Greenwashing continues to be a top concern for environmentalists, and it has made headlines recently due to new reports of false claims across industries and increased efforts in Europe and California to crack down on the practice.
The European Commission, the European Union's executive division, published a proposal in March that seeks to establish a clear and uniform methodology for the regulation of environmental claims and labels across the EU. And a California bill proposal seeks to put an end to corporate greenwashing in what would be the first law in the U.S. of its kind if passed.
Greenwashing is the act of making false or misleading statements, whether intentional or unintentional, about the environmental advantages of a product or service.
We recently sat down with Columbia Business School Professor Shivaram Rajgopal, a leading expert on measuring how well managers serve as responsible stewards of a corporation's resources.
The Kester and Byrnes Professor of Finance & Economics shared his thoughts on why greenwashing is so prevalent, offered new ideas for how to combat it, and discussed why industry-level solutions will never be enough.
CBS: How prevalent is greenwashing?
Shivaram Rajgopal: I recently participated in The Economist's Sustainability Week event, and the panel's description was frighteningly accurate: "Greenwashing is rampant. With money to be made from environmental credentials as consumers come to prefer—and pay a premium for—sustainable brands, greenwashing has never been more of a temptation."
Sadly, 95 percent of the cases I come across on a regular basis do involve greenwashing in one way or the other.
CBS: How can we prevent or decrease greenwashing?
Rajgopal: We need to ask ourselves some truly critical questions and be prepared to move forward with those answers. How can we help companies bolster their commitment to sustainability in a meaningful and measurable way? If they don't truly commit to sustainable initiatives, but claim that they do (or exaggerate the magnitude of that effort), what are the associated penalties? How will those penalties be implemented and with which resources? And, as The Economist rightly noted, "...we also need to ask if strong greenwashing laws hinder companies with genuinely green ambitions."
CBS: Do you have any specific ideas for how to move forward?
Rajgopal: Policing labels, both in marketing and finance, is a huge task and the regulators, despite their best efforts, are likely to fall short.
I think we need a “Yelp” to crowdsource grassroots level consumer data on green washing related to specific brands. We may also need a “Consumer Reports” to sort through good and bad brands on the greenwashing dimension.
But regulation is only part of the solution. There is still the issue of enforcement, and I think we need more of it.
CBS: What would, or should, enforcement look like in your view?
Rajgopal: As I mentioned, grass roots enforcement via Yelp is one idea to consider.
We could also consider an even more outrageous bounty hunter scheme. For instance, could an NGO, or even a government entity, pay a green whistleblower twice: first, a small fee for submitting a claim with pictures and documentation, and later a larger share of the penalties if the regulator successfully prosecutes the green offender?
Another idea is to create a credit default swap-like instrument on green-ness. The instrument pays off when a specified violation of green-ness is found.
These are only a few of the potential solutions that could be considered. Regardless of the solution that is ultimately chosen, what's most important is that we take action and we do so quickly.
CBS: How do these company- and industry-level solutions tie into larger efforts?
Rajgopal: There should be some effort to tie all the corporate promises regarding net zero, etc., to the macro country-level emissions count to make sure that the micro corporate level effort adds up to real changes in emissions at the country level. Aggregating data at the country level is hard but desirable. We almost need a country-level registry of micro emissions.
The EPA's registry is a start, but that needs to be expanded to cover every large entity, including the government and household sectors.
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