Is the end of greenwashing in sight?

In 1983, a young environmentalist called Jay Westerveld was on a research trip to Samoa when he stopped in Fiji to surf. He was staying at a rough little guesthouse and popped into the sprawling luxury beach resort next door in search of a towel.

Westerveld was struck by a little card that the resort had put out in a guest bathroom. It carried a now familiar request for visitors to Fiji to reuse their towels to reduce the ecological damage of laundry on the island's fragile ecosystem and coral reefs, which the resort claimed to care deeply about.

What the cards didn't say was that reduced laundry would also save costs, and increase profits. Profits that, at the same time, the resort was pouring into tonnes of concrete to construct new bungalows on a prime stretch of coastal land, metres away from the imperilled reefs.

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Westerveld remembered the irony and misdirection in the laundry cards when, in 1986, he was writing an academic paper. He used the example to illustrate the growing corporate problem in which marketing was being used to highlight "eco-friendly" and "green" projects of little or no real impact - projects that were in fact designed to boost profits and distract consumers from less sustainable practices.

Westerveld felt that such deception could only go so far. "It will all come out in the greenwash," he wrote in the paper. The new word, which sounded like "whitewash" while also referring to laundry, soon caught on. And it is, perhaps, an indictment of slow progress on climate change mitigation that it remains in common currency 35 years later.

But what does greenwashing mean today, and what is being done to combat it?

Environment or advertising?

The hotel industry may have inspired the term, but there were bigger villains in the 1980s. Chevron, the oil giant, had just commissioned an award winning, multi-million dollar ad campaign that remains the gold standard for greenwashing among environmentalists.

The advertising showed Chevron employees protecting bears and butterflies, among other wholesome conservation projects. Yet the company was spending far more on the advertising than on the work itself, while then doing nothing to reduce the impact of its real business.

Since then, "greenwashing" has been applied to an ever widening array of businesses, including airlines, car makers, supermarkets, fast food chains, pharmaceutical giants and consumer goods manufacturers. It has also come to include social as well as environmental impact under the umbrella of ESG (Environmental, Social, and Corporate Governance).

Consumers are becoming more conscious of greenwashing

"But I do think it’s more difficult to do it now," says Baiyun Chen, a Sustainable Investing Specialist with LGT based in Zurich. "I think before you could say you were making a 'bio' product and with good marketing you could promote it and people would buy it. But now everyone is more aware of what’s behind it, and wants to know how a company really reports the facts and figures of their work."

The rise of ESG ratings, while still sometimes confusing thanks to a range of criteria and bodies, has helped to shift the balance of corporate power. The eco-minded investor or consumer can now dig into the performance and sustainability credentials of a company or fund.

Meanwhile, the reputational and real cost of being publicly shamed for bad or misleading practises has never been higher. "I'd say the cost of greenwashing is much bigger now, and it's also more difficult to hide," Chen adds. "Once the truth comes out, the consequences can be brutal."

Chen is undoubtedly right, yet the problem persists. And while ESG ratings continue to be complex and relatively unregulated, there are concerns they may even facilitate rather than combat greenwashing.

Many companies oversimplify

In February this year, a report found that the overwhelming majority of the 250 largest companies listed on the London Stock Exchange are "woefully inadequate" at fulfilling new  legal duties in the UK to report on the impact of climate change on their business activities and models.

Just days earlier in the UK, a survey, which was part of an investigation into greenwashing by the Competition and Markets Authority, found that 40% of 500 company websites that made sustainability claims about their supposedly environmentally-friendly consumer products had oversimplified or failed to substantiate them.

In January, a group of 16 global investors worth 2.4 trillion US Dollars supported a resolution that will force HSBC, Europe's biggest bank, to explain how it will reduce its billions in funding of fossil fuels alongside its pledge to go carbon neutral. The bank is far from alone in treading this kind of tightrope in the long, fraught transition towards carbon neutrality.

Last year, the EU's European Securities and Markets Authority questioned the role of ESG ratings in holding corporations to account. "The lack of clarity on the methodologies underpinning those scoring mechanisms and their diversity does not contribute to enabling investors to effectively compare investments which are marketed as sustainable, thus contributing to the risk of greenwashing," Steven Maijoor, chair of the authority, told a conference in Dublin.

The economic argument against greenwashing

A certain element within any industry will only look for ways to avoid accountability rather than to be part of a better future. Chen thinks the increasing standardisation of ratings - very much a work in progress - should close down the potential for the system to be exploited. 

But what she thinks will really shift attitudes and business plans is a growing awareness on boards that they cannot ignore the economic argument for sustainability, even if they are not guided by the moral argument.

She points to a recent investment study by Morningstar, the American financial research company. It analysed the performance of sustainable funds over ten years, comparing performance with traditional funds over the same period. It found that the majority of eco-friendly and sustainable funds had done better. "The evidence is showing that being sustainable is really financially adding value now," Chen says.

In this perhaps optimistic future, bottom lines will drive companies to become genuinely sustainable, even if government targets and the moral case were not already sufficient. When - or if - that happens, greenwashing becomes unnecessary, marketing becomes honest - and a phrase with a 35-year evolution can finally be consigned to history.