Greenwashing: In the Eye of the Beholder

“A Big Oil company announces a partnership with a tech company to pursue novel technology that could lead to low-emissions solutions that are better for the environment.”

After reading the above (based on an actual event), what’s your first reaction? If you answered “skepticism,” you wouldn’t be alone. Seeing words like “environmentally friendly” in the same sentence with “Big Oil” — or any business sector known for its high environmental impact — evokes immediate suspicion in many minds, or perhaps an accusation of greenwashing.

Greenwashing is whitewashing, or hypocrisy, in the business world with regard to environmental claims. It’s when a company presents a façade of being “green,” or doing something environmentally friendly, while not fully living up to that claim — usually in order to gain the favor of consumers, activists and/or the wider public. The technical definition of greenwashing, which has been in use for several decades but was only added to the Oxford English dictionary in the late 1990s, is “disinformation disseminated by an organization so as to present an environmentally responsible public image.”

Dissecting Greenwashing

Headlines from the Volkswagen diesel emissions scandal may be swirling in your mind. In that textbook case of greenwashing, a major company made claims of following certain government and industry standards while not actually doing so.

But according to strategy expert Michael Lenox — the Tayloe Murphy Professor of Business Administration, as well as senior associate dean and chief strategy officer at the Darden School of Business — most cases aren’t nearly as straightforward. In fact, besides a few clear-cut examples, greenwashing is largely in the eye of the beholder.

“Intent is central, and it’s very hard to prove intent,” explains Lenox, who specializes in the intersection of business strategy and public policy as it relates to the environment. Knowingly making false claims is an obvious no-no, but determining if a company is consciously greenwashing is typically complicated.

Is a company greenwashing, for example, if it financially profits from a product that it (accurately) claims and advertises is green? Most people, including Lenox, don’t subscribe to such an extreme position. But what about when a firm makes some green claims while still carrying out non-green practices in other parts of its business, or using an upstream supplier that doesn’t abide by environmentally friendly practices?

At that point, you’ve entered new territory, Lenox says: judging motivation. And without copies of boardroom minutes, it’s hard to tell whether efforts are authentic attempts to become more environmentally friendly or not.

For instance, after the Deepwater Horizon oil spill, BP promoted steps it was taking to become more environmentally conscious and safe. Did these steps represent real corporate culture changes, or were they surface attempts to rescue a tainted brand? Without the tools to make an informed judgment, consumers could do nothing more than react on instinct.

Some businesses are now leery of even advertising good-faith green efforts for fear they’ll be accused of greenwashing.

“Some companies, like chemical companies, have a greater environmental impact because of the nature of their industries,” Lenox says. “Consequently, those firms naturally come under greater scrutiny in this area.”

Yet, Lenox points out, one can hardly imagine an economy without chemicals, and by nature, the production of consumer goods has some environmental impact. But what kind and how much? And how does one company compare to others in the same industry?

The Customer Is Still King

Interestingly, most people do not choose to buy products solely because they’re green — especially in the United States. In his 1998 book The Greening of a Nation? Hal Rothman wrote that consumers in the U.S. “embrace environmentalism when it is convenient and inexpensive, but when it challenges the comforts to which they are accustomed, they ignore or avoid it.” According to Lenox, recent market research confirms that this behavior hasn’t changed. (On the other hand, Europeans, studies show, are more willing to purchase green goods.)

So while customer demand for desirable, affordable products is of supreme importance, companies must also balance pressures from activists, governments and the public to abide by an environmental ethic — while not greenwashing their efforts.

Solutions

Lenox’s focus is on helping companies and managers find ways to spur genuinely sustainable practices and innovations while delivering products that consumers will actually buy, with the result that everyone — the consumer, the producer and the environment — “wins.” He offers several solutions for encouraging these kinds of practices and innovations.

First, information asymmetries between producers and consumers must be overcome so that consumers can know when they are purchasing sustainably oriented products. This is done, in part, by standard setting, which offers consumers credible backing for claims.

The food industry is a perfect example. Before the U.S. Department of Agriculture (USDA) established an organic foods label, consumers were inundated with competing claims of the environmental friendliness of various food products. Only after the USDA established a standard — a simple label for certified organic foods — did demand for these foods blossom, to the point that they’re now ubiquitous. Similar standard setting has occurred across the seafood industry, the construction industry (LEED-certified buildings) and in manufacturing of wood products (FSC labels signal goods from forests that follow the Forest Stewardship Council’s best practices for forest management).

Standard setting helps not only consumers, but also companies and managers by giving them a code of conduct to shoot for — a concrete, measurable set of environmentally responsible behaviors to follow — and to promote to consumers without worrying they’ll be accused of greenwashing.

Another solution for spurring sustainable innovations and practices is involving activists and NGOs as partners in business. Environmental activists are more often viewed as adversaries who come in and shame companies for their non-green practices. Blocked by political gridlock in attempts to get legislation passed, many activists are resorting to private politics to push their agenda. They take to social media to expose non-green practices and apply pressure for companies to change their ways.

Moreover, it’s not only the Greenpeaces of the world that can apply this kind of pressure, but two people on the other side of the globe, armed with nothing more than a smartphone and a YouTube account — as occurred last year with Unilever, accused of dumping mercury in Kodaikanal, India, in a parody rap video that went viral, prompting a public relations crisis overnight.

Yet if businesses can find ways to partner with NGOs and activists, change can happen that benefits both sides. McDonald’s collaboration with the Environmental Defense Fund to replace its Styrofoam containers with recycled paper products is an early example of this kind of partnership.

Finally, government action can spur sustainable innovation and practice through manipulation of prices, including tax incentives, subsidies and penalties for “dirty” or “brown” technology. The extent of government action should be carefully evaluated, however. There’s often uncertainty about which new alternative technologies and products are actually greener and cleaner than existing ones. If the government effectively picks winners and losers and chooses poorly, everyone loses.

Summary

In conclusion, greenwashing, though occasionally clear-cut and easy to recognize, has become a relatively unhelpful term in today’s economy. Businesses operate in a highly complex, globalized context that requires sophisticated thinking, problem-solving and collaboration across sectors. Rather than try to doctor up a few aspects of their businesses and label them “green,” managers should get past the surface and seek to integrate sustainability as a core value in their mission — taking an “inside out,” rather than an “outside in,” approach — which is the key to all lasting change, not only in individual businesses, but across society as a whole.