plastic, and in other cases, products contain multiple different types of plastic. The
recycling industry focuses almost exclusively on four types of plastic which are easiest to recycle.
There are really only two primary methods of plastics recycling: mechanical and chemical. Third,
there are too many types of plastics to have a very clear recycling program. In the US market, there
are more than a dozen different types of plastics. Each one has its own melting point. Each one has its
own manufacturing requirements. If, as I mentioned, the same product has many different types of
plastics incorporated into it, it can be extremely difficult to recycle. Finally, there is competition
against the petrochemical industry. It is very inexpensive to make new plastic from virgin oil and
other fossil fuel feedstocks and discard it and simply purchase new plastic again, rather than
purchasing recycled plastic, which is not always cost-competitive. For a while, arguably, the fact that
the United States was not good at recycling plastic was actually quite good for China. In China in the
1990s, there was an increasing annual demand for plastics because of rapid economic development. In
China, there was a lack of domestic raw materials and production capacity, as well as no efficient
recycling system in place to handle domestic plastics recycling. Combine that with rising crude oil
prices which made virgin plastic more expensive, waste plastic became relatively cheap in comparison
to virgin plastic in that period of time. It was very easy to ship waste plastic from the United States,
the EU, Japan, and elsewhere to China, and it could then be repurposed into higher-quality material
for sale in the Chinese market, or for export, or to be used as a cheap fuel source. But in the
2017/2018 time frame, China imposed a ban on the importation of plastics. Now just to give you a
sense of scale, 70 percent of US plastic waste was going to China at that time, 95 percent of the EU's
plastic waste collected for recycling was sent to China for processing. So this was a huge blow to the
United States and the EU in terms of what to do with its plastic that had been collected for recycling.
Why did China decide to ban the import of plastics for recycling? There were really four primary
reasons. First, there was what's known as increased contamination. So some communities have
single-stream recycling, and others have multiple streams. In multiple stream recycling, consumers
are responsible for sorting paper from plastic, from glass, etc. But with the growth of single-stream
recycling which is much easier for the consumer, there was an increase in contamination. People don't
necessarily rinse their plastic jugs before putting them in the recycling stream. Second, increased
complexity. Plastics and packaging had become more complex, there were more colors, more
additives, and more mixed resins, which made it very difficult to process these materials for recycling.
Third, China was at this point beginning to produce enough of its own plastic waste and had better
manufacturing infrastructure such that it didn't need the plastic recycling tonnage from the United
States and the EU for its market. Then finally, there were internal and external political reasons why
China decided to adopt this ban, including the idea that China wanted to focus more on high-tech
industries rather than heavily polluting industries like plastics recycling, especially when there was a
tremendous amount of press about its air quality. What happened as a result of the ban? This chart
shows historical plastic waste as well as the dotted line projected plastic waste. Once the ban was in
place, approximately 111 million metric tons of plastic waste were displaced. They could no longer be
sent to China, but the capacity in the United States was insufficient to handle it. A second aspect of
the complexity in the recycling problem is the limited ability to recycle different types of plastics, as
well as the mixing of plastics in different products. You all are likely to be familiar with the chasing
arrows symbol surrounding a number that you can see in the chart on the left. Each of these symbols,
each of these numbers represents a different type of plastic known as a resin identification number.
Despite the fact that the chasing arrows symbol appears on different products made with these
different types of resins, not all of them are actually accepted for recycling in most communities in the
United States. So number 1 and number 2 are widely accepted. Number 5 is moderately accepted. But
numbers 3 and 4, 6 and 7, are rarely accepted. Despite the fact that this symbol appears on the product
or package, the capacity simply is not there.

Aula 2
So all of this data about plastic waste should raise the question of how can we manage our plastic
supply more effectively, not only at the end of its useful life, but throughout the entire value chain.
This brings us to the topic of product stewardship. So what is product stewardship? Product
stewardship is defined as the act of minimizing the health, safety, environmental, and social impacts
of a product and its packaging throughout the product lifecycle, while also maximizing economic
benefits. Those who manufacture products are arguably going to be having the greatest ability to
minimize adverse impact from a product throughout its lifecycle. Other stakeholders, however,
including suppliers, retailers, and consumers, are going to have a role to play in product stewardship.
So what do I mean by the lifecycle of a product? There are really two different models that we can
think about in terms of a product's lifecycle. One is the old fashioned way of thinking, cradle-to-grave,
and the other is a more modern way of thinking, cradle-to-cradle. So let's start with cradle-to-grave.
Cradle-to-grave has an implicit assumption that a product goes through a linear system. The linear
system begins when the product is first made and ends when the product is disposed of. The idea in a
cradle-to-grave system might be to prevent pollution by regulating the use of the product, how it's
transported, how it's stored, and how it's disposed of. One example of this phenomenon is the
Resource Conservation and Recovery Act known as RCRA. This is a federal law that governs the
generation, transportation, and disposal of solid and hazardous wastes. But it presumes a
cradle-to-grave system in which the materials in the end are disposed of. A second example of
cradle-to-grave thinking is in the Superfund Statute, CERCLA. This statute provides for the cleanup
of abandoned hazardous waste sites. So again, it's a very important thing to clean up abandoned
hazardous waste sites. But the cradle-to-grave model assumes that there are going to be disposals of
hazardous wastes and other materials. In contrast, if we think about a cradle-to-cradle system, another
way of thinking about this is as a circular system or a circular economy. In a circular system, a
cradle-to-cradle system manufacturers rely on design and production principles to make products truly
recyclable or reusable before the end of their useful life or at its end. The idea is that a product should
be recyclable or returned to the earth safely. So some materials can be returned to the earth safely.
They naturally biodegrade. Certain fibers or bio plastics, those can be returned to an ecological
system. Other materials can be recycled or upcycled. These include metals, certain types of plastic.
And they can remain in a kind of closed or circular system where when their use in one product ends,
they can be transformed into a feedstock for another product. One final aspect of the idea of a circular
economy is that we're not only thinking about the product itself, we also need to be thinking about the
water and energy that are used during manufacturing of the product, as well as during its recycling.
So, what is product stewardship? There are four primary sets of entities or organizations that have a
role to play in product stewardship, manufacturers, retailers, state and local government, and the
federal government. There are, of course others, but I would say that these are the four primary ones.
So what role do manufacturers play? In a circular economy, from a perspective of product
stewardship, manufacturers need to rethink the design of their products. And rethink their relationship
throughout the value chain, both upstream from their suppliers and downstream to their ultimate
customer.

Arguably, this represents a substantial business opportunity for manufacturers to innovate.

Manufacturers can establish a competitive advantage and ultimately increased wealth and value for
their shareholders by maximizing resource productivity. This can reduce costs and foster innovation.
So this may involve using fewer toxic substances or designing products to be more easily reusable or
recyclable. As well as having take back programs for products at the end of their useful life. This is a
way for firms to demonstrate good corporate citizenship in addition to thinking about the
environment. What about retailers? Retailers purchase products from the manufacturers to sell in their
stores. Retailers can play an incredibly significant role by preferring product providers who are more
environmentally friendly. One clear example of this is Walmart, which engaged in an early initiative
to green its supply chain by requiring manufacturers who wanted to sell in Walmart stores to reduce
their packaging. Why was this good for Walmart? Not only was this good for the environment, by
reducing the amount of plastic packaging and plastic waste ultimately generated. But also this led to
fewer truck trips because with less packaging, more items can be put into a single truck. And so this
reduced shipping costs and created greater efficiency. A second role that retailers can play is to
educate consumers. Manufacturers may not have a direct relationship with consumers, but retailers do.
Consumers go into retail stores or shop on websites, and so retailers have that relationship with the
customers. Retailers may be able to play a role to educate consumers on how to choose products that
are better for the environment.

And finally, retailers can rely upon that relationship with consumers to create programs that allow
customers or consumers to return products to them for recycling or take back. So, in addition to
manufacturers and retailers, governments at different levels have an important role to play in product
stewardship. At the state and local level, state and local governments are largely the ones responsible
for managing municipal solid waste. They can undertake cooperative efforts with manufacturers and
retailers and others within the value chain to promote a circular economy. They can also impose
mandates, such as a take back mandate for specific products like electronics, plastics, or bottles, right?
Many of you may have grown up in states that have can and bottle refund programs. These are
examples of take back programs. State and local governments can also create rules that would provide
incentives for product stewardship innovation. And can work with neighboring states to maximize the
cost effectiveness of these programs. At the federal government level, there is likely limited statutory
authority to control the environmental impact of products in the form of product stewardship. Though
of course the federal government does have the ability to say that certain types of toxic chemicals
can't be used. Ordinary plastics in the absence of toxicity are much harder to regulate in this way. So
the Environmental Protection Agency, the federal EPA has more voluntary product stewardship
programs that facilitate coordination and collaboration among states, local governments, industry, and
NGO, to prefer certain types of safer cleaning products, among other things. And the federal
government is a major purchaser. Just in the same way that Walmart can choose to prefer the purchase
of more environmentally friendly products. The federal government can also use its purchasing or
procurement power to incentivize better product stewardship. One example of this, not necessarily in
the plastics context, recent announcements that the federal government plans to purchase only electric
vehicles for its federal fleets.

What confirms due to promote a circular economy? Well, one example would be something like
recycling or upcycling. So used plastic bottles can be turned into fleece for clothing. One company
called Rubicon, which works with independent waste haulers and engages in evaluations of the waste
stream of its partner companies recommended that a supermarket not discard its butcher aprons once
they had been used. Instead they were cleaned and turned into the film material for dog beds. So these
are just two examples, but they provide examples of ways in which we can think creatively about how
to reuse or recycle products rather than simply disposing of them. So what is the difference between
product stewardship and extended producer responsibility? Product stewardship, at least as I've been
talking about it, is often voluntary. It could be mandatory, but product stewardship is something that
firms can do on a voluntary basis. Extended producer responsibility or EPR, in contrast is generally
understood as a form of mandatory product stewardship. So this is a situation in which federal
government, state government, or local government imposes a duty on the manufacturer of a product
or on other entities within the value chain to engage in specified forms of product stewardship.

The idea behind EPR, extended producer responsibility is that it shifts the burden from focusing on
waste and disposal by the public sector, right? Municipal landfills. And instead puts the burden on
manufacturers and designers of products and packaging by the private sector to reduce waste or take it
back. EPR can include incentives for manufacturers to address environmental concerns, not only bans
or other prescriptive rules.

Aula 3

The definition of extended producer responsibility is that it is a mandatory type of product

stewardship. It extends the manufacturer's responsibility over its product and packaging to
post-consumer management. What's the goal of extended producer responsibility? If you go back to
the idea of the hierarchy of waste management the hope is that rather than focusing on disposal that
we move higher up the scale to more valuable ways of addressing waste and move from a linear
economy to a circular economy. The idea more specifically is to improve recycling and reduce
land-filling in key sectors; packaging, electronics, batteries, vehicles, pharmaceuticals, etc. Again
today we are going to be focusing primarily on plastics. What's beneficial for a state or local
government or even a federal government in adopting extended producer responsibility as a form of
law? Well, first of all it can reduce costs to local governments. If local governments are largely
responsible for handling municipal solid waste and managing landfills and collecting materials from
households, then putting the burden financial and technical onto manufacturers can substantially
reduce costs to local governments. It can also provide more convenient recycling options and
programs for consumers and I'll go into this in just a couple of minutes. It is likely if more convenient
recycling programs are available to increase recycling rates. Finally, the hope is that it will encourage
sustainable design at the start of a product's life rather than focus on the disposal of a product at the
end of its life. Extended producer responsibility has two main features. The first is that it shifts
financial and management responsibility away from the public sector. In other words, all of us,
taxpayers, households, and ultimately municipal governments for waste management upstream to the
manufacturer. But it does remain with government oversight over these programs. Second, the EPR
programs tend to provide incentives to manufacturers to design more easily recyclable products and
packaging using more sustainable materials. This can be done with a tiered fees system based on the
recyclability of the materials and the products. How does it work? How does EPR work? Generally
speaking it follows this model. Companies can either pay for a packaging recycling program through
an umbrella organization called a PRO or Producer Responsibility Organization or there might be a
program in which the manufacturer's companies participating in the program have to reimburse
municipalities directly. If there is a PRO, that PRO then sets fees that will cover the cost of collection
and processing of recyclable materials as well as marketing costs and costs of government oversight.
In addition, the PRO may undertake education and outreach efforts to reach more consumers as well
as a reserve for unexpected costs. The fees charged to the manufacturers are usually based on the
weight of the product sold, the weight of the packaging or the cost of recycling the materials. There is
some variation among these programs. What's the history of extended producer responsibility? The
first EPR for packaging was actually adopted back in 1991 in Germany. Now all member states of the
EU and many of the OECD countries have EPR laws in place. These laws primarily finance recycling
of packaging and paper products also known as PPPs. EPR is also a common strategy in Canada and
while there is no current EPR law at the federal level in the United States, a number of states and local
governments have begun to adopt EPR strategies. Just to give you one example, this is a Canadian
program in British Columbia called Recycle BC. Recycle BC is the PRO. It was formed in 2014 and
it's managed by a group of more than 1,200 companies that are subject to the PRO regulations under
the Extended Producer Responsibility law. The way that it works is that communities will place
materials to be recycled in a recycling depot. These depots are funded, operated, and sorted by
Recycle BC. Recycle BC then reimburses the communities whose governments provide curbside
collection instead of the depots. The less recyclable the material and the more product that is
generated, the more a company pays. The cost for companies provide incentives for them to design
their products in a way that will minimize these costs. Here's an example of a recycling depot
managed by Recycle BC as well as instructions to consumers about what they can recycle. Just as a
side note, in the United States, consumers and households tend to engage in what's known as
aspirational recycling. We very much hope that this thing that we don't want to dispose of is
recyclable, so we'll put it into a recycling bin or basket. But unfortunately what we're doing is
contaminating the recycling bin with something that cannot necessarily be recycled. It's very
important that these PROs engage in consumer education and have clear rules about what can be
deposited and what ought not to be deposited. Where do things stand in the United States? There has
been some action at the state level in terms of Extended Producer Responsibility laws for different
types of materials. Most recently, the state of Maine in 2021 passed the first EPR law in the United
States for packaging. All of the details are not set and won't be set until 2022 rule-making. But the
overall goal of this statute is that companies in the state will pay an annual fee based on the type and
amount of packaging generated. Lower fees will be imposed for reusable recycled content and truthful
labeling. The statute sets goals and performance standards for companies. The state of Washington
also has adopted some form of extended producer responsibility and the goal of this law is that 90
percent of packaging ought to be either reused or recycled by 2040. It was the first US state to require
a minimum amount of recycled content in plastic bottles and jugs for household cleaning and personal
care products. In addition, Washington law bans products made with certain chemicals and requires
opt-ins when you go out to eat or takeout food for things like utensils, plastic cup lids, and
condiments. Beginning in 2022, producers of plastic packaging are going to be required to join a
stewardship organization or PRO. New York State has an extended producer responsibility law not
covering plastics but covering electronics, paint, thermometers, and batteries. New York City
additionally has an extended producer responsibility for refrigerators and air conditioners, but these
laws do not account for a very significant amount of the residential waste stream. So arguably paper
products and packaging EPR laws are going to be needed because that is about half of the relevant
waste stream. Where do things stand in the United States as a whole? There are extended producer
responsibility laws in some form or another in 24 states, often these are for electronic products. Ten of
them also have beverage container deposit systems and several programs across the United States
have been established for hard to recycle items including thermostats, mattresses, etc. But the United
States is not at the moment a global leader when it comes to PPP recycling. The US recycles only
about 50 percent of its PPP materials and as I mentioned earlier as little as eight percent of plastics.
The Save Our Seas law was enacted in December of 2020. It's not exactly an extended producer
responsibility law but it does provide funding to address plastic pollution in oceans and waterways
and invests in plastic recycling infrastructure. This may be some investment for the future in
improving the overall ability within the United States to recycle plastics. One law has been introduced
in Congress at the federal level both in 2020 and in 2021. It remains to be seen whether this ultimately
will be adopted. The break free from Plastic Pollution Act has set as its goal to amend the Solid Waste
Disposal Act also known as RCRA or the Resource Conservation Recovery Act for the purpose of
reducing production and use of certain single use plastic products and packaging and to improve
producer responsibility. The overall goal would be to increase the amount of investment in the US
domestic market in both recycling and composting infrastructure. The break free from Plastic
Pollution Act would also phase out certain uses of virgin plastic. It would increase the requirement of
recycled content in beverage containers over time and ultimately would phase out the use of certain
single use plastics and plastics that are made without recycled materials. This is really going to
upstream in the value chain rather than just focusing on the product's end of life. Finally the break free
from Plastic Pollution Act would have certain prohibitions. It would prohibit the export of plastic
waste to developing countries unless regulations existed that would require tracking of these wastes.
Second it would impose a moratorium on new or expanded plastic facilities without better EPA
oversight and regulations of those facilities and finally it would ban single use plastic bags. In
addition to Extended Producer Responsibility mandates, there are also different forms of private
environmental governance and corporate initiatives that may be intended to stave off Extended
Producer Responsibility laws to comply with the potential for future Extended Producer
Responsibility laws or simply to fall into the category of product stewardship. Major companies like
Coca-Cola have set goals in this regard for example the goal of having 100 percent recyclable
packaging by 2025 or the goal to collect and recycle one bottle or a can for each one they sell by
2030. In addition major firms are engaging in research and development efforts to develop alternatives
to plastic for products packaging. These include different materials to make bottles for beverages as
well as other products. Firms have entered this space solely for the purpose of engaging in better
recycling, up-cycling and end of life management of packaging. For example one firm has adopted an
initiative of providing reusable packaging for products that we would otherwise buy in disposable
packaging. Customers can order products like catch up or breakfast cereal or shampoo but instead of
purchasing it in an ordinary throwaway container it comes in a reusable container that the company
then washes and reuses for other customers.

Aula 4 - Greenwashing

I'd like to conclude this module with a discussion of the topic of greenwashing. Why should you care
about greenwashing? Greenwashing has been a major subject in the news recently. Complaints are
being filed with the FTC, articles and opinion pieces are accusing firms that are committing to climate
goals as having engaged in greenwashing, and new laws in the EU prohibit certain forms of
greenwashing when it comes to financial services. As a result, it's very important to be aware of what
greenwashing is, how not to do it, and what the overall governance regime is for greenwashing. First
of all a definition, what is greenwashing? Scholars have defined greenwashing as the act of
misleading consumers regarding the environmental practices of accompany, known as firm-level
greenwashing, or the environmental benefits of a product or service, known as product level
greenwashing. We can think about greenwashing as falling into four primary categories. First, there
are statements which are simply false. This could be a statement in an advertisement or in marketing
materials that lacks proof or is demonstrably false about a product or service or about the firm's
overall environmental performance. This could be a claim that a product is recyclable when it's not, is
biodegradable when it is not or contains recycled materials when it does not in fact contain those
materials. The second category involves statements that are misleading. These could include
statements in advertisements or marketing that are vague, like this product is quote, "all natural" when
the term "all natural" doesn't really have a technical meaning. Or they don't have assertions that can
actually be false or true, but create the impression of positive environmental performance about a
product service or the firm itself. Third, there are symbolic communications that can be false. Rather
than a statement, this could be putting a label on a product that implies that the product is organic
when in fact it is not organic, or putting a label on a product suggesting that it has been certified by
some third party environmental organization when in fact that third party has never certified this
particular product as meeting those environmental standards. Finally, there are misleading symbolic
communications. This is something like the use of a symbol in association with a product service or
the firm that creates a misleading impression of positive environmental performance when that is not
in fact the case. This could involve spelling out the firm's name in green letters. What does
greenwashing look like? It can include the selective disclosure of positive, but not negative
environmental attributes of a product. Or it could be a directly false statement about a product. It
could be a dubious or false certification or label, a coopted endorsement, a vague statement or symbol,
or misleading visual imagery. There are many, many different ways to engage in greenwashing. Why
do firms engage in greenwashing? To some extent there may be financial incentives unfortunately to
do so. Firms with poor environmental performance may seek to highlight a positive aspect of their
environmental performance in order to gain financial and reputational benefits. In recent years, more
capital has been flowing into sustainability marketed funds and other ESG funds, increasing the
incentives for firms to highlight environmental performance even when it is not backed up by the
facts. Another challenge is that there is limited enforcement of greenwashing laws in the United
States. There are laws at the US level, which I'm going to talk about in just a moment that are
enforced by the Federal Trade Commission against deceptive advertising and there are state consumer
protection laws. There are also private forms of enforcement ranging from Twitter shaming to the idea
that in order to make claim x about the environmental attributes of a product, you need to get a
certification from this non-governmental organization. There's also a law at the EU called the EU
taxonomy, which deals specifically with greenwashing, but it doesn't apply directly to firms in the
United States. I want to just talk about each of these. In the United States, in 1914, congress passed
the Federal Trade Commission Act, which established the Federal Trade Commission, also known as
the FTC. The idea was that the FTC's goal was to prevent anti-competitive deceptive or unfair
business practices in order to protect consumers. Section 5 of the FTC Act prohibits what are known
as "unfair or deceptive acts or practices in or affecting commerce." This is the principal federal law
that promotes truth in advertising and marketing and gives the FTC the authority to enforce this law,
either by seeking penalties or seeking an order to cease and desist in whatever is the prohibited
practice. How does this act apply to green marketing claims or greenwashing? In the 1970s, there was
a rise of green consumerism. Either as a result or at the same time, more firms and marketers began to
make misleading environmental claims to tout the environmental benefits of a product in ways that
were not necessarily fully disclosing. The FTC has general authority under Section 5 of the FTC Act
and uses this authority to go after claims being made by firms that their products were biodegradable
primarily detergents and these claims were not necessarily true. In the 1980s with news of the hole in
the ozone layer being caused by chlorofluorocarbons or CFCs, the Federal Trade Commission began
to issue cease and desist orders on claims that certain products were "ozone friendly" when those
cleans couldn't be backed up. In the 1990s, states started adopting green marketing laws. This led to a
plethora of different standards. In 1992, the Federal Trade Commission created what were known as
the green guides. The green guides are essentially guidance. It's not itself a statute or a regulation, but
it's an interpretation of how the FTC interprets Section 5 of the Federal Trade Commission Act to
apply to green marketing claims. After these green guides were first adopted in 1992, they've been
subsequently revised and the current version was most recently revised in 2012. What are the basic
principles behind the green guides? The basic principles are that an advertisement should be truthful.
It should not be misleading or deceptive and that firms should have adequate substantiation to support
all reasonably interpreted claims. This seems relatively straightforward. In the 2012 version, I'm not
going to go back in time over the original versions, there were some modifications to include
guidance for compostable, source reduction, ozone safe and recyclable or recycled content claims, as
well as claims related to please recycle. In addition, the 2012 version of the green guides provides
additional clarification and guidance for terms like recycled and recyclable, as well as more guidance
on how customers or consumers are likely to interpret green marketing claims. The key here is that
we're not looking at the intent of the firm marketing the product, but rather how it is that consumers
are likely to interpret the claims. In addition, the 2012 guides give guidance on how marketers can
qualify their claims in order to avoid claims of deception or what specific types of information they
need to provide in order to make a claim acceptable. Some of the topics that are addressed are claims
about carbon offsets, claims about whether a firm or a product has a certification or a seal of approval,
claims about whether a product is free of a certain substance or whether it's non-toxic, whether the
product was made with renewable energy or made with renewable materials. Each of these has a
separate set of guidance within the green guides. How have the green guides being used? One
prominent example was in the Volkswagen emissions cheating case. What did this firm do?
Volkswagen, major auto manufacturer, manufacturers diesel vehicles. These diesel vehicles needed to
meet certain standards under the Clean Air Act as well as California emissions law. But what they did
was, they equip these vehicles with software that could detect when a vehicle was being tested as
compared to when it was driving on the road. They only turned on the full emissions control process
when its emissions were being tested. On the road, cars actually emitted up to 40 times the standards
for certain tailpipe emissions. As a result Volkswagen and its officers faced not only civil penalties
under the Clean Air Act and California law, but also criminal penalties and they settled with the
Federal Trade Commission for marketing these vehicles as cleaner than they actually were. What
about other cases not involving millions and millions of cars? The Federal Trade Commission has
brought more than three dozen enforcement actions over the past 10 years under Section 5 of the FTC
Act. The biggest cohort of these claims involved marketing that said that a product did not contain
volatile organic compounds, that a product was bio-degradable or that a product was natural or
organic when in fact these claims were not true. The second largest cohort of claims involved Rayon
being marketed as bamboo. The final category was a bit of a catch-all including false certifications,
claims about the percentage of recycled materials, and energy efficiency claims. Many states also
have truth in advertising laws that are even more specific or stringent than the Federal Trade
Commission Act. For example, in the state of California, it is illegal to falsely advertise a product with
an unqualified environmental claim. California law also bans the use of the word biodegradable for
plastics. There have been a number of instances in which firms have violated this law. Recently, the
state of California adopted a new law that bans the use of the chasing arrows symbol that we saw
earlier, like the number 1 with the three arrows around it indicating that a product is recyclable if in
fact that product is not widely recyclable in the state of California. What about beyond the United
States? In the UK and in Canada, there are also truth in environmental advertising laws. In the UK, for
example, there's a guidance that makes clear that claims about the environmental attributes of a
product have to be truthful and accurate, not omit or hide important information, only make fair and
meaningful comparisons and to consider the full lifecycle of a product, as well as to be substantiated
in data. In addition, Canada has some specific standards with respect to the environmental claims and
attributes of investment funds. The EU has arguably gone a step further than the United States in this
regard by creating something called the EU sustainable finance taxonomy. The focus of the
sustainable finance taxonomy is to prevent greenwashing, specifically in the financial sector. It
defines what can be labeled as a sustainable investment in the European Union. The idea is that an
economic activity supported by this investment fund needs to be something that's substantially
contributes to at least one of six different environmental objectives that are listed in the taxonomy and
at the same time not do any significant harm to the other five objectives. There are some concerns at
the moment about how effective this will be but it's relatively new. I'd like to keep an open mind. The
six environmental objectives in the EU taxonomy are climate change mitigation, climate change
adaptation, sustainable water use and protection of marine resources, transition to a circular economy,
pollution prevention and control, and protection and restoration of biodiversity and ecosystems. As a
side note, I'd like to mention that we have covered all six of these environmental topics in these
modules. In addition to the EU taxonomy, there's also a new statute in the EU called the sustainable
finance disclosure regulation or SFDR, which went into effect at least in its first implementation on
March 10th of 2021. This is a disclosure regulation that binds financial market participants in the EU
who need to provide mandatory disclosure about their sustainability policies and how they integrate
sustainability risks into their investment decision-making. More demanding standards and rules are
going to come into place in 2022. How is this a greenwashing regulation? Well, one of the challenges
is what should the remedy be for greenwashing? Many scholars will argue as well as policymakers
that the best solution is better information for consumers. If there are mandatory disclosures about the
ways in which certain firms or products are engaging with environmental sustainability goals this may
be the best way to provide information to consumers about whether to buy a product or invest in a
fund. There are also private governance approaches that aim to address greenwashing. For example,
the National Advertising Division, which is the advertising industry's self-regulatory body. Its goal is
to monitor national advertising for truthfulness and accuracy. This is something on the private sector
sphere and other countries have voluntary processes like this. Usually in this case, if there's a claim
that raises concerns, it may be a competitor that files a complaint and there's a kind of voluntary
proceeding. But if a firm remains non-compliant and continues to make a misleading advertising
complain, it is possible that that will result in a reference of the case to the Federal Trade
Commission. As I mentioned, there's another form of private governance to ensure that environmental
claims are truthful and that is a third party certifications. There are certifications addressing all
different forms of environmental performance. These include certifications by the Marine Stewardship
Council that a fishery is being managed in a sustainable way and certifications from the Forest
Stewardship Council that a forest is being harvested in a way that is sustainable going forward. There
are other certifications that apply to greenhouse gas emissions as well. Many different firms that are
making commitments, for example, to reduce their greenhouse gas emissions to reach net zero by
2050, are pursuing certification from the science-based targets initiative or SBTI, including many of
these firms. This is a way to verify that the cleans are in fact in compliance with the latest scientific
standards. What's next for greenwashing? Regulators and others, including the Twitter verse, are on
high alert with respect to cleans not just about products, but claims at the level of the firm. We are a
green firm. We are doing a lot for the environment as compared to this product is green. In addition,
there is increasing emphasis not just on statements, but also on symbols and symbolic speech. What
are the key takeaways from this module? First, I want you to remember that business leaders need to
think about product stewardship and the complete life cycle of their products. Second, I want to be
sure that you understand that voluntary product stewardship programs exist, but there is an increasing
number of mandatory extended producer responsibilities, both in the states and abroad. Third, as the
interest in environmental protection and product stewardship grow, there is a risk that firms will
exaggerate their environmental performance and so business leaders need to be mindful of the limits
on green marketing claims. Finally, both public and private actors are watching these claims closely.
​