Increased Greenwashing in Advertising & Effects on Consumers and Environmental Efforts

This document analyzes the ethical and legal implications of corporate greenwashing and advertising in relation to First Amendment rights and consumer protection.

Note: This is an exercise document created for the purpose of showing an example legal and ethical evaluation for National University. Image from @eloisehodgkinson.art 

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Introduction

Many companies around the world, both large and small, are creating marketing campaigns with an environmental focus. However, critics, scholars and legal experts are questioning the validity of many claims, decrying greenwashing campaigns that make consumers believe that the product, service or company is addressing environmental issues more strongly than they are in reality.

This coincides with a high demand from consumers for companies to produce more environmentally friendly products and have company-wide initiatives working toward ambitious goals, including being carbon-neutral within the next decades. Unfortunately, due to the subjective nature of advertising’s First Amendment rights and the equally subjective nature of the Federal Trade Commission’s evaluation of misleading advertising, the future path of legal action against greenwashing remains murky.

Tipping a Business Domino for Climate

In January 2020, Larry Fink – the founder of BlackRock, the world’s largest investor and money manager overseeing $7 trillion – got the environmental and corporate world’s attention in his annual “letter to the CEOs.” For the first time, he made the claim “that climate change has to become an integral part of the investing thesis for companies. And more importantly, that C.E.O.s and companies themselves now have to change and think about climate change. And if they don’t, he’s going to be pulling his money from them” (“Can Corporations Stop Climate Change?” 2020). 

In the weeks following the letter, major company after major company – including Microsoft, Amazon and Delta – made massive climate pledges. Delta pledged to spend $1 billion over 10 years to become carbon neutral, i.e. neutralize all of their carbon emissions  (“Can Corporations Stop Climate Change?” 2020).

Amazon pledged $10 billion to fight climate change by having 50% of all its shipments be carbon neutral by 2030, investing in 100,000 electric trucks, and investing in wind and solar to support its massive cloud computing operation (“Can Corporations Stop Climate Change?” 2020). With Microsoft, a company that is currently carbon neutral, it pledged to be carbon negative by 2030, and to remove all the carbon that the company has put into the atmosphere since 1975 via carbon capture (“Can Corporations Stop Climate Change?” 2020).

In Fink’s 2022 letter to CEOs, he reported an “accelerating” and “tectonic shift of capital” since he first wrote about the risk to climate affecting investment. “Sustainable investments have now reached $4 trillion” (Fink, 2022), including into new ventures focused on energy innovation, as well as “capital transferring from traditional indexes into more customized portfolios and products” (Fink, 2022). He also noted the increase in actions and ambitions toward decarbonization. However, Fink’s point remained clear: “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.”

Empty Promises & False Claims

However, not all of those corporate initiates – seeming to stem from Fink’s prodding – seem to be sincere. According to a February 2023 report by the CDP (an international nonprofit organization that helps groups disclose their environmental impact), many of these companies might be touting empty promises. From a CDP survey of 18,600 organizations, 4,100 disclosed they had developed a “transition plan” meeting the Paris Agreement’s goal of keeping the planet from warming more than 1.5°C. However, only 81 of them (0.4%) actually had a “credible” plan (Are Companies Developing Credible Climate Transition Plans?, 2023).

This lack of a credible strategy to meet climate goals was reflected in another February 2023 report, the Corporate Climate Responsibility Monitor 2023. This report assessed 24 major multinational companies, including “the largest three global companies with bold climate pledges…They reported combined revenues of USD 3.16 trillion in 2021, approximately 10% of the total revenue from the world’s largest 500 companies” and “roughly 4% of global GHG [greenhouse gas] emissions in 2019” (Corporate Climate Responsibility Monitor 2023, 2023). 

The report found that “the climate strategies of 15 of the 24 companies to be of low or very low integrity” and “that most of the companies’ strategies do not represent examples of good practice climate leadership” (Corporate Climate Responsibility Monitor 2023, 2023). The report found major issues between the pledge and reality: the commitments did not add up to the stated pledges; the “combined emission reduction commitments are wholly insufficient to align with 1.5°C-compatible decarbonisation trajectories”; the “targets and potential offsetting plans remain ambiguous;” and “the exclusion of emission scopes severely undermines the targets of several companies” (Corporate Climate Responsibility Monitor 2023, 2023). (See appendix, Figure S1.)

The results show that the median commitment to emission reductions between 2019 and 2030 is 15-21% (figure S2, appendix). It also shows that only five companies of the 24 evaluated actually commit to deep decarbonization with their net-zero policies (figure S3, appendix). 

In fact, none of the companies showed “high integrity” and only one company, Maersk, showed “reasonable integrity” overall in its pledge, transparency and integrity. The eight companies that showed “moderate integrity” include Apple, Arcelor Mittal, Google, H&M Group, Holcim, Microsoft, Stellantis, and Thyssenkrupp. The 11 companies that showed “low integrity” include Ahold Delhaize, Amazon, Deutsche Post DHL, Fast Retailing, Foxconn, Inditex, Mercedes-Benz, Nestlé, PepsiCo, Volkswagen and Walmart. The four companies that show “very low integrity” include American Airlines, Carrefour, JBS and Samsung Electronics (see appendix, table S2) (Corporate Climate Responsibility Monitor 2023, 2023).

Greenwashing: Giving Consumers What They Want (Kind of)

The gap between major company climate pledges and the reality of meeting those pledges shows more of a corporate focus on statements rather than actions. By making these statements, corporations can appease BlackRock’s push to focus on sustainability while also appealing to consumers' demand for “green” brands.

However, alongside this growth in environmental marketing claims is concern about greenwashing and whether these claims are truthful. “Greenwashing generally refers to a set of deceptive marketing practices in which an entity publicly misrepresents or exaggerates the positive environmental impact or attributes of a product or service to create a favorable impression that is not supported by evidence (product-level claims), or in which an entity misrepresents the entity’s overall impact on the environment (firm-level claims)” (Shanor & Light, 2022). 

However, “greenwashing” can come in other forms besides statements, including “symbolic speech, visual imagery, and actions,” as well as through endorsements or partnerships with NGOs and other organizations or respected individuals “that may give firms an air of legitimacy with respect to environmental performance that does not hold up on closer scrutiny” (Shanor & Light, 2022). Companies can appear to be “green” without actually being so, which can help the company build a more positive brand image for sustainably focused consumers, who are none the wiser. 

A large majority of consumers want companies to take action to be more sustainable and say a sustainable lifestyle is important to them. According to a 2022 report by NielsenIQ, “78% of consumers say a sustainable lifestyle is important to them and 30% are more likely to purchase products with sustainable credentials,” plus “61% of consumers agree that environmental issues are having an adverse impact on their current and future health” (NielsenIQ, 2022). Additionally, the same report finds “that 53% of consumers want companies to reduce the amount of plastic in packaging; 51% want them to eliminate waste; and 46% want them to use sustainable packaging materials.”

These desires manifest in marketing. The 2022 NielsenIQ report shows that on-pack product sustainability and wellness claims have increased over the past three years: social responsibility claims increased by 22.1%, environmental claims increased 24.5%, sustainable packaging claims increased by 17.5%, and animal welfare claims increased by 37.1% (NielsenIQ, 2022).

More products are being “marked with morally loaded labels such as ‘fair-trade’ and ‘organically produced’ – labels associated with social or environmental responsibility that speak to our conscience. ‘Moral’ labeling serves as a marketing device for attracting consumers with preference for social fairness or environmental altruism and some individuals are indeed willing to pay a premium for labeled products” (Sörqvist, 2013).

Evidence shows that labels with a moral load can produce a halo effect – when your positive or negative perception of something casts something else in a favorable or unfavorable light – which can be a strategy marketers take to sell products and services (Cherry, 2022). That halo effect created by the moral-load label can lead to consumers “favoring other positive characteristics of the product, and these effects are stronger for people who have a moral orientation toward the environment” (Loaiza-Ramírez, 2022). 

In fact, an experiment with blind-taste testing of two cups of the same coffee showed that “there is an eco-label effect on taste and willingness to pay such that people are biased to prefer coffee that has been arbitrarily labeled ‘eco-friendly’ over an objectively identical non-labeled alternative” (Sörqvist, 2013). Additionally, “people who are willing to pay a premium for eco-friendly coffee does [sic] so even when they believe that they prefer the taste of a non-labeled alternative, at least people who score high on a sustainable consumer behavior scale” (Sörqvist, 2013).

In addition, it’s been shown that statements encompassing different levels of quality on the environmental commitments have the same effect on consumers. For example, “communicating general information (e.g., ‘Our energy comes from renewable energies’) compared to specific information (e.g., ‘Our energy comes from hydropower, solar, and wind energy’) does not seem to have different effects on consumers’ adoption intentions, willingness to pay a premium, or perceived comfort” (Loaiza-Ramírez, 2022). This means companies could use vague, imprecise environmental statements and still not be telling a false statement, but still reap the rewards in how customers view the company or product.

Greenwashing Products and Companies

Examples of corporate greenwashing abound. Procter & Gamble “advertised a brand of paper towel as containing recycled material when in fact only the inner cardboard tube contained recycled fibers” (Shanor & Light, 2022). Starbucks released a “strawless” lid made of recyclable plastic, which the chief sustainability officer said was “another step in our journey to reduce our environmental footprint;” but the new lid proved to contain more plastic than the old lid and straw combined, and critics pointed out that only 9% of the world’s plastic is recycled, which would likely result in more plastic in landfills (Greenwashing Examples by Food and Drink Brands in 2022-23, May 31, 2023).

Some greenwashing claims have reached legal action. Keurig Green Mountain marketed its K-Cups as recyclable, even though many “materials recycling facilities” cannot process the cups; the company reached a class-action settlement with consumers and agreed to pay $10 million and add new language to its packaging about the restricted recycling (Greenwashing Examples by Food and Drink Brands in 2022-23, May 31, 2023).

A cookware company claimed “that its pots and pans were ‘toxin free’ and ‘good for the environment’ when they allegedly contained ‘compounds that are known to be toxic;’” the company faced a class action lawsuit under state consumer protection laws (Shanor & Light, 2022). Other companies “have faced lawsuits alleging false and deceptive advertising based on advertisements that cleaning products were ‘non-toxic’ and ‘earth friendly’ when they allegedly contained ingredients that were harmful to people, animals, and the environment” (Shanor & Light, 2022).

However, greenwashing can happen beyond the product level and at the level of the organization overall. For example, Delta claims to be “the world’s first carbon-neutral airline,” and a passenger filed a class-action lawsuit in California, alleging that “Delta is buying largely fabricated carbon offsets, while continuing to charge a premium price to travelers who believe they're paying for environmentally friendly travel” (Delta faces lawsuit alleging its “carbon-neutral” claim is greenwashing, 2023).

Airline KLM faces a similar lawsuit, which promoted it “Fly Responsibly” marketing campaign, which allegedly mislead customers into thinking KLM could provide a more sustainable flight option using “alternative fuel, recycling, innovative airplanes, reforestation and more” (What KLM does to make air travel more sustainable, 2023, February 27). Since the lawsuit, the “sustainability” page changed to clarify that “air travel is currently not sustainable.” The Dutch court ruled that the lawsuit could proceed (Sterling, 2023).

Another greenwashing legal case involves Chevron, when in March 2021, three environmental organizations filed a claim with the U.S. Federal Trade Commission (FTC). “The complaint contends that the fossil fuel firm Chevron has engaged in greenwashing by overstating and misrepresenting the firm’s overall efforts to reduce emissions of greenhouse gases [sic] and increase its investments in renewable energy” (Shanor & Light, 2022).

Part of the FTC’s responsibilities includes enforcing laws that prohibit false and deceptive advertising claims. “This is the first complaint filed with the Commission invoking the Commission’s ‘Green Guides’ to claim that a firm has misled consumers about how it markets its overall climate strategy and the environmental impact of its operations, rather than merely a complaint about the marketing of a specific product or service” (Shanor & Light, 2022).

Note, though, that the FTC’s Green Guides “describe the types of environmental claims the FTC may or may not find deceptive under Section 5 of the FTC Act,” but they “are not agency rules or regulations” (FTC Issues Revised “Green Guides,” 2012) “Under Section 5, the agency can take enforcement action against deceptive claims, which ultimately can lead to Commission orders prohibiting deceptive advertising and marketing and fines if those orders are later violated” (FTC Issues Revised “Green Guides,” 2012).

False Advertising and the First Amendment

Although the “original Federal Trade Commission Act was not directed toward false advertising but rather toward the prevention of monopolistic and unfair methods of competition in interstate commerce,” (Carter, 2020) false advertising, including greenwashing claims, now falls under the FTC’s evaluation, largely under the concept of unfair competition. Early FTC “commissioners regulated deceptive ads by labeling them ‘unfair methods of competition.’ They took the position that exaggerated or misleading claims for an advertiser’s product gave him or her an inequitable competitive advantage over those sellers who told the truth” (Carter, 2020).

This was affirmed in the 1922 Supreme Court ruling “Federal Trade Commission v. Winsted Hosiery Co.” when the court “upheld an FTC determination that when a manufacturer labels its underwear ‘Natural Wool’ and ‘Natural Worsted’ the product must be all wool, not merely 10 percent wool. The Court agreed that when misleading ads are marketed in competition with truthful ads, potential customers are unfairly diverted from the honest advertiser’s products” (Carter, 2020). 

Within a few years, this ruling changed the shape of the FTC, when “three quarters of the Federal Trade Commission’s orders concerned false and misleading advertising” (Carter, 2020) in relation to unfair competition. In 1931, the Supreme Court then made a decision in Federal Trade Commission v. Raladam Co. about “whether the Commission could protect the public from false advertising directly, without having to demonstrate economic injury to a business competitor” (Carter, 2020) – the court unanimously decided that the FTC “had no authority to ban purely false advertising unless it could be shown to be an unfair method of competition” (Carter, 2020). 

In response, Congress passed the Wheeler-Lea Act in 1938 “to amend the Commission’s enabling act to permit regulation of ‘unfair or deceptive acts or practices in commerce’ that injure the consumer” (Carter, 2020). Congress amended the Wheeler-Lea Act in 1994 “to provide that ‘before an act or practice can be found to be unfair, the FTC must first find that (1) the act or practice causes or is likely to cause substantial injury to consumers; (2) which is not reasonably avoided by consumers; and (3) is not outweighed by countervailing benefits to consumers or to competition’” (Carter, 2020). These are the frameworks the FTC operates within regarding greenwashing claims, which are arguably subjective in evaluation. Additionally, “because of its large work-load and reduced budget, investigations often take a considerable length of time to start and complete, if begun at all” (Carter, 2020).

Guidance from the Supreme Court is equally subjective. In the 1980 Court decision Central Hudson Gas and Electric Corp. v. Public Service Commission, “a bare majority of the Court enunciated a four part test for determining the availability of constitutional protections for commercial speech” (Carter, 2020), including:

  1. “Determination whether the expression is at all protected by the First Amendment. Commercial speech which involves or advertises unlawful activity or is false or misleading is not protected.”
  2. “Whether the asserted governmental interest is substantial, then regulation or complete prohibition of the particular commercial expression may be permitted, depending on the results of the third and fourth parts of the test.”
  3. “Asks whether the state’s regulation directly advances the asserted governmental interest.”
  4. “Whether the state’s regulation is only as broad as is necessary to serve the state’s substantial government interest.”

However, “because the Central Hudson four-part test leaves each justice great latitude to insert personal views on the degree of protection to which specific commercial speech is entitled, subsequent decisions have not followed a clear direction or rationale” (Carter, 2020). 

Conclusion: How Greenwashing Affects Consumers & Investors

In determining whether consumers or investors are negatively affected by greenwashing advertising and claims, there is speculation on both sides. On the one hand, there are some scholars that challenge that perspective and propose that “the benefits of increased ‘green talk’ may outweigh the harms,’ for example, by simply increasing the sense of normalcy of discourse around business responsibility to the environment” (Shanor & Light, 2022).

However, on the other hand, “consumers and investors, who are often information dependent upon firms to shed light on their practices and strategies, may be misled into taking actions within the marketplace that are inconsistent with achieving either personal or societal climate goals. And they may not demand the political action they might, were they to know more clearly what the private sector is (or is not) doing to mitigate climate change” (Shanor & Light, 2022). Ultimately, this confusion on facts can hinder consumers’ rights in choosing products and brands that align with their core values and confuse the initiative of investors wanting to push corporations to align with the future of a more environmentally conscious business.

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