What is Greenwashing?
Greenwashing is the practice of making misleading claims about the environmental benefits of a product, service, or company to gain an environmentally responsible public reputation. Delmas and Burbano (2011) refer to greenwashing as the intersection of poor sustainable business practices and positive claims about environmental contribution.
Overall, research on sustainable marketing has discovered that greenwashing is driven by various factors across external, organizational, and individual levels.
On the one hand, insufficient regulation and enforcement create an ideal environment where greenwashing thrives. On the other hand, internal market pressures from consumers’ rising demand for eco-friendly products and investors’ preference for sustainable practices also contribute to the problem.
Finally, business leaders and decision-makers often resort to greenwashing for short-term gains, such as attracting eco-conscious consumers and enhancing their reputation without a clear understanding of the competitive landscape and long-term commitment.
Categorization of Corporate Greenwashing
To better understand how greenwashing works, Delmas and Burbano define 4 types of corporations based on their actual performance and green communication:
- Vocal Green Companies: these firms have good environmental performance and proactively communicate and report their achievements to stakeholders (E.g. sustainable clothing, electric vehicles, etc.)
- Silent Green Companies: these firms have good environmental performance but tend to keep their contribution confidential to the majority of the public (E.g. premium retailers, and the organic farming sector).
- Silent Brown Companies: these firms have poor environmentally-friendly practices and do not communicate about them (no promotion or disclosure) (E.g. traditional oil and gas industry).
- Greenwashing Companies: these firms are the target for our today’s blog. They have poor sustainable practices records but still engage in positive communication about their efforts (E.g. fast fashion).
Read More: What is Sustainable Marketing? Definition, 4Ps Strategy, Trends & Challenges
The Root Cause of Greenwashing – What drives firms to lie?
1. The lack of external regulations and strict enforcement
Greenwashing often thrives in environments with insufficient regulatory frameworks or weak enforcement systems. In many countries, there are no stringent penalties for misleading green claims, allowing firms to misrepresent their environmental efforts with little fear of consequences.
For example, in the UK, while there are guidelines such as the Green Claims Code by the Competition and Markets Authority (CMA), enforcement is still a challenge. The Green Claims Code provides principles for businesses to follow to ensure their environmental claims are truthful and accurate.
Yet, it remains subjective and unclear which message should be regarded as truthful and which should not be. Also, the CMA has limited resources to monitor and enforce these guidelines comprehensively. This gap in enforcement means that many companies may unintentionally make vague or even deceptive claims.
For instance, in 2023, Ford’s digital commercial which introduced customers to its latest all-electric SUV was accused of misleading the audience with a vague claim of ‘Zero-emissions driving’ by the Authority Standard Advertising (ASA). Even though the car manufacturer has received clearance for its ad since the claim specifically referred to ‘driving’ not the entire product lifecycle, this case still questions the transparency of regulatory guidelines and enforcement.
Finally, the lack of clear and universally accepted standards for what constitutes greenwashing further complicates the issue. Many firms might not even be aware that their practices qualify as greenwashing. This is compounded by the absence of mandatory disclosure requirements that would force companies to transparently report their environmental performance.
Overall, to effectively mitigate greenwashing, more stringent regulations, better enforcement of existing guidelines, and mandatory transparency measures are essential. Increasing awareness about what constitutes greenwashing and its negative impacts is also crucial in curbing this practice.
2. Increasing pressure from customers and investors
The pressure from important stakeholders undoubtedly drives greenwashing. As consumer demand for eco-friendly and sustainable products rises, companies feel compelled to appear environmentally responsible to maintain their market position.
For instance, climate change is now the second most concerning matter in the UK, with more and more people across small cities advocating green consumption (Think With Google). Statista (2024) shows that around 75% of consumers have already changed their daily habits to be more eco-friendly such as recycling household waste, buying second-hand clothes, etc.
Besides, investors also increasingly favor firms with strong environmental, social, and governance (ESG) performance. According to a report by Morgan Stanley, sustainable fund assets now account for 7.2% of total global AUM, with median returns of 12.6%, nearly 50% ahead of traditional funds.
The growing consumer preference for sustainable products and investor demand will push companies to highlight their green credentials, sometimes leading to exaggerated or greenwashing claims.
3. Competitive Market Influence – When greenwashing becomes a norm
Competitors also play a role in this dynamic. As more businesses start promoting their environmental initiatives, firms that lag behind feel pressured to catch up, often resorting to greenwashing.
A study by TerraChoice found that of thousands of products making green claims, 98% were guilty of greenwashing to some extent. Many companies are misusing third-party certification to create vague labels to meet customers’ rising demand.
The financial viability of this can exacerbate the issue. Managers might be rewarded based on achieving certain financial targets or quotas for positive environmental communication, which can lead to unethical behavior.
Research by Delmas and Burbano (2011) on Drivers of Greenwashing discovered that in organizations with egoistic ethical climates, where the focus is primarily on financial gains and profitability, greenwashing becomes more likely as a means to appear socially responsible without making genuine efforts.
4. Psychological drivers of greenwashing on an individual level
At the individual level, several psychological drivers can lead decision-makers to greenwash. These include narrow decision framing, hyperbolic intertemporal discounting, and optimistic bias.
Narrow framing refers to the tendency of individuals to focus on a limited aspect of a decision without considering the broader implications. For example, a company might focus solely on the immediate marketing benefits of greenwashing without considering the long-term reputational damage.
Similarly, hyperbolic intertemporal discounting describes the tendency to prioritize immediate rewards over long-term benefits. Decision-makers may choose to greenwash because it offers immediate positive publicity and potential financial gains, despite the risk of future backlash when the truth comes out.
Eventually, optimistic bias is the propensity to believe that negative outcomes are less likely to happen to oneself compared to others. Managers may engage in greenwashing believing that their company won’t be caught or face significant consequences.
These cognitive biases are particularly influential under conditions of uncertainty and imperfect information, often referred to as bounded rationality. When decision-makers lack complete information or face complex situations, they rely on heuristics or cognitive shortcuts, which can lead to poor decision-making.
5. Corporate Drivers of Greenwashing
Internal corporate drivers also play a significant role in greenwashing. Factors such as firm size, corporate strategy, growth opportunities, and corporate culture heavily influence a company’s propensity to engage in greenwashing.
Larger firms, for instance, often face greater scrutiny and thus might feel more pressure to appear environmentally responsible, even if their actual practices do not align with their claims.
Corporate strategy and the pursuit of growth opportunities can also drive greenwashing. Companies focused on rapid growth and profit maximization might prioritize short-term gains over long-term sustainability.
For example, companies in the tech industry, where innovation and speed to market are critical, might engage in greenwashing to attract environmentally conscious consumers quickly without implementing genuine sustainable practices.
The Consequences of Greenwashing
1. Declining trust among consumers
Green consumers often have anti-corporate biases and distrust advertising, making it challenging for brands to earn their trust. A survey by YouGov shows that 60% of consumers across countries do not believe in green claims by brands nowadays. British shoppers lead the poll with over 70% expressing their skepticism.
A study on Greenwashing Perception using the theory of psychological contract concludes that when a brand promises sustainability and fails to deliver, it breaches the psychological contract and leads to a sense of betrayal among consumers. This breach erodes trust, as consumers feel the brand has not respected the mutual obligations.
In the context of greenwashing, this loss of trust directly impacts purchase intent as environmentally conscious consumers do not want to identify themselves with dishonest firms.
2. Tarnished brand reputation & Negative Word-of-Mouth
Studies show that consumer skepticism towards green claims increases when they perceive dishonesty, leading to a loss of brand trust and credibility. A tarnished reputation can diminish brand equity, reducing customer loyalty and market share in the long run.
Furthermore, research on the effects of greenwashing on brand avoidance and negative word-of-mouth claims that when consumers feel offended after being deceived by the companies, they are intrinsically driven to share their negative experiences, amplifying the damage through word-of-mouth.
When consumers’ beliefs about brand values (e.g., sustainability) contradict the brand’s actions (e.g., false green claims), they experience discomfort or cognitive dissonance. To alleviate this discomfort, consumers may distance themselves from the brand, transforming their initial disappointment into brand hate.
Overall, as trust and reputation are foundational to brand success, greenwashing creates a cycle of distrust that undermines genuine sustainability efforts and damages the brand’s standing in the market. Thus, brands must ensure transparency and authenticity in their environmental claims to maintain and enhance their reputation.
Academic Sources for this blog:
Delmas, M.A., and Burbano, V.C. (2011) The Drivers of Greenwashing. California Management Review. 54(1), pp.64-87.
Sajid, M., Zakkariya, K.A., Suki, N.M., and Islam, J.U. (2024) When going green goes wrong: The effects of greenwashing on brand avoidance and negative word-of-mouth. Journal of Retailing and Consumer Services. 78, p.103773.
Sun, Y., and Shi, B. (2022) Impact of Greenwashing Perception on Consumers’ Green Purchasing Intentions: A Moderated Mediation Model. Sustainability. 14(19), p.12119.
Vangeli, A., Malecka, A., Mitrega, M., and Pfajfar, G. (2023) From greenwashing to green B2B marketing: A systematic literature review. Industrial Marketing Management. 115, pp.281-299.
Sy Chu
As an analytical and creative marketing enthusiast skilled in customer analysis, content research and brand management, my passion is help businesses gain insights into their brand and marketing strategies to drive impactful outcome to their success.