Going Green or Greenwashing?

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Beethoven’s Sixth Symphony, known as the “Pastoral Symphony,” debuted along with his Fifth Symphony in an excruciating long four-hour concert. Although less recognizable than Beethoven’s Fifth Symphony, the Pastoral Symphony also is frequently performed.

Many don't know that Beethoven was a nature lover and enjoyed long hikes. He named this symphony “Reflections of Country Life.” The five movements are programmatic depict the peaceful countryside, a brook, a country gathering, a thunderstorm, and a shepherd’s song.

On June 5, 2020, UN World Environment Day, the UN Climate Change and Beethoven 2020 jointly launched the Beethoven Pastoral Project. Backed by 300+ musicians around the world, the Pastoral Project’s Declaration starts:

We, musicians, artists and creatives of planet Earth, offer our artistic and musical creativity, and our own actions, as signs of our determination to be part of the solutions to current planetary challenges. We want to inspire and be part of that change. We stand with humanity and with Nature.

This year we are celebrating the 250th birthday of Ludwig van Beethoven – a universal thinker with an enduring legacy. He aspired to the Age of Enlightenment as well as to the divine perfection of Nature and composed some of his most radical works in a state of deafness and isolation. His Pastoral Symphony is the first musical work ever dealing with the feelings of a person in Nature. Today more than ever Beethoven’s work encourages us to believe in the limitlessness of human creativity, in progress informed by science, and in a peaceful collective “we”. Just as his visions of humanity and a life in harmony with Nature inspire us, so too can our art and music inspire human progress and creativity in these difficult times.

In June 2020, the Project produced a 3-1/2-hour program involving more than 250 artists urging the creative community to insist upon climate protection. I find little about the Project after that launch. But COVID-19 disrupted the world, including the Beethoven 2020 celebration.

The pandemic explains why it may not have been possible for the Pastoral Project to have been as large an initiative as planned. And the Project may move forward with enthusiasm when the pandemic ends.

However, some companies and real estate owners promote "green" initiatives that sound good but aren't intended to accomplish much. This article discusses “greenwashing,” how to recognize it and how investors and consumers can spot (and avoid) companies and real estate investments that “greenwash” their initiatives.

What is Greenwashing?

Going green is popular – and it's good for business. Plus, with the SEC’s recent focus on disclosure about ESG (Environmental, Social, and Governance), going green is no longer optional for public companies. However, as discussed in my previous article, ESG Strategies for Small Business and Private Companies, all businesses have a responsibility to focus on ESG, including their impact on the environment.

The Onion's Guide to Socially Responsible Investing says: "What makes a company ethical? They must have at least one tree, body of water, or endangered animal on their board." It's The Onion, so it's meant to be satire. However, with increased emphasis on ESG, some companies engage in "greenwashing."

Investopedia defines “greenwashing” as “the process of conveying a false impression or providing misleading information about how a company's products are more environmentally sound. Greenwashing is considered an unsubstantiated claim to deceive consumers into believing that a company's products are environmentally friendly.”

Accurate reporting of ESG activities was always important. And the SEC recently announced that it would be examining ESG funds and public corporations' ESG claims for signs of greenwashing.

Unfortunately, going green can be costly. It may require more expensive products or construction or retrofitting buildings to be more energy-efficient. Some businesses or real estate sponsors may sincerely want to lessen their environmental impact but fall short due to budgetary or other concerns. But others intend all along to do the minimum and may exaggerate their green programs.

Types of Greenwashing

Consumers may not be able to detect outright fraud, but a careful reading of a vendor's claims may reveal greenwashing risk. Following are ways companies advertise to convey a green image without a significant green impact:

Symbolic Actions—A commercial property owner might advertise the installation of solar panels on its buildings but retain low energy efficiency HVAC units which, if replaced, would save more energy than that generated by the solar panels.

Selective Disclosure – A commercial property owner might mention it has quit using Freon (which harms the ozone layer) in its air conditioning units but not mention that the HVAC system includes an oil boiler, which emits exhaust that pollutes the air.

Imagery – A company’s ads might portray lush greenery to appear environmentally friendly while maintaining operations harmful to the environment.

Misleading – A real estate company may advertise that its new recycling program has resulted in a 50% increase in recycling at its property, without pointing out that the total percentage of items recycled remains only 3% and that the 50% increase was from the previous 2% level.

Pledges Without Backing – A company may pledge to accomplish a particular environmental goal but either not provide specifics or have no clear plan to achieve that goal.

Greenwashing Examples

If one believes the allegations, greenwashing isn’t uncommon. Perhaps the most notorious example of greenwashing was Volkswagen. When the company's vehicles failed to meet advertised low-emissions standards, Volkswagen engineers went to work on a solution. But they didn't work to lower emissions. Instead, they created a device that would enable vehicles to "cheat" on emissions tests.

Fraudulent greenwashing isn't a new thing and isn't as rare as one would hope. In 2015, Nordstrom, Bed Bath & Beyond, Backcountry.com, and J.C. Penney paid $1.3 Million in fines after the Federal Trade Commission (FTC) accused them of falsely labeling rayon textiles as made of "bamboo," so they would appear to be made from a renewable product. And in 2019, a company called Truly Organic Inc. paid $1.76 Million to settle an FTC complaint claiming the company's bath and beauty products were neither 100% organic nor certified organic, as claimed.

A famous allegation of symbolic action greenwashing involved Starbucks' switch to a "straw-less" lid to cut back on straw use. Unlike Volkswagen, Starbucks didn't cheat – the company actually switched to the new lids. However, environmental advocates pointed out that the new lid contained more plastic than the previous lid and straw combined. Starbucks responded by noting that the new lids could be recycled but straws could not. In response, environmentalists noted that only a small percentage of recyclable items were actually recycled and that Starbucks should have known that most of the lids probably wouldn't be recycled.

Nestle was accused of making a green pledge without backing in 2018 when it announced its "ambition to make 100% of its packaging recyclable or reusable by 2025," without outlining a plan to accomplish this goal.

Figi water, which sells “artesian water” and includes a beautiful flower on its labels, has been accused of greenwashing imagery. Figi water comes from the Island of Figi, where many residents lack access to clean drinking water, which causes some to question the social impact of the company’s productions.

Apple faced greenwashing claims when it eliminated chargers and earbuds in the box with iPhone 12. Apple claimed that the move would cut back on waste and environmental impact from mining for raw materials and manufacturing unneeded items. However, financial experts alleged that cost savings (and perhaps the hope that consumers would invest in air pods) was the real reason for the change. Others noted that Apple, as a company, is notorious for planned obsolescence and making products that can't be easily repaired. Detractors claimed that replacing iPhones because they can't be repaired has a far more significant environmental impact than discarded earbuds and chargers.

Windex was accused of a misleading green campaign when, in 2019, it introduced bottles made of “100% recycled ocean plastic.” In fact, the recycled plastic came from plastic on land that was at risk of finding its way into the ocean. Windex's ads now refer to the bottles as being made from “ocean-bound plastic.”

Failed Well-Intended Green Project or Greenwashing?

Unfortunately, it's difficult to distinguish a well-intentioned green project that fails from a project that was greenwashed from the start. And as seen with the Pastoral Project, COVID-19 derailed many green initiatives.

Before the pandemic, I enjoyed an occasional visit to my local coffee shop to unwind and sip on a latte from a ceramic cup. It seemed environmentally responsible to take the time to consume my morning caffeine from a reusable cup. When COVID-19 hit, my coffee shop quit using ceramic dinnerware. All beverages now are served in disposable cups with lids previously reserved for carry-out orders. The change from ceramic to disposable cups is an example of a legitimate green initiative that was derailed.

However, the coffee shop could be accused of selective disclosure greenwashing had the circumstances been different. For example, suppose the company announced it was switching to disposables to curb the spread of COVID-19 but the real reason for switching to disposable cups was to save money on labor costs by eliminating dishwasher jobs.

Another example of a derailed greenwashing project comes from a client in the real estate business. The client purchased real estate in January 2020 and started on an 18-month renovation plan which involved installing high-efficiency HVAC units and solar panels to reduce the property’s environmental impact.

However, the client's efforts were almost immediately derailed when the COVID-19 pandemic resulted in shortages in HVAC units and solar panels. As the supply issues abated, the property owner faced drastically increased costs and a lack of skilled labor to install the improvements. With only about 15% of the initial project completed, it's unclear whether the remainder will ever happen. The project is another example of a legitimate green initiative interrupted by the pandemic.

With the example above, the project also could have been greenwashing. For instance, had the client advertised its intention to install the HVAC units and solar panels without a concrete plan or the money to pay for the installations, that would have looked like a pledge without backing – even if the pandemic prevented completion.

Best Practices for Businesses and Real Estate Owners

The coffee shop and real estate owner couldn’t have predicted how the pandemic could affect their environmentally-friendly practices. However, the alternate scenarios show how it's challenging to distinguish a well-intentioned green program from greenwashing.

Before launching a "green" program, businesses and property owners should examine their plans through the lens of someone looking for greenwashing. By considering whether their program falls into the types of greenwashing described in this article, businesses and owners can both ensure there is substance behind their “green” program and make it less likely they will be accused of greenwashing should a well-intentioned program fail due to unforeseen circumstances.

This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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