Shannon Park

August 29th, 2022

Research Paper

What is Greenwashing and its Solutions?

Many companies today take advantage of sustainability reporting as an image

management strategy and engage in greenwashing (Monaghan, 2018). Greenwashing is a

phenomenon in which corporations exaggerate and mislead consumers to believe in their

presumed eco-friendliness (Diffenderef et al., 2011). Some examples of greenwashing occur

when businesses utilize the terms “clean,” “natural,” “green,”or “organic” to deceive customers

and investors when their products are not truly green (Lokuwaduge et al., 2022). This paper will

first examine the greenwashing phenomenon, its rise and impact, then analyze the roles of the

government, consumers, and businesses in mitigating greenwashing. Different entities have

varying responsibilities: businesses to make green transitions, the government to enforce

regulations on businesses’ environmental impact and correct labeling, and consumers to educate

themselves. There is no clear answer to this conundrum, but the complexity of the greenwashing

phenomenon and its universal impact certainly calls for the collective effort of the entities that

make up our society.

During my internship at Clarkson Law Firm this summer, I was surprised to firsthand see

the prevalence of greenwashing. Numerous products and brands that we shop from have been

violating our consumers' rights without our awareness through false or misleading product labels.

A study found that only one out of 1,018 tested products in North American consumer markets

made false or misleading claims about their products’ ecofriendliness (Terrachoice 2007).

Greenwashing is an unethical practice that leaves a destructive impact on the environment and

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violates consumer rights. Many sunscreen products contain harmful chemicals that threaten coral

reefs, which are vital to the planet’s ecosystem, tourism, and the fishing industry (James, 2022).

The toxic sunscreen chemicals, including oxybenzone, octocrylene, and octinoxate, wash off

people’s bodies when they enter the sea, causing coral bleaching. In effect, more than 80% of

coral reef was lost in the Caribbean and marine animals have given birth to deformed embryos

(James, 2022). Simultaneously, consumers who have made financial compensations to purchase

such products with the intention to be more sustainable are violated of their rights. They were

misled by the product labels and advertisements to purchase particular products that were falsely

eco-friendly.

The Negative Side Effect of ESG

The rise of the greenwashing phenomenon, however, stems from the positive movement

for environmental action. The urgent call for environmental action, especially from businesses,

has been rising as climate change continues to disrupt our lives. Just 100 corporations have

produced over 70% of the world’s carbon emissions (Riley 2017). Realizing the detrimental

climate contribution of corporations, governmental agencies and consumers have increasingly

demanded transparency on businesses’ environmental, social and governance (ESG) impacts.

The term ESG was coined by the United Nations Environment Programme Initiative in the

Freshfields Report in October 2005 (esganalytics). Today, many businesses are required to

publish a sustainability report, defined as “the disclosure and communication of environmental,

social, and governance (ESG) goals, as well as a company’s progress toward them,” according to

the Boston College Center for Corporate Citizenship (Boston, 2019, p. 1). Investors utilize ESG

indexes to determine companies that are low in risks associated with environmental, social, or

governance issues (Gorley 2022). As a result, more businesses are aiming to transition to more

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sustainable practices. About 92% of executives claim that businesses will address sustainability

to some extent and 42% aim to center their value proposition on sustainability (McKimsey &

Company 2021). In effect, ESG markets have been growing fast and now accounts for 25% of

total market assets (esganalytics).

Despite the rise of ESG and sustainability reporting, the lack of governmental regulation

and inconsistent definitions of “sustainable” creates loopholes that put consumers and investors

at risk of being misled by greenwashed businesses (Wilson 2021). For instance, there are

multiple manufacturers and suppliers with varying production processes and types of industrial

manufacturing that it is challenging to be clear about responsible practices (Morfit, 2014). The

U.S. currently lacks regulations on businesses’ abilities to distribute false and misleading

advertisements. Consumers are given the main responsibility of doing their research and

purchasing the right brands. More than 40 million consumers, or 15% of the US adult population,

were victims of fraud or deception from businesses in 2017 (Wilson 2021). From my internship

experience, I could relate to this statistic because I had to spend hours researching brands to

determine whether their products were as “clean” as they claimed to be. Only after extensive

research, I was able to distinguish whether the chemical ingredients listed in the back of

“reef-friendly” sunscreen products were actually reef-friendly or not. As an average consumer

standing in a store with a product in hand, it is all the more challenging to know a product’s

eco-friendliness on the spot.

Government’s Role: Enforce Regulation of Accurate Labeling/Advertisements

One solution for greenwashing is stricter governmental regulation of accurate labeling

and advertisement within businesses and increased funding of governmental agencies. My

interviewee and founder of Clarkson Law Firm, Ryan, claimed that there should first be more

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laws written that hold businesses accountable for their misdemeanors. Potential solutions by the

U.S. government include enforcing a mandatory reporting system that imitates the European

Union System (Silva 2021). Such legislation would prevent American manufacturers from

secretly utilizing toxic chemicals in their products and ultimately protect the safety of consumers

from unsafe baby wipes, drugs, or cosmetics and the environment from harmful chemicals

ending up in nature. Since there would be backlash from conservatives and corporate lobbyists,

advocacy groups, non-governmental organizations, and trade associations also play significant

roles to pressure the American government to legislate stricter regulations on businesses.

In contrast to Congress, the European Commission acknowledges that the average

consumer should not be expected to catch mislabeling and false advertising (Silva 2021) and has

made recommendations to calculate the environmental impact of products: the Product

Environmental Footprint Method (PEF) and the Organization's Environmental Footprint Method

(OEF) (Silva 2021). The EU has also recently proposed new legislation banning greenwashing in

addition to the existing strict regulations on product labeling (Freshfields Bruckhaus Deringer

LLP 2022). Under these regulations, businesses are required to calculate their environmental

impact, which pressures them to conduct environmentally-conscious processes. These laws aim

to both motivate the market to produce more environmentally friendly options and for consumers

to make more informed purchasing decisions (Silva 2021). However, the EU also has limitations,

and greenwashing continues. The PEF does not encompass crucial elements of the EU’s climate

goals, including microplastic pollution, biodegradability, and renewability. In other words, under

the PEF system, fibers like polyester are wrongly certified as more eco-friendly than natural

fibers (Silva 2021).

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 Another way the government system can improve, according to attorney Ryan, is by

increasing funding and resources for governmental agencies, which are critical enforcers of

regulations. In the context of the U.S., the U.S. Food and Drug Administration (FDA) is the

major governmental agency that assesses the safety and impact of chemicals and ingredients in

products. Unfortunately, government agencies, such as the EPA, USDA, and FTC, do not enforce

strict guidelines to facilitate the FDA’s assessment strategies due to lack of resources and

incentives. As a result, many products consumed by consumers are detrimental to their health

and the environment despite what their labels and advertisements say. For instance, the law firm

I interned at dealt with several cases in which off-the-counter drugs that claimed to be “organic”

and “safe” turned out to be false advertising and labeling. Thus, by increasing funding for

governmental agencies like the FDA, the American government can increase the monitoring of

proper labeling and ensure the safety of consumers and the environment.

Businesses’ Role: Transition to Clean Alternatives

The unfortunate truth is that it is extremely difficult for businesses to fulfill their

sustainability claims: they have to balance their quality control, manufacturing costs, and

environmental protection (Xiao et al., 2022). As a result, many businesses fail to turn their

sustainability promises into actions. The main question is, “do the profit motive and social

benefit motive of businesses have to be mutually exclusive?” My answer is no. Business

profit-making motives and society’s sustainability interests can be compatible. In fact, more and

more companies are starting to realize the benefits of decreasing their carbon footage,

incentivizing them to develop climate action plans. According to the Center for Climate and

Energy Solutions, companies participating in the global EP 100 initiative aim to double their

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energy productivity, which could save over 2 trillion USD globally. Corporations could save

billions of dollars while cutting millions of tons of greenhouse gas emissions.

To meet these environmental goals, companies have begun to deploy innovative financial

tools to achieve their climate and energy goals. For example, by offering customers on-bill

financing, energy producers allow a homeowner or building owner to make investment for

energy efficiency improvements. On-bill financing (OBF) facilitates direct interaction between

the homeowner and energy producer while significantly cutting high upfront energy costs (US

Department of Energy). OBF’s benefits include low-to-zero interest rates, simple contract

structure, and streamlined repayment. Over 232,000 on-bill loans expanded across the residential

and commercial sectors, generating more than $1.83 billion (Lawrence Berkeley National

Laboratory 2016). While over 22 states have legislated the creation of on-bill programs,

provision is still limited to regions where utilities support OBF programs (US Department of

Energy). Similar alternatives for energy buyers are green pricing programs, which allow

customers to buy energy from a renewable project that generates wind, solar, biomass,

geothermal, or other renewable energy.

This leads to the question: how do we get these ideas to appear in board meetings and

encourage important decision-makers of businesses to implement costly sustainability

transitions? In any institution or business entity, ethical leadership is critical to developing ESG

programs that reflect ethical traits in corporations, align values, and promote trustworthy

behavior. A renowned consulting company Deloitte says corporations should always leave ESG

a permanent place on the board agenda (Poole & Sullivan, 2021). This allows the engagement of

the board to support the company’s ESG goals and practices. As a result, the company can

dedicate sufficient resources to integrating ESG into its business. Furthermore, it is important to

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assess the company’s strategy and impact with a clear measurement metric and definition of

success. By following these tactics and encouraging board members to care about the

significance of the genuine representation of their products and reducing risks associated with

ESG, businesses can reap the benefits of green alternatives.

Even still, cleaner alternatives like OBF and green pricing programs push the burden of

making sustainable choices on consumers. The fundamental problem of greenwashing arises

from businesses’ focus on profits and lack of environmental conscience. One brand I researched

as part of my internship sold wet wipes that they claimed to be “99% water and plant-based” and

“flushable.” After researching the ingredients listed on the back label of the wipes, I found out

that these wipes were, in fact, synthetic. While the ingredients were sourced from plants, the

chemical processing to create these plastic or polyester products makes them nonbiodegradable

and detrimental when flushed. Consequently, sewage professionals are at hazardous risk to break

up clogs, not to mention the millions of dollars expended (bporter, 2020). These products exist

because companies are not restricted from claiming their wipes are “flushable” before proving

their flushability, which brings us back to the problem of lack of governmental regulation

(bporter, 2020). If not enough businesses are unmotivated and the government does not act

sufficiently to solve greenwashing and the larger climate issue, who else is responsible to enact

change?

Consumers’ Role: Be Informed and Consume Mindfully

Consumers’ concern and demand for sustainable products are key to achieving the 2050

climate neutrality goal. Consumers should educate themselves, do research on their carbon

footprint and that of the businesses they are consuming from, and aim to consume from truly

sustainable brands. On the bright side, activist movements are rising and influential in changing

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business and writing laws. Greenwashing itself is a phenomenon that occurs out of the increasing

demand from consumers for sustainable products. Yet, the challenge is misinformation and lack

of motivation. Despite consumers’ good intentions, if they are constantly misled by producers,

they cannot make sustainable purchases. Furthermore, consumers lack the motivation and

resources to filter the genuinely sustainable and falsely eco-friendly brands. Personally, I have

downloaded mobile applications Boycott That and Zero Waste Score to increase my awareness

of sustainable and unsustainable brands. Although I learned valuable information that some

brands that I enjoyed shopping from were part of unethical practices, these applications did not

have a convenient way for consumers to be informed at the spot of their purchase. There were

links that took me to sustainable brands, but I could still easily go into Target or Walmart and not

know if the products I am buying are actually “green” or “organic”

Conclusion

ESG markets are on the rise because businesses, consumers, and investors are

increasingly aware of today’s environmental threat. However, transitioning into clean and ethical

practices is costly, and many businesses practice greenwashing as a result of their profit motives.

There are numerous actions that the government, businesses, and consumers should take to

safeguard consumers and the environment from greenwashing. Congress can imitate reporting

policies demonstrated by the European Union to prevent false representation of their products

and incentivize businesses to transition into clean practices instead of simply stating to do so

(Silva, 2021). By increasing funding for agencies, the government would also increase

enforcement of regulations on labeling and advertisements. In effect, there would be greater

brand transparency and accountability held for unethical businesses (Lavinia, 2021).

Unfortunately, the cost of genuinely sustainable transitions disincentivizes many businesses and

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the government to take sufficient action. Consumers also have a significant role in keeping

themselves informed and being wary of potential greenwashing before making purchases.

Ultimately, the greenwashing phenomenon encompasses various stakeholders and creates a

universal impact, thus urging a multidimensional strategy and collective effort from society as a

whole.

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