What is greenwashing?
Greenwashing is the act of projecting the products of a company as being environmentally conscious when they are not so in reality. Companies use greenwashing to attract customers who prefer products that do not cause any environmental damage. They make false claims about how their products do not cause harm to the ecosystem and are sustainable.
Firms would usually spend a lot of time and money advertising themselves as an environmentally conscious brand. However, in reality, the firm does not spend that much amount in producing environmentally-conscious goods and removing negative externalities like pollution and ecological destruction coming from their business.
As consumers are becoming more aware of the ill effects of consumer goods on the environment, they are moving towards environmentally conscious products. Many producers seek to take advantage of this by giving a false sense of satisfaction to consumers about the benefits of their products.
This allows firms to overproduce than what the socially optimal level of production is in the economy. When the consumer demand shifted to environmentally friendly products, the producers realised that they would not be able to sell those products which are cheaper to produce and are not environmentally friendly. Instead of looking for safer options, they decided to exploit the current production process by marketing it as environmentally friendly to bring a positive sentiment in the market about the company.
Specific greener alternatives for production might be costlier for companies as they require permits from the government, more expensive equipment like solar panels or costlier inputs to work with. Thus, companies abandon these alternatives by investing money solely in branding and advertising rather than going for these greener substitutes.
The term ‘greenwashing’ was coined in the year 1986 by environmentalist Jay Westerveld. The ideology leading towards greenwashing started when Jay Westerveld saw a note by a resort on a beach asking the customers to pick up their towels on their own. The note urged consumers to help the resort save the environment by picking up towels and reusing them.
However, at the same time, the resort chain was expanding and was commercialising even more. This was not perceived as a very environmentally conscious move. Thus, Westerveld believed that the resort was showing false concerns about the ocean and about the conservation of the coral reefs.
This later progressed to more obvious forms of greenwashing when Westinghouse nuclear plants claimed that they could produce cheaper electricity than other coal plants with far less environmental damage. These marketing strategies came long after the nuclear blasts happened across the globe. By that time, people were aware of the impacts of nuclear energy and a large amount of nuclear waste that it comes with.
TerraChoice, an environmental marketing agency, has given the seven sins of greenwashing which are used to screen various marketing campaigns by companies. These include:
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Companies need not project themselves as completely green organisations. They should maintain a certain degree of transparency with respect to the environmental benefits of using their products.
Giving a falsely glorified image about the environmental consciousness of a company can lead to overproduction in the economy. When companies provide legitimate information, they may be taxed for causing environmental damage which is bound to happen up to an extent. However, making false claims and providing no proof over certain benefits may never allow for optimal welfare to be achieved in the economy.
When companies greenwash their products, it defeats various movements and initiatives taken across the globe to ensure that ecological sustainability is maintained. Therefore, companies must invest more in actually adopting greener initiatives rather than just marketing themselves as greener companies.
What Is Corporate Social Responsibility (CSR)? Corporate social responsibility (CSR) is a form of global private business self-regulation. Simply put, CSR is the way to incorporate social and environmental concerns into the company’s planning and operations. Breaking this down even further, CSR is any effort that seeks to improve the company's social and environmental impact via ethical and moral actions. CSR includes several practices that are put in place by the companies to uphold the principles of sustainable development. These principles suggest that the company is expected to be economically feasible, have a positive impact on society, and respect and preserve the environment. CSR is often undertaken as a key brand-building drive. In modern times, it is embedded as a key component of advertisement and marketing initiatives. Undertaking social activities and promoting the same plays a crucial role in brand awareness. A Harvard Business Review reports states that the main goal of CSR is “to align a company’s social and environmental activities with its business purpose and values.” How Do We Map the Evolution Of CSR? CSR models have existed since time immemorial. For instance, Andrew Carnegie challenged the rich to support social causes way back in the 1800s. In the early 1900s, Frederick Goff founded the Cleveland Foundation to exclusively give power to the community by accepting gifts from multiple donors rather than one fortune. They could together assess needs and respond to the community. As a concept, the evolution of CSR dates back to the 1950’s. This was the period when the initial stirs of social conscience amid management theorists and practitioners were acknowledged and felt. For instance, Keith Davis has been known to initiate CSR discussions and the need for businesses to engage in socially responsible behaviour. Some experts suggest that CSR was taken seriously in 1970s, as a concept. This was the period when big businesses and their minions were accused of several misdemeanors that hampered environment and society as a whole. The 1990s saw the initial acceptance of CSR. By the early 2000s, CSR had become an important strategy for many organizations. Multi-million-dollar companies like Wells Fargo, Coca-Cola, Walt Disney, and Pfizer were one of the firsts that endorsed this concept into their businesses processes, during this period. What are Some of the Common CSR Initiatives? As deciphered, the main purpose of CSR is to give back to the community, provide positive social value and take part in philanthropic causes. Contemporary businesses of today are progressively turning to CSR to develop a positive brand around their company and make a difference. Below are a few ways in which businesses choose to participate in CSR- What Is the Importance Of CSR? In a nutshell, what the public thinks of a company and its brand is critical to its success. Customers tend to be associated more with the products and offerings of the company with key CSR initiatives, thereby strengthening brand loyalty. CSR is not a mandated practice in most countries of the world. However, it is extremely important as something extra that companies do to improve their local and global communities. CSR programs believe that businesses have the potential to make the world a much better place. At the very least, CSR programs can reduce the negative social and environmental footprint of the company in the world. CSR does influence the employees, stakeholders and consumers when zeroing in a brand or company. According to UNIDO, a judiciously implemented CSR concept can bring along a variety of competitive advantages- Enhanced access to capital and markets. Increased sales and profits. Operational cost savings. Improved productivity and quality. Efficient human resource base. Improved brand image and reputation. Enhanced customer loyalty. Better decision-making ability Streamlined risk management processes. Furthermore, sustainable development can help a business financially. Consider this- how huge could the impact on production costs be if a business used less packaging and less energy- a lot! How Does CSR Help the Parties Involved in Businesses? CSR impacts companies, nonprofits, and employees alike. Let us cast an eye on how CSR benefits the different parties involved in the business- Are There Any Risks Associated with CSR? Business experts opine that in addition to several celebrated possible benefits, CSR also creates risk. Some of them are highlighted below- Insincere CSR like greenwashing can damage a firm’s reputation. CSR initiatives can often turn out to be costly affairs. Businesses can indulge their interests with shareholders’ profits, an agency cost. Bureaucracy created by CSR can weigh down Business operations. CSR can offend some consumers. For instance, after Chiquita avoided Canadian oil, many Canadians boycotted Chiquita’s products. Governments can respond to self-regulation of CSR by levying tight regulations. Do You Know These Interesting Facts About CSR? ALSO READ: How ESG Consideration Rings Bell In Assessing The Quality of A Mining Stock? Are You Aware of These Prominent Examples Of CSR? With $100 million in funding for the period 2010 to 2015, the large mid-western bank PNC’s Grow Up Great initiative provides school-readiness resources to underserved populations where the bank operates. In Mexico, Bimbo is the leading bakery. It has a workforce of ~ 100,000 with a likewise number of retailers. Its CSR programs focus on social welfare: free education facilities to support employees’ complete high school, additional financial assistance and medical care for dependents’. Ambuja Cements is an Indian subsidiary of the Swiss conglomerate Holcim. Its CSR initiatives encompass social welfare efforts and environmental conservation and protection programs- improved water management, plant-level environmental sustainability programs. IKEA’s People & Planet initiative calls for the entire supply chain to be 100% sustainable by 2020. Starbucks has achieved several CSR milestones- reaching 99% of ethically sourced coffee, creating a global network of farmers, pioneering green building across stores, hours of community service, creating a revolutionary college program for its partner/employees.
What are Green Funds? Green funds are a form of mutual funds that invest in companies offering their product and services to build a prosperous, low-carbon global economy. These funds invest in companies that do business in the right way, safeguarding the future of their employees, community, and investors. Investing in green funds also promotes companies with moral values, ideas, and beliefs concerning environment protection, thus safeguarding the future. What do we mean by a Green Company? The companies that focus on improving the lives of their community, employees, customers, and environment by adopting and implementing principles targeting preservation of the environment are known as “Green Companies”. There are three prime principles of a green company: Environment, Social, & Governance, commonly known as ESG. These principles act as a significant pillar in sustainable development. What has prompted increased adoption of ESG of late? Financial specialists are progressively incorporating ESG in their investment cycle, which requests extended consideration regarding environmental, social, and governance-related issues. Investors provide extra weightage to an organisation’s ethics, morals, and values concerning environment protection rather than giving importance to their fiscal summaries. The primary reason for increased adoption is the growing interest of the public and corporates around environmental sustainability. Kalkine Image ALSO READ: How is ESG impacting mining companies? ESG Aspects of Green Funds The first aspect of green funds is the environmental aspect which focuses on minimising the environmental impacts while conserving natural resources. The companies set standard procedures and policies to check on their hazardous material handling, the main culprit to affect the environment. The second aspect, social, focuses on the employees' working standards, corporate social responsibilities, the relation among the stakeholders, quality of product or service offered, and workers' safety concerns. The third aspect is governance which deals with the authority factor towards policymaking, roles and responsibilities of different stakeholders of the organisation, including top-level management and shareholders. Investors can screen good companies following ethical business practices as per their investment interest. Types of Green Funds Some of the major sectors where green funds investment can be made are illustrated below. However, there may be other sectors as well where such investments are visible. Kalkine Image Performance of Green Funds: Green funds were first coming into existence in 2007. A significant surge in demand for green funds is noticed in recent years by the investors who desire to hedge more returns and equally become socially responsible on the other front. A total of 479 green bonds were floated worldwide in the year 2019. The year 2020 was also a bumper year for green funds as new standards were set in Europe. France, the US, China, and Germany were the key players to issue green bonds accumulating approximately 40 per cent of the world's total green bonds. China alone issued $15.4 billion of green bonds. Sweden was considered as the hot spot for green bonds with a hold of 78 new issuances. Go Green and avoid Greenwashing The lack of global standards and policies regarding a green company benchmarking is leading confusion among investors. A company’s claim of being green may not be agreed likewise by others. A company may be green in one respect but not in all aspects. Sometimes companies mislead the investors for being green, claiming their products and services are environmentally sound. This process of misleading is known as “Greenwashing”. It is a type of flimsy claim by a company to consumers of being eco-friendly. Investors must investigate these types of hoax to avoid risk in their investment.