The ESG Review: The regulation of greenwashing

It was always fairly likely that despite the enormity of the topics tackled by COP26, greenwashing would also feature prominently.

The continual rise in concern about brands and businesses that use misleading claims and overly ‘floral’ language in outlining environmental credentials has become tangled with the growing need for ESG reporting standards and consistent definitions in investment circles.

Given the need for eye-watering levels of investment required over the coming decades to try to address the worst of global warming and the public demands for pollutive industries to take action to reduce emissions more aggressively, the question of how genuine corporate intentions and actions were was never going to be far away in Glasgow. Hence greenwashing hit the headlines.

The most significant news was around the regulatory cadence towards consistent scrutiny of greenwashing activity in the investment industry, with the UK’s Financial Conduct Authority announcing that it would soon begin consulting on new rules to be introduced next spring, following moves by the EU and Switzerland.

What the FCA is getting at is that investment funds that have been badged as sustainable should use “concise and accessible” language for general consumers, alongside more detailed disclosures for institutional investors to make their decisions with. These ground rules may have investment fairness in mind, but surely set the tone for how companies make and substantiate claims about environmental credentials to all audiences and for all purposes.

Expect stories about greenwashing attempts and the need to curtail them to run and run in advance of the regulation coming in. The BBC published a handy guide to spotting it earlier this week. The Times looked at a new UN watchdog that would name and shame offenders. Even the nuclear sector - seldom accused of greenwashing in the past - appeared in a CNBC piece on the EU and challenges around defining clean energy.

Ultimately, the truth will out, as it tends to with any claims that play fast and loose with it. Bloomberg looked at fintech start-ups that are using data to chart and quantify emissions reduction, and that could in time “close the many greenwashing loopholes”.

But whatever technology brings to the party, the language used by businesses and brands will be held up to increased scrutiny. All will be made clear on what concise and accessible will mean in practice in due course.

What will this likely mean for the words that communicators use? Will superlatives be stymied? Will lawyers have to vet every vowel and consonant? In the interests of supreme brevity and simplicity on all things green, will we end up with language that’s nothing but beige?

Perhaps, in places. The likelihood is that it will place greater responsibility on communicators to be accurate but also convey significance, with the use of emotional words but only where they add context fairly and accurately. We’ll have to dig deeper, and earn the trust of legal teams as we do so.

A cynic might say we’ll have to drop anything that’s lazy and practically pointless, because media likely won’t use those words anyway and the intended audience will take them with a huge pinch of salt, at best. And we’ll have to make copy succinct rather than overblown.

For communications, greenwashing regulation has the potential to be a very positive step forward.

The ESG News Review is written by Steve Earl, a Partner at BOLDT.

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