Corporations have proudly advertised their environmental achievements in sustainability reports and other marketing efforts for many years. As regulatory requirements related to Environmental, Social, and Governance (ESG) reporting increase, internal auditors are getting more involved in the details purported by company claims. One of the primary concerns internal auditors need to address is the risk of greenwashing. This article will cover the basics of ESG greenwashing risk, provide examples of greenwashing, and offer possible controls organizations could implement to mitigate the risk of greenwashing ESG objectives.
What is greenwashing?
Greenwashing is a form of deceptive marketing in which an organization makes false or misleading claims about the environmental benefits of its products, services, or business practices. Greenwashing commonly includes exaggerating, embellishing, or omitting details in their environmental claims to allow readers to draw incorrect assumptions that look better than actual results. Greenwashing is a growing problem, as consumers want to support businesses committed to sustainability, and investors seek companies that reflect their personal commitments.
Companies may feel pressured into ESG greenwashing for several reasons. Some see the increased focus by individuals on environmentally friendly products and services as a chance to increase sales, primarily if their competitors have already targeted this group. Others exaggerate their environmental impact to be seen as responsible and sustainable, especially companies that operate in industries perceived as harmful to the environment, such as the oil and gas industry. Finally, companies could greenwash to avoid regulation. Governments worldwide are increasingly passing laws and regulations to reduce environmental pollution. By making green claims, companies can make it seem like they are already taking steps to protect the environment and avoid the need for further regulation.