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The rise in societal awareness of issues such as climate change and social injustice has led to a commensurate rise in desire for companies to prove their commitment to being more ethical, more green, and more fair. However, a tension exists: in a capitalist society, companies are incentivized to maximize profit for their shareholders at all costs rather than comb their supply chain or spend capital on cutting carbon emissions. When public or investor pressure becomes too intense for companies to ignore, should they relent and lower their profit margins to benefit society or risk the reputational damage that could prove costly? A third, more sinister route has emerged: greenwashing.

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Greenwashing refers to the disingenuous and oftentimes downright deceitful approach many companies have taken to demonstrate commitment to issues such as decarbonization and biodiversity loss. While companies claim to be making huge strides towards meeting voluntary emissions reductions targets or the restoration of ecosystems, the reality is these claims are deliberately misleading or selected carefully to mask their true sustainability performance. In doing so, they can avoid public and investor pressure, while continuing unethical, unsustainable practices that allow them to maximize profits. The cost of greenwashing is paid by society, through an undermining of trust when instances are publicized and the hinderance of progress towards meeting net zero targets and broader environmental justice goals.

Examples of this behavior are abundant. Famously, fast-food chain McDonald’s switched to paper straws in 2019 in an apparent effort to reduce plastic waste; however, the new “eco-friendly” straws weren’t recyclable while the old plastic ones were. The decision led to more waste, not less. Some companies, unable to comply with external standards, have simply created their own, claiming compliance with an alternative, watered-down version of industry standards. Other companies deliberately seek out weak verifications and labels that appear impressive while being insubstantial, leading to situations where companies claiming adherence to an industry environmental standard exhibit paradoxically higher toxic emissions than companies without the label. The investment industry can be particularly culpable. Famously, former BlackRock Chief Investment Officer of Sustainable Investing Tariq Fancy described the entire sustainable investing industry as a “dangerous placebo” in a blistering set of essays.

We do, however, need to be careful not to use the “greenwashing” label where inappropriate. In 2023, activist Greta Thunberg publicly pulled out of an appearance at the Edinburgh Book Festival, citing the links of the festival’s sponsor, investment company Baillie Gifford, to the fossil fuel industry as an example of greenwashing. In this instance, the use of the term greenwashing could be considered unfair. Baillie Gifford’s investment in fossil fuel-related industries is just 2 percent compared with an industry average of 11 percent, and 5 percent of their investments are in companies whose sole business is clean energy solutions. Baillie Gifford may not be squeaky clean, but if owning any investments with links to the fossil fuel industry is enough to be labeled as a problem, there will be very few investment managers left with whom to trust our money.

Greenwashing remains a persistent, global challenge. Prevention of greenwashing, and calling attention to clear instances of it, are crucial for preserving consumer trust and ensuring that genuine sustainability efforts are rewarded. As consumers, we need to be cautious about believing the claims companies make about their progress towards sustainability and support those that genuinely prioritize environmental responsibility over marketing ploys. Ultimately, a collective effort to unmask greenwashing can help us move toward a more sustainable future.

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Organization Science, Vol. 27, No. 2 (March–April 2016), pp. 483–504
Organization Science, Vol. 23, No. 1 (January–February 2012), pp. 155–176
The Academy of Management Journal, Vol. 48, No. 4 (August 2005), pp. 582–593
Academy of Management