Greenwashing? Greenhushing? Greenbashing? For those who have been making sustainability claims as part of their environmental, social, and governance (ESG) efforts, it may be time to screen and clean your green claims. Formalized rules and regulations now create a risk of regulatory scrutiny, penalties and fines. If your firm hasn’t already, now is the time to assess your exposure to reputational and regulatory risks, determine your response, and limit potential costs with a clear compliance and risk mitigation plan.

Prior voluntary efforts focused on branding and marketing a firm in a socially responsible light are being superseded by regulatory requirements. Compliance with requisite disclosures is key. Beyond compliance, risk mitigation efforts may be needed to protect the financial health of the firm, including assurance that there is no greenwashing, greenhushing, or threats from greenbashing. Navigating through these three perilous shoals requires advanced understanding of the corporate position and response teams ready to reply to regulatory inquiries, investigations, and enforcement actions, including those arising from whistleblower complaints or activist campaigns.

Greenwashing

Greenwashing can take many forms, but generally is a term used to 1) portray certain actions as more environmentally positive than they actually warrant; or 2)  retain the disclosure of negative information related to environmental performance. The term often is attributed to the 1986 double-entendre posed in an essay that criticized hotel “save the towel” campaigns that promised to protect the environment by using fewer resources while the real motivation was to reduce costs. In the 1990s, corporate claims of clean, green, natural, and other impressionable wording began to proliferate in branding and marketing. Corporate environmental and sustainability claims increased with the rise of socially responsible investing in the 2000s and continue today with ESG claims. Many of these claims are not verifiable and face little risk of exposure.

Due to the current social and regulatory environment, even the perception of greenwashing can damage reputation, misinform the market, generate consumer distrust, and penalize companies that actually are environmentally conscious. Companies that have inadvertently engaged in greenwashing may not even realize that broader considerations would render their claims suspect. For example, consumer protection laws provided the authority for public prosecutors to pursue companies that were misleading in their marketing claims.

Starting in 2017, a number of states started suing fossil fuel companies for engaging in disinformation campaigns and failing to disclose the impact of their products on climate change. More recently, the SEC has brought two enforcement actions in 2022 and issued a $25 million fine, in 2023, to a company for its supposed greenwashing efforts.  Of additional concern for publicly traded companies and financial firms, the SEC is expected to finalize its proposed rules for ESG claims and greenhouse gas emissions disclosures before the end of this year, setting the stage for a more significant disclosure and enforcement requirements.

As such, it is becoming increasingly important for companies to understand how to avoid greenwashing as it could increase the risk of regulatory penalties.  Through diligent research and insights, companies can identify the social and regulatory risks they are likely to encounter related to their ESG efforts and can take proactive steps to mitigate these risks in an ever-evolving patchwork of regulatory requirements.

Greenhushing

Greenhushing is a tactic to walk back prior ESG activities by no longer acknowledging them. Due to the increased regulatory pressures from a patchwork of jurisdictional laws worldwide, some companies are adopting strategic silence regarding their climate goals and decarbonization activities. Companies are using greenhushing as defense to regulatory oversight. Such actions attempt to avoid regulatory scrutiny, negative publicity, and shareholder backlash. However, companies that purposefully suppress publicity about its ESG practices, still face the risk of reputational exposure, greater regulatory/legal scrutiny, and lost opportunity to achieve transition in the timeframe that stakeholders expect.

In addition, due to the growing number of regulatory frameworks being implemented worldwide, this approach may only provide near term relief versus a long-term compliance solution. It is important to recognize whether your company is engaging greenhushing as a regulatory strategy, knowingly or unknowingly, and consider the impact of continuing this strategy instead of mitigating regulatory risks with independent third-party review and assurance through verified metrics. In this regulatory environment, being proactive before actions are taken by regulators can minimize both the financial impacts and social exposure going forward.

Greenbashing

Greenbashing is an active phrase that can represent criticism against actual ESG efforts or attacks against those who do not engage in enough socially responsible investment.

When used by those against ESG efforts, “greenbashing” reflects efforts to counter sustainability efforts and momentum behind environmental regulations and corporate initiatives. “Greenbashing” often highlights excess costs associated with decarbonization efforts, emphasizes the need for companies to focus on the bottom-line versus non-financial factors, and lobbies against environmentally oriented policies. Such tactics not only create reputation risk but could instill a corporate culture that fails to recognize and abide by regulatory requirements.

In today’s regulatory environment, failing to comply with government requirements, whether you agree with them or not, can lead to penalties, fines and potentially significant financial losses as well as customer attrition.  In addition, a number of environmental organizations currently are bringing lawsuits against firms accused of raising false flags for sustainability. Even if proven wrong in the courts, defending those claims can be costly and decrease financial performance.

How to Mitigate Your Risks

Statements that may have been in the domain of marketing hyperbole are now subject to regulatory review, potentially imposing a higher risk to corporate controls and reputation. However, this risk can be mitigated. Internally assess the materiality of your statements regarding climate goals, determine statement relevance to your stakeholders, and establish a regulatory compliance and communication strategy.

Understanding potential risks and addressing those risks upfront can go a long way in responding to regulatory inquiries when they actually occur. Adopting compliance programs to address new regulatory requirements can be used to show good-faith effort and reduce potential exposure. Obtaining independent, third-party review and assurance solidifies regulatory risk mitigation.

Responding to the pressures to adopt and implement sustainable practices can create a competitive advantage if done deliberately and diligently. Embracing ESG can remain a competitive advantage under a stricter regulatory regime so long as it is done properly. With the codification of new regulations, companies face new risks tied to greenwashing, greenhushing, and greenbashing. Identify and mitigate your risks before you receive a regulatory inquiry or have to engage in litigious defense.

How to Clean Your Green Claims

Greenwashing

• Identify public statements.
• Confirm there is supporting evidence to validate those public statements.
• Establish a process to manage public ESG statements and responses to stakeholders.
• Create a centralized inventory to respond to requests for validation of ESG claims, including regulatory inquiries.
• Establish a review and approval process for new claims.
• Assign responsibility to a go-to person/function to oversee public statements.

Greenhushing

• Review public ESG statements and activities previously made.
• Validate accuracy and feasibility of historical statements in the context of current activities.
• Acknowledge how prior activities or goals may have changed due to changing circumstances and/or reassessment and recognize those changes publicly.
• Establish KPIs and other metrics to monitor and track goals.
• Report those KPIs, along with actions to be taken to better those metrics, in a regular report.
• Periodically conduct assessments of ESG activities and update targets as necessary based on scientifically based evidence.

Greenbashing

• Establish a policy against attacking efforts or issuing public statements against ESG efforts made by others.
• Manage government affairs and regulatory lobbying to communicate challenges to achieving green goals.
• Perform periodic communications regarding the companies ESG activities and benefits.
• Establish working groups to get stakeholders involved to contribute to and help steer direction.