The new regulatory rules bring both challenges and opportunities to improve consumer confidence. The European Union has adopted a ground-breaking directive that bans misleading organic claims. Companies will be required to back up “green” communications with accurate data and independent verification. We spoke to Daniel Rabin, co-founder of the ESG CLUB, about this.
Let’s try to explain what is the so-called “greenwashing”, how could we translate it into Slovak and how is it related to the ESG topic?
Greenwashing could be translated as “greenwashing” or “misleading environmental communication”. And that this is a serious problem is confirmed by European Commission data – up to 53% of environmental claims made by companies in the EU are vague, misleading or unsubstantiated, and 40% are completely unsubstantiated.
From a marketing point of view, it is understandable that companies try to differentiate themselves by using terms such as “green”, “sustainable” or “ecological”. The problem is that these terms do not have clear definitions. Moreover, when this communication is not backed up by real data and measurable results, it can amount to greenwashing.
It is ESG that makes it mandatory for companies to systematically report on their sustainability performance, which creates the basis for transparent and data-driven communication. This significantly eliminates the scope for greenwashing.
This year, the European Parliament adopted the Green Claims Directive (GCD). This regulation is described by experts as a breakthrough in the fight against greenwashing in the EU. What does it contain and what should companies prepare for?
We are finally getting to the stage where it will no longer be enough to claim we are “green” – everything will have to be backed up by accurate and third-party verified data. A key tool will be the so-called Product Life Cycle Assessment, which is essentially a comprehensive assessment that follows the entire ‘journey’ of a product. From raw material sourcing through production, distribution, use and disposal. In practice, this means that if a company wants to claim that its product is environmentally friendly, it has to prove it based on measurable data from this entire cycle.
All information on the environmental aspects of a product will need to be easily accessible to consumers – for example via QR codes on packaging. And, importantly, all ‘green’ claims must be verifiable by an independent third party.
Does the GCD also bring any opportunities for companies?
The directive will finally create a fair environment for companies that are serious about sustainability. Above all, it will increase consumer confidence – when they see an environmental claim, they will know it is backed up by real data. In addition, companies that adapt to the new rules may gain better access to green finance or greater investor confidence.
However, from the company’s point of view, it may be an additional cost pressure no?
It’s true. I am of the opinion that the larger companies can easily withstand this pressure. It will be a relatively insignificant cost in terms of the resources they already invest in not always meaningful marketing. For smaller and medium-sized companies, this can be a problem.
Are there any specific penalties for companies under the new Directive?
The GCD introduces a comprehensive penalty mechanism, the most significant being a fine of up to 4% of a company’s annual turnover.
However, the sanctioning mechanism goes beyond financial sanctions. It includes the possibility of confiscation of revenues from products where misleading communications have been made, as well as temporary exclusion from public procurement processes for up to 12 months.
And, what I consider even more important, is the risk of reputational damage. Companies that break the rules will be published on the so-called sanctions list.
You say that in order to prevent greenwashing, companies need to consistently differentiate between communicating ESG activities and traditional CSR activities, why is that?
Many companies think that by doing CSR activities they are automatically “ESG compliant”. But it’s not. To give a simple example: if a logistics company supports tree planting on Earth Day, it is certainly an important CSR activity. But if it wants to talk about ESG, it must systematically follow a double materiality analysis. For one company it may be systematically reducing its own carbon footprint, for another it may be water conservation measures, for a typical “corporation” it may be transparent remuneration of employees.
If you confuse CSR projects with ESG sustainability in your company, you run the risk of your communications being labelled as greenwashing. Even if this was not your intention.
How should companies avoid greenwashing in communication? Where do they generally make the biggest mistakes?
In our practice, we often find that companies start from the end – they want to communicate before they have real results. That’s why we at ESG CLUB always emphasize a simple approach: first collect data about your business, then create a communication strategy based on that data, and then communicate.
The mistakes I see most often are in the use of vague claims such as “eco-friendly”, “carbon neutral” or “green product”. A second common mistake is for companies to highlight one positive aspect of a product but gloss over its overall environmental impact. Or they create their own ‘eco-certificates’ that don’t really mean anything.
How are we – consumers or prospective investors or clients of a company – supposed to detect when something concrete is being done that the company is just misleading, “painting on the green”?
At the moment it is quite challenging. But the situation is set to improve – the European Union is introducing digital product passports that make it easy to verify environmental claims. And the aforementioned sanction lists will also help identify companies guilty of greenwashing.
In the meantime, I recommend watching for a few warning signs. The first is the use of overly “eye-watering” vague statements without concrete figures and facts. Equally suspicious is when a company emphasises one small aspect, such as recycled packaging, but is silent on the overall impact of its actions.
Note also the certifications. Truly responsible companies have internationally recognised ‘labels’ on their packaging, not self-created ‘green stamps’. Trustworthy companies also usually communicate transparently about areas where they are not yet perfect, and have a clear plan for improvement.
Qualified international studies show that consumers – especially millennials and GenZ – place a premium on the environmental and ethical aspects of purchasing decisions. This can increase the overall demand for responsible category companies and products. Where do we stand in Slovakia?
Here we have an interesting paradox, shown by a recent Ipsos survey. On the one hand, up to 82% of Slovaks think that social responsibility should be part of the DNA of every company. Even 86% expect companies to invest in sustainable technologies.
But when we look at the reality of buying behavior, we see an interesting trend. While in 2021 70% of Slovaks were willing to pay extra for an environmentally friendly product, today it is only 53%. This is quite a significant decrease, which is mainly related to the current economic situation and inflation.
If it is true that Slovaks “go mainly for the price”, what are the chances that their attitude will change over time and what needs to happen for that to happen?
I am optimistic about this. I can see that a change in attitudes is already taking place, it is just slower than we would like. Education will be the key. When people better understand the links between their purchasing decisions and the state of the environment, they will be more willing to invest in sustainable products.
A lot also depends on the companies. They need to come up with innovative solutions that combine sustainability with economic viability. We are already seeing examples where a responsible approach leads to savings – whether it is energy-efficient appliances or renewable energy. The next generation will also play an important role. Given their strong environmental convictions and preference for sustainable products, this creates an unprecedented opportunity for companies that are truly dedicated to ESG, not greenwashing.
