Spotlight on ‘Green Washing’ and ‘Social washing’ and it’s impact on CSRD
21 Dec 2023
In this blog we explore ‘green washing’ and ‘social washing’ and implications for companies as they get ready to have their sustainability data audited through the CSRD.
The term ‘greenwashing’ is believed to have originated in the 1980s, when an environmentalist, Jay Westerveld used the term in an essay titled ‘Caring for the Earth and Strategy for Sustainable Living’, and this was published in a hotel industry magazine. In the essay, he used the term to describe the practice of hotels claiming to be environmentally friendly by encouraging guests to reuse towels while simultaneously engaging in environmentally harmful practices. The concept of gained more prominence in the 1990s as the environmental awareness increased and has become a widely recognized term that we use to describe instances where businesses exaggerate or falsely claim their commitment to environmental sustainability for marketing or public relations purposes. Since then it has got much more complex.
We don't believe that companies actually set out to make false claims. It is just a reality that the world of sustainability, laws, requirements and supply chain complexities make it difficult to ensure that you have covered every aspect of knowing what sustainability practices go into producing your products or running your services, etc. So today, companies ultimately find themselves in a risk to meet sustainability commitments that their country or their industry have signed up to a race to have the most sustainable product, to win more business, a race to stay relevant, and a race to have the best sustainability report. And so on. And it's the same, of course, with social washing.
Examples of Country or industry legislation making this more complex.
In the EU space on regulations and with regards to addressing misleading or deceptive claims related to environmental sustainability, these regulations, of which there are many and aim to ensure that the consumers are provided with accurate information about the environmental performance of products and services. So if we think about the EU Directive 2005 on fair commercial practices, this directive sets out rules concerning unfair business to consumer commercial practices. So ultimately about misleading environmental claims and being considered unfair with regards to commercial practices under this directive, then the EU Regulation number 1007 in 2011 on textile fiber names and related labeling and marking of the fiber composition of textile products. Now this regulation establishes rules for labeling and marking of textile products, including requirements related to the environmental claims.
Today we have seen a strong emergence of companies to get certification of their sustainability claims on materials. For example, take Textile Exchange Simona, which you lead for us at Intertek for example, where we have a number of schemes looking at recycled and organic content, ensuring from recycler through to the retailer or brand, a chain of custody can actually be proved.
This certainly makes it transparent for the buyer to know where the material has originated from, but also that the brand has done it's due diligence and ultimately its helping the brand map, its supply chain and be more connected to understanding the environmental and social risks associated with production.
If we take another industry example, the EU regulation on the provision of food information to consumers. Again, different industry but same principle. While primarily focusing on food information, this regulation includes provisions related to the use of environmental and ethical claims on food packaging.
If we look at again the EU regulation on the monitoring and reporting of greenhouse gas emissions, this pertains to the monitoring and reporting of greenhouse gas emissions, but does not directly address sustainable claims.
However, it reflects the EU's commitment to addressing the topics and you know, just one that came up this year and went further again in September, with the EU saying it will ban sweeping environmental claims such as climate neutral or eco by 2026 unless companies can prove the claim is accurate. And as you know, ultimately the the EU bloc cracks down on greenwashing of consumer goods.
So the rules will also outline claims based on emissions, offsetting often used as the basis for assertions that products are carbon neutral or have reduced environmental impact, along with green labels that are not from approved sustainability claims. Now the change due to come into force by 2026. Which of course is not that far away would make the EU the toughest region.
In the world, in terms of its approach to green claims made to the public, and obviously it still has to go through the EU Parliament and the Member States, but it's quite rare that there is a refusal to approve, on the other hand, there isn't a specific set of laws or regulations directly addressing social washing in the same way that some regulations address greenwashing and you know the term. Social washing generally refers to a company's attempt to present socially responsible image while potentially neglecting or contradicting those claims in their actual practices.
And this is one of the reasons that both CSRD and CSDDD, the Corporate Sustainability due Diligence Directive are so key in helping to push forward further visibility of what companies are doing to address human rights and social compliance matters.
There will always be media attention around finding ultimately story related to a sustainability statements shortcoming and due to the sheer challenge in front of companies to address a vast array of sustainability matters associated with their business and their supply chain, it's still very much a journey we're all on and, but let's review what CSRD and CSDDD will help with. CSRD plays a crucial role as it involves companies being transparent and accountable about their environmental, social and governance practices.
It requires companies to provide detailed information about their sustainability initiatives and environmental impact and social responsibility programs, both internally and with their value chain. So ultimately, increased transparency is going to help the stakeholder, including the consumers, investors, regulators, etcetera, to scrutinize and verify the accuracy of the companies claims. Also, having a standardized reporting framework makes it more difficult for companies to manipulate or exaggerate their sustainability achievements.
The disclosure of specific metrics and KPIs related to these performance will force them to have to show that they have got good, you know, programs in place to gather this or they don't. And detailed metrics enable stakeholders to assess the progress over time and compare its performance against industry benchmarks, for example.
Importantly, let's not forget that CSRD will involve third party verification or assurance of these reports.
So independent audits by external entities helps ensure the accuracy and reliability of the disclosures. And if we know I put the legal implications plans on that non compliance can be flagged through CSRD leading to legal consequences and of course reputational damage for companies engaged in any exaggerating or green social washing of these statements they make.
We saw last month France was the first country to issue their final transposition of the CSRD requirements for fronts and there it states the penalties associated with non publication. For example, you will be liable to a fine of a few €1000 plus an injunction under the fine by a third party, and that they're also is if you try to avoid the audit a much more hefty €30,000, fine plus two years imprisonment for obstructing an audit liable to up to 75,000 fine and five years imprisonment. So these are huge impacts for a company.
It's amazing how these laws are progressing. And this month, we also saw, saw the EU lawmakers reach a deal on the new environmental human rights sustainability due diligence law. What we've been calling us the CSDDD so they set out obligations for companies to identify, assess, prevent, of course, mitigate and then they have to address and remedy impacts on people and planet. And this can range from child labor and slavery to pollution and emissions. It would be forestation, damage to ecosystems in the companies upstream supply chain and also some downstream activities such as the distribution and recycling.
The new rules also include requirements for companies to engage with those affected by their business activities with obligations including the introduction of a complaints mechanism with a 5 year period for claims by those concerned by adverse impacts, as well as communication of due diligence policies and monitoring of the policies effectiveness.
Additionally the new agreed directive also sets up a system of supervision and sanctions with Member States setting up supervisory authorities to monitor compliance with the obligations and to then impose penalties, including a naming and shaming and fines, with as much as they're stating up to 5% of the annual global revenue. So the impact is significant. When you consider the legal impact, potential imprisonment, and of course the reputational damage, but the whole point is about helping companies work on a journey to compliance and improvement. So we need to consider this as a positive attitude.
We need to look at it as a positive movement and see how this helps industries collectively work together on sustainability change.
