Greenwashing: A Rising Threat to Businesses

When Boohoo launched their ‘Ready for the Future’ range in 2021, they claimed that clothing in this line is “made of more than 20% more sustainable materials.”

In January 2023, the Competition and Markets Authority (CMA) launched an investigation into Boohoo to scrutinise the validity of these claims. If they’re found to be untrue, Boohoo could receive legal action – and at best they’ll lose their customers’ trust and a portion of their revenue.

The issue at the heart of this case is greenwashing – a topic on which shareholders of countless businesses are calling for greater transparency and stricter regulations.

But despite demands for a higher degree of accountability, greenwashing is surprisingly prevalent. According to a recent press release by the European Commission, more than half of green claims give vague, misleading, or unfounded information.

In this article, we’ll explain what greenwashing is and why it poses a growing threat to businesses.

What is greenwashing?

In broad terms, Greenwashing is a type of marketing that targets consumers who care about sustainability. It happens when businesses mislead their customers, either maliciously or unwittingly, by lying or omitting the truth about their products, services, or activities.

Greenwashing is deceitful a behaviour that deceives customers, suppresses genuine sustainable businesses, and stands in the way of meaningful change.

Examples of greenwashing

A common example of greenwashing is when businesses use branding that makes their product seem greener than it actually is. This usually takes the form of subtly misleading names, imagery, or logos for a product that isn’t actually sustainable.

Greenwashing can also happen when businesses make green claims about their products that are outright false. For example, they might call an entire product sustainable because it includes a single sustainable ingredient – even though the remaining ingredients are demonstrably unsustainable.

Businesses can also greenwash by making claims that don’t concern their products or services but instead focus on green initiatives they are taking as an organisation. Since there aren’t any regulations to confirm that they actually follow through on these claims, consumers are vulnerable to deception if businesses don’t do what they said they would.

Why do businesses greenwash?

In general, regulations around greenwashing are sorely lacking. That’s why so many have been able to get away with greenwashing so far – as many as half of all green labels offer weak or non-existent verification, according to the data released by the European Commission.

In the context of this freedom, businesses use greenwashing for a variety of reasons, including the following three:

  • To appeal to environmentally conscious audiences

Consumers are becoming increasingly aware of how their purchasing affects the environment. Some businesses take advantage of this trend, putting on the appearance of being sustainable in order to attract new customers.

  • To disguise unsustainable products

As the public becomes more sustainability savvy, products that have a large carbon footprint are increasingly unattractive. Since companies want their customers to continue buying their products, they may be tempted to bend the truth.

  • To make up for overambitious green targets

In the attempt to become more environmentally friendly, some businesses make commitments that they’re unable to keep. At this point, they may feel pressured to tick green boxes to keep face – instead of owning up and recommitting to real change.

The effects of greenwashing

Aside from harming the environment, greenwashing can also have consequences that are direct threats to the health of businesses, including the following:

  • Suffering legal action

While there is no UK legislation specific to greenwashing, many false green claims can fall under the restrictions in the Consumer Protection from Unfair Trading Regulations 2008.

These claims could be considered offences if they cause or are likely to cause consumers to enter into transactions when they otherwise would not have done so. Regulation 5 prohibits false and misleading commercial practices, while regulation 6 prohibits commercial practices serving to hide or obfuscate material information.

  • Receiving penalties from official bodies

In Autumn 2021, the Competition and Market Authority (CMA) released the Green Claims Code – a 13-point checklist of standards for businesses making environmental claims. Anita Lloyd, the director of Environment, Safety & Health at Squire Patton Boggs, an international firm specialising in corporate law, had this to say in a recent webinar:

“A lot of what that green code says is very similar to what the advertising rules say, but the CMA does have, potentially more teeth”.

Moreover, if the CMA uncovers evidence suggesting that green claims are false, it has formal powers to take enforcement actions such as opening official investigations into specific companies – exactly like it has with Boohoo, as well as two other high-profile retailers.

  • Losing trust with consumers

Companies that engage in greenwashing in order to attract a new audience run the risk of isolating their customers in the long run.

If the true environmental impact of such a business is revealed, the public backlash and financial risk is significantly worse than if they had been transparent in the first place. And with an increasing number of aids being created to help consumers spot false claims, it simply isn’t worth gambling on.

How can businesses protect themselves from greenwashing?

As regulations tighten and consumers become increasingly skeptical of environmental claims, businesses need to take action to ensure they don’t engage in greenwashing. Three key remedial and preventative actions are to:

  • Set high standards

Before making any claims about the environmental impact of goods, businesses should scrutinise the entire life cycle of the product – all the way from raw material to consumption.

Businesses that are distributors rather than manufacturers can select products that are certified from well-known and credible organisations, for example B Corp, Carbon Trust, or Fairtrade.

  • Be transparent with the public

As Natasha Marc, Senior Associate at Squire Patton Boggs, said in the international law firm’s webinar:

“There is a growing assumption that if a company doesn’t disclose or discuss a certain issue, that it’s really hiding something, or it’s not addressing that issue properly. But really the issue might not be material for that company, so businesses should disclose and discuss material topics, but acknowledge if an issue is not being addressed, why is not being addressed, why is not relevant and why is it not a focus for the company.”

  • Communicate across the business

Clear claims and goals should be communicated not just between businesses and the public but also within organisations themselves. Internal practices and policies need to align with claims concerning environmental impact.

Moreover, plans and progress need to be shared across every level, so that employees are better able to align their actions with the commitments of the business as a while. Meaningful change happens from the top down.

A threat to growth

Businesses that practice greenwashing don’t just harm the environment – they create serious risks for themselves.

With increasing demands for transparency and tighter regulations, the consequences for organisations making false sustainability claims will only become worse over the coming years.

It’s time for businesses to be open about their products and practices, whether good or bad. Greenwashing will soon stop merely being unethical and become a significant threat to growth.