As consumer appetite for greener products and services grows, an authentic, actionable and communicable transition strategy has never been more crucial, writes Andrew Coburn
Brands making sweeping environmental claims have found themselves under the regulatory and legal spotlight. Following scrutiny of sustainability messaging from a number of fashion brands, the UK’s Competition and Markets Authority (CMA) has expanded its reach to Fast Moving Consumer Goods (FMCG), promising to examine a wide range of products both in store and online.
The ongoing investigation is exploring the environmental claims made by companies producing everyday essential items to ensure that consumers are not being misled by broad and inaccurate eco-statements, and benefit from clear, accurate and comparable information to guide their purchasing decisions. The Advertising Standards Authority also has greenwashing in its sights taking on more than 700 FMCG cases linked to misleading environmental claims in the three years to 2023
Further afield, US courts have already heard greenwashing cases against several high-profile FMCG brands. These cases are only the tip of the climate-litigation iceberg; the Global Climate Litigation Report, published last year by the UN Environmental Programme (UNEP), highlighted the rise in the number of climate change litigation cases, from 884 in 2017 to 2,180 in 2022. The types of cases are broadening too, with some litigants seeking to hold corporations liable for damage to the environment.
Momentum to clean up greenwashing is building
Momentum to empower consumers in the transition to the net-zero and nature-positive economies is building, and with good reason. In 2021, a European Commission screening exercise found that 42 percent of websites contained false environmental claims and that 59 per cent of traders reviewed had not provided easily accessible evidence to support its claim.
Upping its efforts to address the problem, the European Parliament approved the Green Claims Directive and entered the Empowering Consumers for the Green Transition through Better Protection against Unfair Practices and Better Information into force in March this year. Combined, they require companies to substantiate environmental claims with science-led evidence and bring the threat of financial penalties for failure to comply.
Where there is risk, there is also opportunity and FMCG businesses will be keen to secure a slice of the growing market for more sustainable products and services. Awareness of the climate and nature crises is certainly shaping what consumers are choosing to buy and what they are prepared to pay for their purchases. A new PwC survey finds that some consumers are willing to pay 9.7 percent more, on average, for sustainably-produced or sourced goods, despite cost-of-living and inflation concerns. In fact, the preference for businesses to be seen as less environmentally damaging is forecast to be an enduring trend and one that can lead to bottom-line growth.
Consumers are flexing purchasing power
Businesses that don’t authentically prioritise sustainability will see customers flex their purchasing power in support of companies that better align with their sustainability principles. In fact, companies that fail to prioritise sustainability and operate without integrity risk losing their social licence to operate.
While the consequences of greenwashing are evident, the antidote is not greenhushing. Keeping quiet about net-zero and nature-positive efforts for fear of getting it wrong brings its own risks. Being seen to hide information invites mistrust from investors and consumers, and could result in loss of brand value. It also risks consequences that affect the business ecosystem, potentially signalling to government that a sustainable regulatory and investment landscape is not required for companies to flourish.
In short, the writing is on the wall for greenwashing and greenhushing. Voluntary and mandatory disclosures, globally, require companies to identify their climate-and-nature-related dependencies, impacts, risks and opportunities. These include the EU’s Corporate Sustainability Reporting Directive (CSRD), which asks businesses in scope to consider climate and nature in one framework; assess material risks across the entire value chain; and take a double-materiality approach that requires addressing the environmental and social risks caused by business operations as well as the climate-and-nature-related risks to the bottom line. This shift in corporate attitudes to support responsible business conduct has been further strengthened by the recent European Parliament vote to adopt the Corporate Sustainability Due Diligence Directive (CSDDD) in April this year. The message is clear – business must include sustainability in strategic decision-making.
Business must understand interactions with nature
Many organisations are now familiar with disclosing climate-related information but nature, while inseparable from climate, presents additional complexity. The nature space brings ambiguity and uncertainty to business because the ways to best manage the associated challenges are still nascent and must be carefully considered at the corporate level.
The consequences of getting this wrong can be costly. The BloombergNEF report ‘When the bee stings: counting the costs of nature-related risks’ (2023) names ten companies, across a range of sectors, that “incurred financial losses as a result of poorly handled interactions with nature” including billions of dollars in legal liabilities, falls in share price, loss of brand value and fines. These examples demonstrate the financial importance of a business understanding and managing its impacts and dependencies on the natural world, and the need to integrate climate-and-nature-related risks and opportunities into financial reporting.
A credible and rigorous transition plan that qualifies and quantifies on a wide range of environmental, social and governance topics will provide an authentic, actionable and communicable business strategy that will help a business move towards profitable sustainability. At the recent Risilience-hosted Sustainable Futures 2024 conference, we heard from a number of sustainability leaders from global brands making the case for positioning sustainability at the centre of strategic business decision-making.
Reduce the risk of greenwashing
The most powerful way to communicate sustainability credentials is through carefully designed climate-and-nature strategies and disclosures that combine climate-and-nature analytics, data, technology and information flows to enable a business to gain insights that inform effective strategic decision-making, which I call Sustainability Intelligence. There are practical steps that all companies can take now to move the business forward positively while reducing the risk of greenwashing:
- Avoid hyperbole and understand what you are saying – don’t use hyperbole in your claims and in your targets because language and terminology matter. Engage with various teams across the company, such as legal and marketing, to ensure that what is said publicly is accurate.
- Publish accurate and transparent data to support and evidence the claims being made.
- Don’t act like you have all the answers – we all know there are gaps in the data so be open about the scale of the challenge and be clear on your intent as a company.
- Build meaningful relationships with integrity – developing an honest, transparent and communicable strategy that is rooted in accuracy will engender mutual trust with all stakeholders.
- Don’t shy away from outlining your principles –advocate for responsible, sustainable business both internally within your company with the teams that you’re working with on a day-to-day basis, but also externally with governments. If businesses go quiet on their climate pledges, government is given a green light to use that silence to justify not building a sustainable, stable policy landscape. Use your advocacy to influence decision-makers to build that landscape for investment.
As purchasing power in the FMCG sector continues to support more sustainable products, the future success of companies vying for market share is in the balance. Overclaiming green credentials runs the risk of falling foul of regulatory standards but keeping quiet invites mistrust and limits effective stakeholder engagement. Ultimately, the more aligned a company is to net zero and nature positive, the lower its risk of greenwashing or the need for greenhushing.
