The term ESG, or Environmental, Social, and Governance, has been getting rather hot lately. As one of the latest focuses of investors and stakeholders, it’s gotten plenty of coverage, with publications like The Edge even introducing a monthly pull-out for it alongside The Edge ESG Awards.
ESG refers to a set of non-financial factors that investors are using to evaluate a corporation’s social and environmental goals. Basically, it checks how socially-conscious a company is.
Beyond ethics, investors are directly incentivised to invest in green tech. For instance, under Malaysia’s Green Income Tax Exemption (GITE), taxes are exempted for income earned from green technology and certain green assets.
However, while the focus on sustainability is commendable, there are those who don’t exactly have the purest intentions.
Instead, they’re taking advantage of the situation, and are promoting their own brands as sustainable, but wrongfully so.
Putting in a green spin
According to Investopedia, greenwashing is the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound.
This is typically done to deceive investors and consumers into believing a company’s product is more eco-friendly than it actually is.
An example of greenwashing is when a business claims their products are very eco-friendly, but they actually buy from unethical and unsustainable sources.
Or, perhaps, a business harps about its eco-friendly approaches, but ends up sending you a product wrapped in layers upon layers of plastic packaging.
Though this might all sound like a small issue to some, it can have very detrimental impacts. In an article, The Edge posited in its title: “Greenwashing: The next big scandal?”
In this article, the publication discussed whether ESG could be allowing for opportunities for greenwashing, mainly focusing on how big corporations perpetrate it.
However, it’s not just Fortune 500 or big companies who are greenwashing. While it’s true that big companies have a greater impact on the environment (back in 2017, just 100 companies were responsible for 71% of global emissions), small businesses riding the eco-friendly wave don’t get a pass either.
SMEs aren’t exempted
These days, I’ve been coming across a lot of small, local businesses that claim to be eco-conscious and sustainable. This is especially prevalent in the beauty and personal care industry, I’ve observed.
However, because these businesses aren’t obligated to be transparent about their production processes, there’s really no way to tell if they’re being honest about their claims.
To add, many times, SMEs seem to be given a free pass for the sake of “shopping local” or “supporting small businesses”.
But it’s gotten to a point where businesses are intentionally fooling the public into thinking they are a sustainable brand when they aren’t.
Although smaller brands don’t have the same capacity to fool investors and the masses, they are still able to trick consumers.
And unfortunately, many modern consumers do fall for them, not because we genuinely want to do better for the environment, but because we’re looking for an easy way out to “save the Earth” while continuing our hyper-consumption. (This could be a whole article on its own though, and it isn’t the focus of this one.)
In 2007, TerraChoice, an environmental consultancy in Canada, launched a study and subsequently published about the “Seven Sins of Greenwashing”. The seven sins are:
- Sin of the hidden trade-off
- Sin of no proof
- Sin of vagueness
- Sin of worshipping false labels
- Sin of irrelevance
- Sin of lesser of two evils
- Sin of fibbing
The hidden trade-off occurs when a business suggests its product is green based on one single environmental attribute or an unreasonably narrow set of attributes. These claims aren’t necessarily false, but it basically hides the larger environmental picture.
It’s pretty straightforward for the sin of no proof and the sin of vagueness. The sin of worshipping false labels though refers to when a product uses words or images to give the impression of a third-party endorsement.
The sin of irrelevance occurs when an unimportant or unhelpful claim is made to make it seem like the business is putting in extra effort to make the product eco-friendly when they aren’t.
A business commits the sin of the lesser of two evils when it makes a claim that might be true within the product category, yet is made to distract the consumer from the true environmental impact of the category as a whole.
For example, this happens when organic cigarettes are promoted as better for the environment but are actually still a pollutant.
The final sin of fibbing is just straight-up lying about the product.
In my experience, there are quite a lot of businesses that commit these sins, whether consciously or not. Don’t get me wrong; it’s great that we’ve come to place such emphasis on eco-friendliness.
But we have to ask ourselves, be we brands or consumers: Are we doing it for the right, genuine reasons?
Giving small businesses the leeway
On the flip side, though, overly strict expectations on sustainability might have an adverse effect.
Last year, The Institute of Marketing in the UK reported that out of over 200 marketing professionals in the UK, around half were wary of working on sustainability campaigns for fear of being accused of greenwashing.
The institute also published research that showed that out of 2K UK consumers, 63% believe many brands only get involved with sustainability for commercial reasons rather than ethical ones.
Of course, this might be different in Malaysia, but the theory is there. If consumers are overly sceptical of brands’ eco-friendliness, brands might feel more hesitant to even try promoting green practices.
Instead of feeling wary, though, brands should be finding ways to avoid greenwashing by using facts and figures to back up their claims and by being transparent with their customers.
“When it comes to justifying a brand’s claims in materials or impact, it is pretty easy to tell a shallow answer from one with in-depth work and research,” shared Najmia Zulkarnain, the co-founder of Unplug, a sustainable business that deals with other eco-friendly brands.
She continued, “Most times, based on our experience, we feel that ‘greenwashing’ from smaller brands comes from limited knowledge or resources, not with bad intent.”
It’s okay for a small brand to not be 100% eco-friendly as long as they’re honest about it, and the majority of consumers probably don’t even expect or require them to be.
Swapping out regular practices for eco-friendly ones can be more expensive and tougher, particularly in industries where there’s no clear blueprint for how to go about it yet.
So, understandably, profitability has to come before sustainability for many smaller brands, but having a clear roadmap of a business’s eco-friendly evolution while keeping consumers in the loop would be good.
It’s clear that small businesses may sometimes be complicit in the culture of greenwashing. At the end of the day though, perhaps they don’t deserve the same level of scrutiny as big companies, who should have the resources and capabilities to do better.
On top of that, many small businesses still do present better options than big companies, even if they aren’t the most sustainable product in the world.
“Small businesses do have more room to scale down and break away from a rigid operating system that may need to be re-assessed more easily than larger corporations,” Najmia added.
Plus, shopping locally does technically help cut your carbon emissions, but of course, that doesn’t mean the brand itself isn’t unnecessarily shipping its materials from abroad.
In this day and age where we know to do better, it’s only right that we actually do. This applies not just to us as consumers, but also to entrepreneurs and corporations.
- Read other articles we’ve written about Malaysian startups here.