VIEWPOINTS

Regulating Greenwashing

by |January 17, 2023

Sustainability sells. Consumers are attracted to products claiming to feature lower environmental impacts. Sometimes the advertising is misleading; the term for deceptive environmental advertising is “greenwashing.” Perhaps the classic case of greenwashing was Volkswagen, which at one point advertised their diesel autos as “green” while setting an elaborate software ruse that deceived environmental testing devices. As Clifford Atiyeh reported in Car and Driver magazine back in 2019:

“Volkswagen installed emissions software on more than a half-million diesel cars in the U.S.—and roughly 10.5 million more worldwide—that allows them to sense the unique parameters of an emissions drive cycle set by the Environmental Protection Agency. According to the EPA and the California Air Resources Board, which were tipped off by researchers in 2014, these so-called “defeat devices” detect steering, throttle, and other inputs used in the test to switch between two distinct operating modes. In the test mode, the cars are fully compliant with all federal emissions levels. But when driving normally, the computer switches to a separate mode—significantly changing the fuel pressure, injection timing, exhaust-gas recirculation…While this mode likely delivers higher mileage and power, it also permits heavier nitrogen-oxide emissions (NOx)—a smog-forming pollutant linked to lung cancer—up to 40 times higher than the federal limit.”

Most examples of greenwashing are far less elaborate and not quite as blatantly illegal. The financial damage of this greenwashing scandal cost VW over $20 billion. That number does not include the reputational damage and lost stock market value caused by the deception. It resulted in an enormous turnover of VW management and nearly destroyed the company. Most examples of greenwashing are more prosaic. They might include claims that a sweater is made of recycled materials when it is not, or perhaps the material was recycled, but its reused material had been dyed in such a way that it can no longer be recycled, or its remanufacturing released toxins into the environment.

A problem with countering greenwashing is that the definition of environmental impact is not always very precise. While the Federal Trade Commission has long issued green guidelines to advise companies on good green advertising practices, it is now working on regulations setting mandatory rules on environmental marketing. According to the Wall Street Journal’s Dieter Holger:

“Officials are seeking public comment until Feb. 21 on nonbinding guidelines for how companies can make environmental marketing claims without breaching federal laws prohibiting deceptive advertising. The FTC is asking if it should consider codifying some of the guidelines into binding rules that would empower officials to more easily seek money in court… The FTC also is seeking comments on whether the agency should provide input on 19 green terms, including “sustainable,” “carbon neutral,” “low carbon,” “carbon negative” and “net zero.”

Green marketing will be difficult to regulate because information about production processes and supply chains is far from transparent and some false claims derive more from scientific uncertainty or illiteracy than from deception. It’s also the case that all production involves environmental tradeoffs, and the fairly new academic field of life cycle analysis studies the complete cradle-to-grave impact of a production process. When one conducts a life cycle analysis, it is common to utilize models and estimates to project negative environmental impact. This creates uncertainty and imprecision. Despite these complexities, regulating green claims is still worth exploring. The purpose of greenwashing rules is not to prevent innocent errors or ignore tradeoffs but to discourage outright deception. The goal is to prevent blatant lies, such as the cigarette marketing that once touted the health benefits of smoking.

The good news about this effort is that it is an example of the public’s broad and deep support of environmental protection. Each year this becomes more embedded in our culture and influences public behavior. According to Holger:

“Companies are increasingly touting the environmental benefits of their goods and services. Sales of consumer packaged goods in North America that carried labels advertising sustainability rose to an estimated $268.9 billion in 2022 from $248.1 billion in 2021, according to NielsenIQ.”

A scholarly case for regulating green marketing was made in 2020 by Robin M. Rotman, Chloe J. Gossett, and Hope D. Goldman in a publication of the University of Missouri School of Law. In a piece focused on the marketing of “organic” products entitled “Greenwashing No More: The Case for Stronger Regulation of Environmental Marketing,” they conclude that:

“Fraudulent and deceptive environmental claims in marketing (sometimes called “greenwashing”) are a persistent problem in the United States, despite nearly thirty years of efforts by the Federal Trade Commission (FTC) to prevent it…We offer three recommendations. First, we suggest ways that the FTC can strengthen its oversight of “organic” claims for nonagricultural products and improve coordination with the USDA. Second, we argue for inclusion of guidelines for “organic” claims in the next revision of the FTC’s Guidelines for the Use of Environmental Marketing Claims…Finally, we assert that the FTC should formalize the Green Guides as binding regulations, rather than their current form as nonbinding interpretive guidance, as the USDA has done for the National Organic Program (NOP) regulations. This Essay concludes that more robust regulatory oversight of “organic” claims, together with efforts by the FTC to prevent other forms of greenwashing, will ultimately bolster demand for sustainable products and incentivize manufacturers to innovate to meet this demand.”

These scholars persuasively argue that regulating the use of these terms will increase consumer confidence in them. If consumers believe that these claims are real and then go ahead and purchase “green” products, more manufacturers will be encouraged to create products with lower environmental impacts.

It will be interesting to see how these new rules impact organizations seeking to take advantage of consumer preferences for green products. Within a typical large corporation there are a number of distinct organizational units that have differing organizational perspectives and interests related to green marketing. The marketing department will want to make the broadest, most compelling claim for being green that they can dream up. Those that operate the supply chain and manufacturing arm of the organization will focus on the technical feasibility and cost of reducing environmental impacts — including the costs of measuring those impacts and obtaining accurate information on sustainability metrics from suppliers. And then the lawyers will focus on the definition of the “green” terms included in the regulations issued by the FTC. The possibility for communication disconnects between these three groups is far from trivial, but so too is the market for green products.

Advertising, almost by definition, is not oriented toward complete honesty. Watch a drug ad on TV. Clearly, drug companies are required to state the side effects of the drug they are advertising, but the ad’s producers are doing the best they can to make sure those negative impacts are ignored. Advertising focuses on a product’s benefits, not its costs. The issue with greenwashing is preventing deception. Yes, the drug company is required to report the downside of the drug, but the drug’s benefits better be real. Green advertising could be subject to rules like drug advertising. The benefits need to be real, and the costs should also be acknowledged.

Some green advertising is difficult to fact check. A product that was once packaged in a plastic jar is now packaged in a plastic bag, and the bag says “85% less plastic than the jar we used to pack this in.” That may be true, but was the jar easier to re-use? Is the plastic in the bag more toxic than the plastic in the jar? Who knows?

Despite these difficulties, the most positive part of the greenwashing story is that people care. Consumers would like to reduce the damage caused by their consumption and there are forces in corporations that also want to reduce environmental impacts and make money from doing so. Greenwashing wouldn’t be an issue if people didn’t care about environmental quality.


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