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Sustainability, and Other Tall Tales

July 20, 2023
Investors, customers and regulators have clued in to greenwashing and are stepping up enforcement.

IndustryWeek's elite panel of regular contributors.

The era of making fake and false sustainability claims is over. Consumers, NGOs, investors, and regulators are watching closely and are holding businesses accountable. Think twice before making sustainability claims. Do what you say and say what you do. The number of greenwashing lawsuits have exploded for the past five years. A 2020 report by Foley and Lardner reported a doubling of greenwashing lawsuits in the oil and gas industry in just 5 years.

Lawsuits are public and at times very costly. They touch all sectors across all geographies. Let us look at some examples.

  • Delta Airlines is facing a class action lawsuit over claims that it misrepresented its environmental impact by presenting itself in advertising and promotional activities as being “carbon neutral.”
  • Nike is being sued by a consumer because they “deceive consumers into believing that they are receiving products that are ‘sustainable,’ ‘made with recycled fibers,” and can reduce one’s carbon footprint in a move to “zero carbon and zero waste.
  • Hyundai Motor UK was fined for claiming that if 10,000 of their hydrogen-powered Nexo cars were on the road, the carbon emission reduction would be the equivalent of planting 60,000 trees
  • Deutsche Bank is under investigation by regulators in U.S. and Europe because the bank’s asset management arm allegedly sold investment products worth $1 trillion as more environmentally friendly and “sustainable” than they actually were.
  • Walmart was fined $3 million for making deceptive green claims" about some textile products.
  • Shell’s 11 board directors were sued for breach of their legal duties under the Companies Act when for adopting and implementing a so-called  “Energy Transition Strategy” that fails to align with the Paris Agreement.

Let us start by defining what greenwashing means. It is a practice used by businesses to represent themselves as more sustainable than they truly are. It includes providing misleading information regarding a product’s sustainability or labeling an offer as “green” when it is not.

Greenwashing is not a static concept. It occurs on a spectrum, ranging from wishful thinking to outright deceit. Greenwashing can also be unintentional, as rules and regulations change over time. Finally, it now extends to broader sustainability concepts such as social good and human rights. Government enforcement actions and civil suits alleging greenwashing are on the rise through a myriad of different laws, including securities regulations, consumer protection laws, fraud and misrepresentation statutes and advertising standards. Bottom line, it is serious business!

I propose five steps to avoid greenwashing-related litigation.

1. Review the claims you are making across your business: Conduct an internal inventory of what claims are made and communicated to the market through all the formal and informal channels. That includes written and verbal claims. You might be surprised by the lack of governance and the variability of claims made at the divisional and regional level.

2. Review the exposure related to claims and the quality of the back-up data: Based on this inventory, evaluate the level of risks associated with the most definitive sustainability claims: The above-mentioned lawsuit examples provide a good illustration of how companies might potentially be exposed to greenwashing claims. One of the lessons to be taken from recent legal filings is that companies should avoid sweeping statements about their sustainability efforts. If a company can support concrete statements with concrete data, they are better able to neutralize and defend the greenwashing claims that are now flooding the litigation landscape.

3. Provide training on ESG, green marketing and the associated risks: Part of the sustainability and ESG capability building program should include training on greenwashing and about making sustainability claims in sales and marketing. Teams should be aware of the risks of making unfounded or exaggerated claims. In addition, the same teams should understand the need for solid and concrete data to support claims (including customer data, research data and technical data).

4. Establish a dynamic review of changes in the regulatory landscape and update the governance model: If you pay attention to sustainability reporting requirements, you realize the level of dynamism. Rules and regulations are changing by industry and by country. If you work across many industrial verticals, regulatory changes might happen without your realizing it. Dynamism therefore relates to the speed and complex nature of changes in your regulatory landscape. A review combines the use of the right regulatory benchmark software as well as the involvement of internal experts who scan the landscape. It is really hard to keep up. You might be compliant today but miss an important update in reporting requirements that could impact your sustainability, marketing and communication strategies.

5. If in doubt, bring in the experts. experts include suppliers, consultants, and your internal risk management teams. Do not improvise. It could be costly. Establish regular reviews of your marketing and sales materials by these experts as part of the governance process. Quickly take action if your claims are overstated or non-complaint.

If you are an industrial organization,  you do not want to be on the naughty list of greenwashers. That is a given. You must have an internal discussion about the claims you are making to avoid potential risks of litigation. Remember that your customers, investors and regulators might be more sophisticated that you are, and they might reverse-engineer your claims. So, do what you say and say what you do.

Stephan Liozu ­­­is founder of Value Innoruption Advisors, a consulting boutique specializing in industrial pricing, XaaS pricing and value-based pricing. He is also the co-founder of Pricing for the Planet, which specializes in pricing for sustainabilityStephan has 30 years of experience in the industrial sector with companies like Owens Corning, Saint-Gobain, Freudenberg and Thales.

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