Michigan Ross Professor Addresses Why Greenwashing Remains as Important as Ever
Tom Lyon, Dow Professor of Sustainable Science, Technology, and Commerce, and faculty director of the Erb Institute for Global Sustainable Enterprise, along with Wren Montgomery, professor of sustainability and general management at Ivey Business School, Julian Barg, PhD candidate at Ivey Business School, and Matthew Lynch, associate director of the Ivey Centre for Building Sustainable Value, recently released research outlining the evolution of corporate greenwashing. The research has been published in a report titled “Greenwashing 3.0.”
In his previous research, Lyon uses economic analysis to understand the corporate environmental strategy and how it is shaped by emerging government regulations, nongovernmental organizations, and consumer demands. In this new report, Lyon and Montgomery explain the motives driving more companies to practice greenwashing, the tactics used to mislead consumers, and approaches for addressing the issue.
What is Greenwashing?
The term “greenwashing” describes vague or misleading claims that companies make to appear as environmentally conscious or friendly. With society facing growing environmental crises, such as climate change and biodiversity loss, many corporations have promised to take action to create a more sustainable future. Such promises include committing to net-zero greenhouse gas emissions. Unfortunately, these are often empty promises that serve as a façade while businesses carry on with misleading, wasteful practices.
Lyon and Montgomery explain greenwashing as an evolving strategy that companies use. From misleading consumer-facing ads or product packaging to targeted messages to various stakeholders, there is now a new model of greenwashing where corporations make environmental commitments that occur in the future rather than the present. The influence of investors and financial markets is also emerging as a catalyst in the fight against greenwashing as investors make capital allocation decisions based on businesses’ climate performance.
“Climate risk is investment risk, and investors are looking for firms that have a solid plan to address their environmental, social, and governance exposure going forward,” said Montgomery. “Yet many firms are now engaging in a new form of greenwashing, which we term ‘futurewashing,’ and are making misleading claims about their climate strategies. Trying to fool your investors is a very bad long-term corporate strategy.”
According to the report, as of May 2023, more than 8,300 businesses globally had made commitments to net zero under the United Nations’ Race to Zero Campaign. While on the surface, these numbers seem encouraging, Lyon said there is much ambiguity around how seriously these businesses are working towards meeting their net-zero targets.
“Just a few years ago, it seemed that greenwashing was in decline,” Lyon said. “But the enormous surge of greenwashing in the last two years shows that we need concerted effort by regulators, investors, customers, and the managers of authentically green firms to defeat greenwashing.”