“The most efficient profit maximization scheme in the short term is not to make investments to be green, it’s to market yourself as being green,” said Tariq Fancy, on a BoF VOICES panel in 2022, deftly summarizing the problem of misaligned incentives that risks compromising the environmental transition.
In August 2021, this former chief investment officer for sustainable investing at BlackRock wrote a viral essay explaining how ‘sustainable investing’ is actually working against the public interest. He identified how Wall Street is gaming the system by monetizing investors’ and consumers’ desire to make a difference without actually doing the hard work of implementing systemic change. Sadly, the phenomenon he identifies, known as ‘greenwashing’, is not limited to the financial industry:
Growing consumer awareness
Environmental criteria are increasingly important in consumer purchasing decisions, and greenwashing is a marketing strategy that manipulates this fact by overstating a company’s positive environmental impact to boost their brand image or employer brand.
A 2021 study by EcoVadis-Médiateur on business sustainability ratings shows that a growing number of ‘leading’ companies in Europe have exemplary performance in sustainable procurement and CSR, but CSR is not just an initiative or a series of measures – it should be part of a holistic programme that includes collaboration with all stakeholders to understand their concerns. And to be truly ‘eco-friendly’, CSR commitments must be aligned with the objectives of the Paris Climate Accords, that is to say that they should contribute to reducing global CO2 emissions and limiting the global temperature increase this century to 2°C.
The paradox of corporate social responsibility
Including environmental criteria in business decisions and corporate strategy is by definition difficult to implement because the decisions they imply are often in contradiction with the company’s core business and legal obligations vis-à-vis their shareholders. Therefore, in the absence of effective public policy, companies are incentivized to communicate on virtuous CSR initiatives that are little more than window dressing, but the consequences of that may be more severe than first seems obvious. As Tariq Fancy argues, “if you tell people that the solution to climate change is to buy low carbon ETFs – and you get to make money and fight climate change – who is going to support a carbon tax?”
Greenwashing ultimately makes it harder to find real solutions because it prevents companies from thinking constructively about what they need to do, while tricking consumers into thinking they are contributing, which may also eventually make them sceptical about the utility of any environmental claims. As such, the European Union is planning to legislate on the use of terms like “eco-friendly” and “good for the environment”, which will be conditioned to proof of actual verifiable progress. It is all too easy for brands to boast of using recycled plastic bottles in their polyester articles, for example – a claim that customers may take at face value as being a net positive the environment, but which research shows has little or no environmental benefit. According to George Harding-Rolls, the campaign advisor for the Changing Markets Foundation, “if fashion brands are serious about reducing their environmental impact, they should stop the charade of downcycling plastic bottles into clothes and instead focus on cutting their addiction to fossil fuels and curbing overproduction.”
Paper or plastic?
With plastic pollution already a huge and growing problem, and given the ubiquitous nature of messages about recycling, it is not surprising that the textile industry has latched on this issue for communication purposes. The COVID-19 pandemic led to a sharp increase in the use of plastics and plastic littering, despite a slowdown in overall economic activity, due to the rise in take-away and home delivery sales, e-commerce, and the use of personal protective equipment. Given that 30 OECD countries have recently made commitments to phasing out the use of plastics, the current trend to switch from paper to plastic banknotes is all the more surprising. Australia led the way in this respect, having first introduced plastic banknotes in 1988 before completely replacing its paper banknotes in 1996; and the Bank of England (BoE) followed suit in 2016, in a move that went firmly against the zeitgeist, by launching a plastic £5 note, a £10 note a year later, a £20 note in 2020, and a £50 note in 2021. Plastic banknotes are now in circulation in more than 20 countries worldwide.
The BoE’s ostensible rationale for this switch was that plastic banknotes’ greater durability would compensate for their higher environmental impact on the production side because they would need replacing less frequently. “A polymer fiver is expected to last two-and-a-half times longer than the old paper £5 note” they argued. Those predictions have not been borne out on the ground, however; 20 million plastic £5 notes were taken out of circulation in the four years following their launch because of damage, meaning more banknotes had to be printed, generating more carbon dioxide emissions. A report indicates that plastic banknotes have a higher carbon footprint over their whole life, but the head-to-head comparison may be even more unfavourable if they last less long than originally believed.
Another argument is that plastic banknotes are recyclable, but this is another claim that has all the hallmarks of greenwashing; they can only be recycled once, and after that – like almost 80% of all plastic waste – they are disposed of in landfills, with the inherent risks of soil and groundwater pollution that entails, or they are incinerated, which produces more CO2 emissions as well as releasing harmful volatile compounds. Traditional paper banknotes, on the other hand, which in the eurozone are made from cotton, can be composted.
A common argument for switching to plastic banknotes is that they are harder to counterfeit, but this is not correct, as the European Central Bank (ECB) underlines. With paper banknotes the substrate itself is secured; security features like watermarks and security threads are embedded into the structure of the paper during the production process for greater security. With polymer banknotes, such security measures are applied only to the surface of the banknotes using more conventional printing techniques that are easier for counterfeiters to reproduce with equipment that is more readily available. A new series of Euro banknotes – boasting all these advantages and redesigned following a Europe-wide consultation, according to ECB President Christine Lagarde, “to make them more relatable to Europeans of all ages and backgrounds,” – is expected to be launched in 2024.
Greenwashing, which now affects every industry, has grown in parallel with consumers’ heightened environmental awareness. This was perhaps inevitable as companies came to realise that a real or perceived disregard for the environment could have a major impact on their image, and ultimately their bottom line. Although there may not always be a deliberate intention to deceive, companies and consumers alike must arm themselves with the knowledge that the superficial appeal of more modern-seeming or futuristic solutions are often a step backwards that have unforeseen consequences on the environment.
