The concept of greenwashing refers to the deceptive practices employed by businesses to present themselves as more environmentally sustainable than they truly are. This can involve misleading claims or false representations regarding the sustainability of their products or services. With the increasing labeling of products as “green” or “sustainable,” there has been a corresponding rise in exaggerated or unsubstantiated assertions, drawing attention from financial regulators.

“Net zero integrity” pertains to the genuineness and reliability of efforts directed towards achieving net zero emissions. It emphasizes that actions taken by individuals, organizations, or governments to reach net zero emissions must be transparent, accountable, and genuinely contribute to reducing greenhouse gas emissions to zero. Essentially, it ensures that commitments to net zero are not mere greenwashing or superficial claims but are backed by sincere efforts.

The importance of achieving net zero lies in balancing the amount of greenhouse gas emissions released into the atmosphere with the amount removed from it. This balance significantly reduces harmful emissions that contribute to global warming.

There are various types of greenwashing:

1. Brand Greenwashing: This involves misleading portrayals of an organization’s overall environmental commitment, such as its profile, activities, and aspirations. For instance, TotalEnergies faced legal action from civil society regarding its net zero marketing campaign.
2. Product Greenwashing: This occurs when products are falsely labeled or marketed with vague green claims, despite only having partial environmental benefits or minimal impact. For example, SK E&S gas company faced scrutiny over its description of a new “CO2-Free” gas development and later modified its language to claim it as “low carbon.”
3. Greenwashed Financing: Financial institutions provide funding for supposedly green projects or objectives that are themselves greenwashed. For instance, Commonwealth Bank of Australia faced legal claims regarding its financing of fossil fuel projects and alleged non-compliance with its ESG framework.

The consequences of greenwashing include reputational damage, regulatory sanctions, orders to remove misleading advertising or labeling, and potential financial damages to shareholders, customers, or competitors.

An example of greenwashing involves FIFA, which falsely claimed that the Qatar World Cup in 2022 was the first “fully carbon neutral” event. The Swiss advertising regulator ruled that FIFA misled consumers by failing to provide credible evidence of how all CO2 emissions generated by the tournament could be offset.

To guard against greenwashing, organizations can:

1. Scrutinize the accuracy and credibility of any green claims.
2. Be transparent about how green objectives are integrated into investment methodologies or business strategies.
3. Ensure consistency between the company’s or fund’s green image and its actual actions.
4. Stay updated on developments in relevant jurisdictions.
5. Understand fiduciary duties to stakeholders.

Greenwashing risk represents a potential threat to organizations, and one that can possibly destroy significant shareholder value. Organizations would do well to consider how to manage and mitigate their greenwashing vulnerabilities.