What is Greenwashing?

Why It Matters

Greenwashing isn't just a PR problem — it's a systemic threat to the credibility of the entire sustainability movement. When companies make misleading environmental claims, they erode public trust, distort markets, disadvantage competitors who are genuinely investing in sustainability, and ultimately slow the transition to a more sustainable economy.

The scale of the problem is significant. A 2021 European Commission screening found that over 40% of green claims made online were exaggerated, deceptive, or false. The phenomenon ranges from minor exaggerations in consumer marketing to serious misrepresentations in investor communications and sustainability reports.

For the companies doing it — whether deliberately or through carelessness — the risks are escalating rapidly. Regulatory enforcement is ramping up across jurisdictions. Litigation is increasing, with lawsuits targeting everything from misleading product labels to inflated ESG fund marketing. Reputational damage from exposed greenwashing can wipe out years of brand-building. And institutional investors, once willing to take sustainability claims at face value, are developing increasingly sophisticated methods for identifying discrepancies between what companies say and what they do.

The financial sector has its own version of the problem. "Greenwashing" in ESG investing — funds labeled as sustainable that hold fossil fuel stocks, or ESG ratings that give high marks to companies with questionable environmental records — has drawn regulatory attention from the SEC, the European Securities and Markets Authority (ESMA), and national financial regulators.

How It Works

The Taxonomy of Greenwashing

Environmental marketing researcher Jay Westerveld coined the term "greenwashing" in 1986, describing hotels that asked guests to reuse towels to "save the environment" while doing little to reduce their actual environmental footprint. The concept has evolved considerably since then.

Vague claims remain the most common form. Terms like "eco-friendly," "natural," "green," "clean," and "sustainable" appear on products and in corporate communications without specific definitions, measurements, or evidence. These claims exploit consumer desire to make responsible choices while providing no verifiable substance.

Hidden trade-offs present a narrow environmental benefit while ignoring the bigger picture. A product might be marketed as "made from recycled materials" while its manufacturing process is energy-intensive and highly polluting. An electric vehicle manufacturer might emphasize zero tailpipe emissions while sourcing batteries from supply chains with significant human rights and environmental concerns.

False labels and certifications involve using misleading symbols, logos, or endorsements that create the impression of third-party verification where none exists. Some companies create their own "eco" labels that resemble legitimate certifications.

Irrelevant claims highlight environmental attributes that are legally required or universally true. Advertising a product as "CFC-free" decades after CFCs were banned is a classic example.

Corporate-level greenwashing has become particularly concerning. Companies set ambitious long-term targets (net-zero by 2050) without credible transition plans, interim targets, or capital allocation strategies to achieve them. They publish glossy sustainability reports highlighting cherry-picked metrics while omitting unfavorable data. They join voluntary initiatives and coalitions to signal commitment without making material changes to their business models.

Financial greenwashing involves misrepresenting the sustainability characteristics of financial products. An ESG fund that uses loose screening criteria and holds companies with significant environmental liabilities, while marketing itself as a sustainable investment option, is engaging in financial greenwashing.

Why Companies Greenwash

The motivations are predictable. Consumer demand for sustainable products is growing rapidly — studies consistently show that consumers are willing to pay a premium for genuinely sustainable goods. Investor demand for ESG performance is directing trillions of dollars. Regulatory pressure is increasing. In this environment, appearing sustainable has become financially valuable, creating incentives for companies to overstate their credentials.

Sometimes greenwashing is deliberate and cynical. More often, it's the result of poor internal coordination (marketing teams making claims that sustainability teams can't substantiate), genuine complexity (sustainability is technically complicated, and oversimplification is tempting), competitive pressure (if your competitors are making bold green claims, the pressure to match them is intense), or aspiration outrunning execution (leaders genuinely intend to deliver on ambitious targets but haven't built the capabilities to do so).

None of these explanations excuse the practice. But understanding the dynamics helps in designing systems — both internal and regulatory — to prevent it.

Key Components of Anti-Greenwashing Compliance

Substantiation before communication. Every environmental claim should be backed by specific data, methodology, and evidence before it's published. This requires coordination between sustainability, legal, marketing, and communications teams.

Specificity and context. Replace vague claims with specific, measurable ones. Instead of "eco-friendly packaging," say "packaging made from 80% post-consumer recycled content, reducing virgin plastic use by X tons annually." Provide context for what the claim means in absolute terms, not just relative improvements.

Transparency about limitations. Credible sustainability communication acknowledges trade-offs, challenges, and areas where progress is insufficient. Perfect is the enemy of honest.

Third-party verification. Use recognized certifications, standards, and assurance providers. First-party claims carry far less credibility than independently verified ones.

Target credibility. Ambitious targets must be accompanied by credible plans — including interim milestones, capital allocation, technology pathways, and governance structures for accountability.

Council Fire's Perspective

We take greenwashing seriously because it undermines the work of every organization genuinely investing in sustainability. When a competitor makes unsubstantiated claims, it devalues the real investments our clients are making. When an ESG fund misrepresents its holdings, it erodes trust in sustainable finance. When a company sets a net-zero target without a transition plan, it gives cover to inaction.

Our approach is straightforward: help clients build sustainability programs that are substantive enough that their communications can be specific, verified, and honest. The best defense against greenwashing accusations is having real performance to talk about.

Council Fire helps organizations audit their environmental claims for accuracy and regulatory compliance, develop substantiation processes for sustainability marketing, build credible transition plans that support ambitious but honest target-setting, and prepare for emerging green claims regulations. We'd rather help you communicate less and deliver more than the reverse.

The Regulatory Tide

The regulatory environment around greenwashing is tightening rapidly. The EU's Green Claims Directive will require pre-substantiation and third-party verification of environmental claims. The EU's Empowering Consumers Directive bans generic environmental claims without recognized certification. The SEC has brought enforcement actions against misleading ESG fund marketing. National advertising regulators across Europe, the UK, and Australia are increasing scrutiny of green claims.

For companies, the message is clear: the era of vague, unsubstantiated sustainability marketing is ending. What replaces it should be specific, honest, and backed by evidence. That's not just a legal requirement — it's the foundation of genuine trust with stakeholders who are paying closer attention than ever.