A paper written for the university course Governance of Climate Change & Energy Transition. By Daniël
Motives for and regulation of greenwashing
Introduction
The term greenwashing has become a buzzword, but its general negative association has not changed throughout the past few decades (Watson, 2016). Many examples could be given, one of them being the youth festival organized by Shell in The Hague, The Netherlands. While a ministry attended the opening, the municipality and various environmental organizations were displeased. They pointed out Shell generally does not have ‘green’ practices, and hence contributes to greenwashing (Geervliet, 2018).
This concept received its name in the 1980s, when companies were better able to present their practices as environmentally sustainable, while consumers were more easily misled as they had limited access to information (Delmas & Burbano, 2011; Watson, 2016). Greenwashing can be extensively defined as
“deliberately misinforming various groups of stakeholders, aiming to present false qualities of a given product or to hide violations of existing regulations in various areas of their business operations, associated with social and environmental issues” (Przychodzén, 2013: 134).
Even though the concept mostly seems to be associated with the environment, it is also mentioned in light of corporate social responsibility (CSR), which gives it more a general societal dimension (Lee, Cruz & Shankar, 2018; Sun & Zhang, 2019).
Nowadays, consumers within society have increasing concerns about the state of nature and environmentally responsible production (Berrone, Fosfuri, Gelabert, 2014). Nevertheless, companies, especially multinationals like Shell, are still considered to present themselves greener to society than they are (Geervliet, 2018; Watson, 2016). In addition, there is continued research on dimensions of greenwashing, from a focus on selective disclosure, environmental legitimacy, to governmental regulations – as governments are important actors in tackling greenwashing (Berrone et al., 2014; Marquis, Toffel & Zhou, 2016). To synthesize some of these dimensions, the following question is central in this paper: why and how do multinationals use greenwashing, and how can governments regulate greenwashing? This paper is meant to further solidify academic research and contribute to societal awareness on greenwashing. The next part consists of a literature review, explaining the concept of greenwashing, its drivers, and (possible) governmental responses. At the end, concluding remarks will be given with a personal positioning.
Literature review
To start with, the central concept of this paper will be briefly elaborated upon. Greenwashing is giving misinformation towards consumers and other stakeholders, in an attempt to present false information about production or hide violations of regulations in regard to environmental issues (Delmas & Burbano, 2011; Przychodzén, 2013). That generally means that declarations by companies do not reflect actual practices behind a product or service. Moreover, it is often not on product-level, but on a firm-level. Generally, there can be three forms of greenwashing. Firstly, there can be no actual violations, but misinformation is spread to attract consumers or improve a company’s image (Przychodzén, 2013). Secondly, there can be positive actions to cover up negative and harmful actions. Thirdly, there is a combination of the first two: harmful activities and the spread of misinformation. Interestingly, whereas Przychodzén (2013) considers three types of greenwashing, Delmas & Burbano (2011), as well as Marquis et al. (2016) state that greenwashing is the third form. Either way, it is possible that the first and second form are not completely equally the case.
Motives for greenwashing
Overall, a main reason for greenwashing seems to be legitimacy, in order to be competitive in the market environment (Berrone et al., 2014; Delmas & Burbano, 2011; Marquis et al., 2016). This legitimacy mainly refers to being recognised as having a distinct presence and reputation compared to other companies, as well as being accepted by consumers as reliable regarding social and environmental practices. Generally, organizations tend to imitate other organizations that are perceived as legitimate, and this is also the case in the adoption of green practices. It already starts with communicating about having green practices, even though the company could still be considered a ‘brown’ firm, as in having poor environmental performance (Delmas & Burbano, 2011). This stance can be supported by the institutional theory, that looks at organizational actions based on social settings. This implies that firms adopt strategies based on societal values, hence obtaining legitimacy for strategic purposes, such as better access to resources and effective competition (Berrone et al., 2014). To be specific, due to increasing concerns about the state of natural ecosystems and societal pressures, firms actually receive environmental legitimacy on the condition of engaging in good environmental behavior. Engaging in this behavior would shift a brown firm with poor environmental performance to being a green firm (Berrone et al., 2014; Delmas & Burbano, 2011). That also means that greenwashing could increase the legitimacy of a company, even if its practices remain brown.
The distinction between brown and green firms also comes back in greenwashing dimension put forward by Marquis et al. (2016). They highlight selective disclosure in relation to companies showing positive environmental actions while concealing the negative ones. For firms that are performing environmentally better, selective disclosure is less likely, while firms causing more environmental damage are more likely to disclose environmental information (Marquis et al., 2016: 485). This is conflicting, as the latter firms are more likely to engage in greenwashing (Berrone et al., 2014; Delmas & Burbano, 2011). In other words: even when the low environmental performance of companies is revealed, they attempt to maintain a green image. For instance, on the one hand, a multinational oil company causing a large leakage at a platform in the sea will publish about the its effects on the environment. On the other hand, the company will try to show the public that in general they strive to acquire oil without any damage to the sea while extracting.
There a few further explaining drivers for greenwashing. Firstly, activists, NGOs and the media pressure companies by informing consumers about damaging practices and possibly harming the image of a firm (Delmas & Burbano, 2011). This can be done through, for example, websites such as ‘stopgreenwash’ by Greenpeace. Secondly, firms or individuals within wish to uphold ethical behavior, imitate green or greenwashing companies, or fear the of costs of being exposed. Thirdly, there can be lax or uncertainty of regulations regarding greenwashing, for instance, regarding production by multinationals in less developed countries with weaker government structures (Delmas & Burbano, 2011).
Government response to greenwashing
In order to tackle greenwashing, governments could play a main role, as they have the power to intervene in the market through regulations (Lee, Cruz & Shankar, 2018; Sun & Zhang, 2019). Aside from greenwashing, companies have been generally working on responsible practices through corporate social responsibility. CSR makes a firm considered more altruistic, even though for a firm it does not necessarily pay off in financial terms (Lee et al., 2018). One option a government could do is to demand more CSR, as it results in higher costs of psychological loss. In this case, the risk of being exposed is enough incentive for firms to provide high-quality products that reflect environmental concerns (Lee et al., 2018; Sun & Zhang, 2019).
Another option is to amplify punishment mechanisms, through explicit communication about environmental norms, to reduce regulatory uncertainty (Delmas & Burbano, 2011; Sun & Zhang, 2019). Contrary to punishment, governments could grant subsidies for companies to pursue green innovation. This worked for example in the case of Nissan, that invested in electric car technology solely due to subsidies from the Japanese government (Lee et al., 2018; Sun & Zhang, 2019). In addition, local governments can play a role through increased supervision and inspection of local activities of enterprises. Nevertheless, such regulations only benefit the environment when the company considers the measures to result in profit maximization (Lee et al., 2018).
Interestingly, Lee et al. (2018) points out that allowing greenwashing can provide environmentally friendly products. Greenwashing namely implies that a brown firm has to imitate a higher price and quality of a product, at the expense of profits. Brown firms thereby still gain from uninformed customers, while informed consumers will purchase from the green firm, even though previously they would have opted for the brown firms’ products due to the lower prices (Lee et al., 2018). Hence, consumers are important stakeholders that governments could take into account in dealing with greenwashing. Either the government could inform consumers and aim to consolidate green ideas in society, or include consumers in a multi-stakeholder supervision system (Sun & Zhang, 2019). In the first case, it is about behavioral change to activate green demand, while in the second case the monitoring of greenwashing is shared by the government, society and NGOs. Consumers and NGOs can demand transparency, investigate greenwashing if suspected and thereby pressure companies to truthfully disclose information about their environmental performance (Delmas & Burbano, 2011).
Conclusion
The aim of this paper was to answer the question why and how do multinationals use greenwashing, and how can governments regulate greenwashing? In the end, the literature review was mostly linked to companies in general, as there were no papers on greenwashing available that explicitly mentioned the drivers and government responses to it in relation to multinationals. Therefore, in this conclusion it will be attempted to make that link after all.
Regarding the why and the how question, there are no relevant thoughts to add. Also multinationals are likely to greenwash for legitimacy purposes, positive perceptions by society, as well as internal and external pressures (Berrone et al., 2014; Delmas & Burbano, 2011; Marquis et al., 2016). However, national governments tackling greenwashing by companies operating across borders is not as feasible. There would have to be a common agreement between governments on regulations, which is likely to not succeed instantly. Nevertheless, the suggestion of local governments attempting to increase supervision and inspection, could be applied to multiple countries, or mainly involve local governments that rule in areas where multinationals are mainly operational or producing (Sun & Zhang, 2019). In addition, society and NGOs investigating and being aware of greenwashing is possible across boundaries. Therefore this is likely to be useful against greenwashing by multinationals, especially as the big ones are under more scrutiny (Delmas & Burbano, 2011; Marquis et al., 2016).
Some final remarks are more on a personal note. It can be questioned whether large multinationals like Shell will actually stop greenwashing and largely or fully switch to green practices, especially as long as their position is not easily harmed or profits will not decrease significantly. Furthermore, the statement of Lee et al. (2018) on greenwashing actually resulting in green products, seems to assume consumers care enough about the environmental effects of a product. Informing consumers might be easy through (social) media, but making them care is different. Either way, growing climate change/environmental activism nowadays might eventually have an effect on greenwashing companies, urging them to ‘go green’. Finally, a multi-stakeholder supervision system proposed by Sun & Zhang (2019) seems good in binding forces against greenwashing. However, it leaves the question on how to specifically set it up for concrete cases that might concern multinationals outsourcing production, for example. Another issue might be governments that do not have monitoring capacity or financial resources, or that have interest in upholding brown companies. Thereby governments allow the prevalence of economic interests over ecological interests.
Bibliography
Berrone, P., Fosfuri, A., & Gelabert, L. (2017). Does Greenwashing Pay Off? Understanding the Relationship Between Environmental Actions and Environmental Legitimacy. Journal of Business Ethics, 144(2), 363-379.
Delmas, M.A. & Burbano, V.C. (2011). The drivers of greenwashing. Retrieved on: February 19, 2020, from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1966721
Geervliet (2018). Shell-festival onder vuur: ‘Bescherm kinderen tegen marketing Shell’. Retrieved on: February 19, 2020, from https://eenvandaag.avrotros.nl/item/shell-festival-onder-vuur-bescherm-kinderen-tegen-marketing-shell/
Lee, H., Cruz, J., & Shankar, R. (2018). Corporate Social Responsibility (CSR) Issues in Supply Chain Competition: Should Greenwashing Be Regulated? Decision Sciences, 49(6), 1088-1115.
Marquis, Toffel & Zhou (2016). Scrutiny, Norms, and Selective Disclosure: A Global Study of Greenwashing. Organization Science, 27(2), 483-504.
Przychodzén, W. (2013). Greenwashing – Myth or Reality in the World of Business? Management and Business Administration. Central Europe 4(123), 132–138
Sun, Z., & Zhang, W. (2019). Do government regulations prevent greenwashing? An evolutionary game analysis of heterogeneous enterprises. Journal of Cleaner Production, 231, 1489-1502.
Watson (2016). The troubling evolution of corporate greenwashing. Retrieved on: February 19, 2020, from https://www.theguardian.com/sustainable-business/2016/aug/20/greenwashing-environmentalism-lies-companies
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