The term ‘greenwashing’ was modelled on the word “whitewashing” to explain a situation in which misleading information is being used to hide bad actions. Thus, by definition, greenwashing refers to instances where customers are misled through the use of inaccurate information about a product’s environmental impact or benefits. Unfortunately, very well-known companies such as Volkswagen, Toyota, Eni, Goldman Sachs and more have been caught making use of greenwashing and have been faced with greenwashing fines worth millions of dollars.

Studies conducted by the European Commission have found that 76 per cent of all products analysed in stores consisted of an environmental claim and 56 per cent of EU consumers have been exposed to misleading green claims. Greenwashing is used by companies to gain a competitive advantage in the market they are in by seeming sustainable. Apart from the obvious wrongdoing of misleading customers, greenwashing causes genuine companies that actually carry out environmentally friendly initiatives lose their competitive advantage together with their visibility. Consumers are disincentivised to pay higher prices for environment-friendly goods as greenwashing has lost any sense of consumer confidence in purchasing these types of goods.  

In the beginning of 2024, the European Parliament approved a proposal for a Directive of the European Parliament and of the Council amending Directives 2005/29/EC and 2011/83/EU as regards empowering consumers for the green transition through better protection against unfair practices and better information. This directive has added a list of troublesome marketing habits which fall under greenwashing to the list of EU-banned commercial practices. Thus, the EU, through this directive has sought to ban: generic environmental claims such as “environment-friendly”, “natural”, “biodegradable”, “climate neutral”, “green” or “eco” on products without proof; claims that given the producer’s efforts in offsetting emissions, the products have a neutral, reduced or beneficial impact on the environment; sustainability labels which were not verified from approved certification schemes or public authorities.  Durability is also taken into consideration in this Directive as the European Parliament is stressing the importance that consumers are knowledgeable about the product guarantee period for producers to take accountability and repair faulty products which are still under guarantee. Thus, the EU sought to ban: the marketing of goods which were designed with features which could minimise their lifespan; claims with no proof regarding usage time or intensity under standard conditions; and the portrayal of unrepairable goods as being repairable.

So how can companies avoid greenwashing? To maintain customer loyalty and avoid any sustainability deception claims, companies must make sure to back up any environmental claims they wish to use with reliable statistics. If no suitable backing is found, companies should avoid using any potential misleading language on packaging. Companies can also obtain third-party certifications such as Fairtrade to clearly demonstrate their commitment to sustainability. Collaborations with environmental organisations and NGOs to address environmental challenges collectively is also a recommended action in this regard. Companies are also encouraged to report on any sustainable achievements. These achievements include data such as emissions reductions, resource usage, and sustainability initiatives.  For further verification, companies may also opt for independent audits to make sure their environmental concerns in relation with regulations and standards are up to par. This is becoming more and more crucial given the ESG reporting standards that are being pushed nowadays.

The European Commission studies have also found that consumers have a low-level understanding of green claims, in which 61 per cent of the respondents noted that they have difficulty understanding which products are environment-friendly. It is therefore vital that consumers educate themselves about the common greenwashing tactics and how to spot them. Prior to any purchases in which consumers may have doubts as to whether the product might be greenwashing, it is important that consumers ask the following questions: What is the company’s core business and primary focus? Does the claim make use ambiguous, broad, or unspecified words? Are any of the statements on the product falsifiable? Are there any proof or verification of said claims on the product? Do the claims seem biased? Is the label recognizable?

Spreading awareness is key to ensure that consumers are well-informed about this concept when making their purchasing decisions. Collective awareness and action can help combat deceptive marketing practices. This also goes for company leaders; by setting an example in the business community and taking the necessary ethical and transparency steps when making green claims, business leaders are not only benefiting the environment, but are also inspiring other business leaders in changing their harmful environmental practices.

PKF Malta is a fast-growing, progressive firm specialising in audit & assurance, tax, advisory services, and internal audit insurance. Get in touch with us today via email at: info@pkfmalta.com or contact us here.

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