Executive Voices 6 mins read

Greenwashing — How to avoid misleading claims

Greenwashing — using false or misleading claims about your business’s environmental credentials — can be detrimental in many ways, from lost consumer confidence to legal repercussions. Learn more about this sustainability buzzword, how to spot it in action, and what tools can help you responsibly avoid falling into the greenwashing trap.

Dawn Colossi Dawn Colossi

Not long ago, sustainability was a buzzword that had little to do with a company’s bottom line. Today, it’s at the heart of everything from investor relations and compliance to brand reputation and innovation. The importance of being “green” means companies are trying harder than ever to convince customers they are helping the planet by choosing their products. Yet branding something as eco-friendly when it’s not, can easily backfire. As a business leader, no matter what your company does, you need to be vigilant that your marketing avoids greenwashing: false or misleading claims about your environmental credentials. Greenwashing accusations don’t just harm your reputation; increasingly they’re resulting in legal action, as cases in industries from asset management to fast food to apparel have shown.

Software AG was founded more than 50 years ago on the belief that software will change the world. As we’ve grown, we’ve recognized that only a truly connected world can be a sustainable one. That, and that enabling our customers to transform around both realities, is what matters most to us.

We want to help our customers to accelerate their transformation to a sustainable, connected enterprise by avoiding pitfalls, grey zones, jargon, and other challenges to achieving your ESG objectives. One of our main concerns is greenwashing: what it is, how to spot it, and how greater visibility into your business processes can help you steer clear of the greenwashing trap.

“Riding the sustainability wave”

Efforts to combat greenwashing today are most visible in the world of finance. Increasingly, companies are seeking to raise funds by issuing bonds tied to green credentials. Global issuance of so-called “green bonds” topped $500 billion in 2021, with analysts predicting the number to exceed $1 trillion in 2022. The value of assets managed under “sustainable” funds is also skyrocketing.

Yet there’s growing skepticism about just what makes a given company or a fund’s performance indicators “green.” There’s also uncertainty over how to regulate, or even define, terms like “ESG,” “sustainable,” and “low-carbon.” As an analyst from the data provider Morningstar told the Financial Times in May, many funds have simply sought to “ride the sustainability wave” by changing their names and tweaking their marketing, without altering their underlying products.

Consumers, and their advocates, are looking out for greenwashing as well. There are cases in the news of airlines, for example, that are sued because their advertisements give a false impression of the climate impact of its flights. Airlines may promote initiatives such as funding reforestation projects and the purchase of biofuels as ways they are contributing to a more sustainable future. But consumers and advocates claim these campaigns may mislead customers into believing the flights themselves are not harmful to the planet.

Tips to help you be more vigilant

Companies are left in a difficult position. They need to show they’re doing something to address their role in the climate crisis. Yet overstating their efforts can have serious consequences. How can you identify when a firm’s claims go too far? And how to you ensure your company avoids greenwashing accusations itself?

Here are a few tips that we believe will help:

1. Be wary of buzzwords.

Part of the challenge facing climate conscious investors is the use of buzzwords like “sustainable,” “green,” “eco-friendly,” “natural,” “non-toxic,” and many others. They are rarely quantifiable or backed by rigorous standards. Some would even call them meaningless. When you encounter terms like this, try to dig a little deeper. How transparent is the company about what’s in their products? If you use buzzwords in your own marketing, the more specific, and less vague, the better. And make sure you can back them up with facts.

2. The (false?) lure of carbon offsetting.

There are many examples of companies that are marketing products that supposedly offset their carbon footprints. Google, for example, claims it has been “carbon neutral” since 2007. It achieves this through purchases of renewable energy and by supporting emissions reduction projects — like helping farms reduce the methane content of waste from livestock. In some industries, where low-carbon alternatives are not available, offsetting can play a useful role in lessening one’s environmental impact. Yet critics warn that “offsets” can be difficult to quantify and can serve as an excuse for avoiding steps to reduce fossil fuel use directly.

3. Pay attention to the packaging.

“Recyclable,” “biodegradable,” and “compostable” are all commonly used terms to describe a product’s materials or packaging. Too often, though, their end-of-life does not turn out as promised. According to the OECD, only 9% of plastic waste around the world is actually recycled — and plastic goods are sometimes labeled “recyclable” when they aren’t. Cases of false or misleading labeling have led to lawsuits in many jurisdictions. If you claim your product can be disposed of safely, make sure this is actually the case.

4. What’s in a supply chain?

Claims about a company’s ESG credentials often extend to their supply chains. They may be “reducing waste,” taking steps to avoid sourcing from conflict zones, or complying with due dilligence schemes that seek to empower producers in poorer countries. Often, these efforts are legitimate. Yet sometimes, labels don’t mean when they claim to — and companies who display them may not always meet their sourcing criteria. One recent survey of more than 300 supply chain managers in the UK found that half believed their companies were not being sufficiently transparent.

Tools to avoid the greenwashing trap

As these examples suggest, greenwashing claims are often subjective: one person’s misleading claims may be another person’s clever marketing. Still, they illustrate the importance of taking ESG goals and commitments seriously — and of having the right tools in place to measure and report on your company’s progress.

As a business leader, this can all feel overwhelming. How can you traverse the labyrinth of ESG compliance, while mitigating climate risks, securing your brand’s reputation, and ensuring you avoid falling into the greenwashing trap? That’s where we can help. At Software AG, sustainability and responsible action are at the heart of everything we do — across integration & API management, IoT & analytics, IT transformation, and business process management. Our industry-leading suite of products enables you to anchor your sustainability goals to the very core of your operations — and ensure you can back up your claims with confidence.

We invite you to learn more about Software AG’s sustainability solutions and how they can help drive your company’s green transformation.