Understanding Greenwashing: Definition, Examples, and Statistics

What Is Greenwashing?

Greenwashing is a prevalent and often deceptive practice in today's marketing landscape, where companies portray a misleading image of environmental responsibility to consumers. As investors and consumers increasingly favor sustainable products, it becomes crucial to discern genuine eco-friendly initiatives from false claims. This article delves into the mechanics of greenwashing, highlighting examples and exploring how entities like the Federal Trade Commission work to protect consumer interests. Understanding greenwashing is vital for making informed financial decisions and supporting truly sustainable practices.

Understanding the Mechanics of Greenwashing

Also known as “green sheen,” greenwashing is an attempt to capitalize on the growing demand for environmentally sound products, whether that means they are more natural, healthier, free of chemicals, recyclable, or less wasteful of natural resources.

The term originated in the 1960s, when the hotel industry devised one of the most blatant examples of greenwashing. They placed notices in hotel rooms asking guests to reuse their towels to save the environment. The hotels enjoyed the benefit of lower laundry costs.

More recently, some of the world’s biggest carbon emitters, such as conventional energy companies, have attempted to rebrand themselves as champions of the environment. Products are greenwashed through a process of renaming, rebranding, or repackaging them. Greenwashed products might convey the idea that they’re more natural, wholesome, or free of chemicals than competing brands.

Companies have engaged in greenwashing via press releases and commercials touting their clean energy or pollution reduction efforts. In reality, the company may not be making a meaningful commitment to green initiatives. In short, companies that make unsubstantiated claims that their products are environmentally safe or provide some green benefit are involved in greenwashing.

The FTC's Role in Combatting Greenwashing

Of course, not all companies are involved in greenwashing. Some products are genuinely green. These products usually come in packaging that spells out the real differences in their contents from competitors’ versions.

Marketers of genuine green products specify their beneficial attributes. The website for Allbirds, for example, explains that its sneakers are made from merino wool, with laces made from recycled plastic bottles, and insoles that contain castor bean oil. Even the boxes used in shipping are made from recycled cardboard.

The U.S. Federal Trade Commission (FTC) enforces laws to ensure a competitive and fair marketplace, protecting consumers. The FTC offers guidelines on how to differentiate real green products from the greenwashed:

• Packaging and advertising should explain the product’s green claims in plain language and readable type in close proximity to the claim.
• An environmental marketing claim should specify whether it refers to the product, the packaging, or just a portion of the product or package.
• A product’s marketing claim should not overstate, directly or by implication, an environmental attribute or benefit.
• If a product claims a benefit compared with the competition, then the claim should be substantiated.

Real-World Examples of Greenwashing Practices

The FTC's website provides examples of greenwashing and guidelines for deceptive green marketing claims. Below is a list of examples of unsubstantiated claims that would be considered greenwashing.

• A plastic package containing a new shower curtain is labeled “recyclable.” It is not clear whether the package or the shower curtain is recyclable. In either case, the label is deceptive if any part of the package or its contents, other than minor components, cannot be recycled.
• An area rug is labeled “50% more recycled content than before.” In fact, the manufacturer increased the recycled content to 3% from 2%. Although technically true, the message conveys the false impression that the rug contains a significant amount of recycled fiber.
• A trash bag is labeled “recyclable.” Trash bags are not ordinarily separated from other trash at the landfill or incinerator, so they are highly unlikely to be used again for any purpose. The claim is deceptive because it asserts an environmental benefit where no meaningful benefit exists.

The Bottom Line

Environmentalism and environmental, social, and governance (ESG) criteria have become important considerations for some investors. his has prompted many businesses to become more eco-friendly by reducing waste, cutting emissions, recycling, and using renewable energy. However, some companies can instead cut corners and claim that they are doing these things to gain favor when, in reality, they are not. Greenwashing is an unethical practice that can mislead investors and the general public.