Greenwashing: What It Is and How to Avoid It

Greenwashing is easier than cleaning up your act. But sophisticated customers don’t buy it.

Written by Kerry Halladay
Published on Apr. 12, 2022
Greenwashing: What It Is and How to Avoid It

According to the venerable Kermit the Frog, it isn’t easy being green. Being green means you blend into the background, he says. But things are different outside of the swamp. For business, being green — sustainable, that is — means grabbing the limelight.

Companies want to be sustainable because consumers, employees, investors and regulators are demanding it. But since being green can be tough and communicating about it transparently can be even tougher, some companies wind up greenwashing.

What Is Greenwashing?

Greenwashing is when a company makes inaccurate or misleading statements about its sustainability. Greenwashing can include a company making intentionally false, inaccurate or misleading claims about its sustainability practices. But it can also include unintentionally misusing terms related to sustainability or even a lack of transparency about relevant details. Within the tech industry, greenwashing often relates to statements about carbon emissions associated with energy.

 

What Is Greenwashing?

Greenwashing is when a company gives an inaccurate or misleading impression about its sustainability practices.

Greenwashing can include a company making intentionally false, inaccurate or misleading claims about its sustainability practices. But it can also include unintentionally misusing terms related to sustainability or even a lack of transparency about relevant details.

When it comes to the tech industry, for instance, greenwashing often centers around claims made about carbon emissions. (Greenwashing related to carbon emission reduction efforts even has its own name, “carbonwashing.”)

8 Tips for Companies to Avoid Greenwashing

  • Assess and measure your company’s energy use.
  • Understand your company’s scope 1, 2 and 3 emissions.
  • Know your data center’s location.
  • Set realistic sustainability goals.
  • Change practices to reduce carbon emissions.
  • Impose an internal cost on the carbon you generate.
  • Fully understand the terms you are using before making sustainability claims.
  • Be specific when communicating about sustainability.

There are many reasons greenwashing happens, but they boil down to the fact that sustainability is demanded by consumers, meaning companies have a motivation to be — or appear to be — sustainable.

“Consumers want to not only consume sustainable products, they want to work at companies with sustainable missions,” Gary Chance, vice president of partnerships and marketing at Prescriptive Data, said. The company’s product, Nantum, is a building management platform that aims to improve sustainability and operability of commercial buildings. 

But the pressure to be green isn’t just from consumers or potential employees.

“Investors are rewarding sustainability,” Chance said. 

Most individual investors are interested or very interested in sustainable investing, according to a Morgan Stanley Institute for Sustainable Investing report. And among the 800 respondents surveyed, the interest of millennial investors was almost universal at 99 percent.

Companies are also increasingly being punished for not being sustainable with fines and regulatory action. According to the U.S. Environmental Protection Agency, median penalties for violations of the federal Clean Air Act have grown, despite fluctuations, over the past several years. 

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Greenwashing Doesn’t Always Happen on Purpose

Since greenwashing encompasses both a company’s sustainability practices and how it communicates that, it’s worth considering what it means to be sustainable.

Though definitions differ wildly on specifics, the core concept of sustainability is “meeting the needs of the present without compromising the ability of future generations to meet their own needs,” as stated by the United Nations. Similarly, the EPA says that “to pursue sustainability is to create and maintain the conditions under which humans and nature can exist in productive harmony to support present and future generations.”

Tech, in particular, faces a number of unique challenges when it comes to being sustainable, but the biggest current focus is on energy use and the carbon that is produced in the generation of that energy. This has led many tech companies to make pledges to become net-zero on their carbon emissions.

Google, for example, has pledged it will “decarbonize” its energy consumption by 2030. Amazon has similarly pledged to be net-zero on carbon emissions across its business “by 2040, 10 years ahead of the Paris Agreement,” the international treaty on climate change. Microsoft has even pledged to be “carbon-negative,” that is, not only not producing carbon, but actually removing it.

However well intentioned such claims might be, they are not without their issues. For example, Rahul Tongia, a senior fellow at the Centre for Social and Economic Progress and adjunct professor at Carnegie Mellon University, highlighted the confusion around the “net” portion of net-zero emissions claims. 

“Will carbon emissions really be zero, or are they ‘net’ through not just futuristic offsets (which are expensive or unproven at scale) but offsets that are unfair or, even worse, based on accounting tricks?” he wrote in a post for the Brookings Institute. Unless a lot of care is taken in the accounting of carbon offsets, “we risk greenwashing.”

 

Greenwashing Also Deals With Communication (or Lack Thereof)

Greenwashing also means communicating badly about sustainability.

“Being honest about how much of that power you’re consuming is coming from carbon sources is really the key to not greenwashing things,” Chris Noble, founder and CEO of Cirrus Nexus, said. The company offers an AI-driven cloud management platform that allows users to track various information about their cloud service, including its carbon impact.

But communicating about sustainability with that sort of transparency on energy sources and their carbon generation is sometimes easier said than done. 

For one, energy sources are very regional, meaning that there might not be much opportunity for carbonless energy in a specific area. Most of the wind generation in the United States is concentrated in the Central Plains and near the Great Lakes, for example. And there is very little solar generation in the northern central states like Montana, the Dakotas, Wyoming and Idaho.

“Being honest about how much of that power you’re consuming is coming from carbon sources is really the key to not greenwashing things.”

In addition to this, the energy mix a company draws from changes throughout the day.

“For instance, in the middle of the day in Northern California, you’re getting a mix of nuclear, a little bit of hydro and coal and gas and oil,” said Noble. “But we also know that at night you get a lot more hydro in that mix because the hydropower that’s being produced in the Northwest is transferred at night. So your carbon footprint, your impact on carbon, changes throughout the day.”

This regional and temporal variation can make it very difficult to accurately quantify the greenness of a company’s energy sources. 

To complicate this situation, smaller tech companies rely on the big tech companies for cloud services. This also means they rely on them for information about their sustainability.

“I think the single most challenging thing, especially for small tech and small players, is getting data for the use of their product or their operations from those providers,” Alyssa Rade, chief sustainability officer at Sustain.Life, said. The platform helps businesses operationalize their sustainability goals.

“You’ve got your Google, your Amazon, your Microsoft and the folks who own the data center — of course they have access to incredible information and data about their own function and in many ways lead the way for the tech industry,” she said. “But if you are a small player, and you can’t even get them to tell you what your measured impact is from using their platform and for supporting your business, it’s really hard.”

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What Companies Can Do to Avoid Greenwashing

Despite the challenges that tech companies — and especially smaller companies — face related to both sustainability and communicating transparently about it, there are several steps they can take to better avoid greenwashing.

 

Assess and Measure Your Company’s Energy Use

You can’t manage what you don’t measure. So, the first step of avoiding greenwashing is assessing your company. 

“Take a look at your business and understand what are the impacts of your business on the environment,” Rade advised. “Like, do you produce a lot of waste? Do you consume a lot of energy? Do you do a lot of travel? Do you utilize toxic chemicals?”

For Chance, the most important part of this is measuring your company’s energy use and carbon emissions. That isn’t always the easiest thing to do, however, but there are some tangible ways tech companies can try to have a better sense of this information, including understanding emissions. And that brings us to the next tip.

 

Understand Your Company’s Scope 1, 2 and 3 Emissions

Emissions are classified by the U.S. government in three different groups: direct emissions (scope 1), indirect emissions (scope 2) and upstream and downstream emissions (scope 3)

Scope 1 includes direct carbon emissions from what a company owns (think the emissions associated with the fossil fuels burned by company cars). Scope 2 includes more indirect factors like the electricity (and the carbon emitted in its generation) needed for your physical office like keeping the lights on, running equipment, keeping the air conditioner going and so on. 

“Scope 1 and 2 emissions are much easier to wrap your arms around and get the data for. It reflects the energy that your company uses,” Rade said. 

Scope 3 items, though, are more nebulous and challenging because they involve the carbon generated from a company’s entire supply chain. 

Chance gave the example of a tech company that works with hardware. Identifying scope 3 emissions would involve questions like, “Where did every single piece of your equipment come from? How was it built? How was it shipped? How is it stored? How is it delivered to the end customer? And acquainting energy usage and carbon emissions to each of that journey,” he said.

Companies should make an effort to understand all three types of emissions. Not only is that helpful in the overall effort of avoiding greenwashing, it may be required at some point in the near future. The U.S. Securities and Exchange Commission recently proposed a rule change that would require certain kinds of companies that issue securities to report their scope 1 and 2 emissions when registering with the SEC. Depending on the sort of sustainability claims such companies make, they might also be required to report their scope 3 emission information as well.

While this proposed rule might not impact many tech companies, it could be an indication of what’s to come. 

Because scope 3 is the most complicated, Chance recommended that companies work on figuring out their scope 3 emissions last because they will very likely find “more and more nuances” regarding their emissions as they begin trying to quantify the first two. 

 

Know Your Data Center’s Location

If a company does decide to tackle their scope 3 emissions, a big part of that will relate to their cloud computing and other remote computing services. 

“If you log into a cloud computer somewhere that’s being hosted by some cloud company, understand where that computer is being run,” Noble said. “Because it’s not some mythical thing that’s out in the ether — it’s actually physical hardware somewhere being run and that’s consuming electricity.”

Companies should find out where the data centers they are using are located, Noble said, and get to know local conditions related to energy generation. Knowing this sort of information can not only help companies avoid greenwashing, but it also helps companies make more sustainable decisions. He gave the example of a hypothetical company deciding between two different data centers, one located in Ireland and the other in France. Perhaps the data center in Ireland comes out to $1 per hour to run a computer while the data center in France might come out to $1.20 per hour. If a company was just going by price, the choice would be obvious: the Irish data center. 

But if the company knew that France’s energy comes mainly from carbonless sources while Ireland’s power comes largely from carbon-producing sources, the choice might not be so clear, particularly if the company wants to be more sustainable and make transparent claims about their sustainability efforts, Noble said. 

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Set Realistic Sustainability Goals 

Tracking down scope 3 emissions information can be daunting. But efforts to be more sustainable and transparent about sustainability goals don’t need to be big right away.

To start, Rade recommended that companies set small, realistic goals based on their situation. Going net-zero on carbon by 2030 or zero-waste in five years likely isn’t realistic for most companies, she pointed out. They might seem ambitious, but if they aren’t feasible, setting those as goals will invite greenwashing when they are (most likely) not met.

Starting small and realistic might be something as modest as committing to measure sustainability-related things, Rade said. Then, with data in hand, a company could make realistic, tangible goals about which accurate, contextual information could be shared with stakeholders. Going waste-free in five years might not be realistic, but maybe reducing waste by 25 percent is.

“You have to think about what’s strategic and feasible for your organization by setting those realistic, tangible goals to keep you on track for larger, more ambitious plans,” she said.

 

Change Practices to Reduce Carbon Emissions 

Any of these goals, large or small, ultimately should aim at reducing carbon emissions. Chance recommended that companies start using technology that can help them do so across the workspace. This can include using tools or services like emissions-tracking software, or using air travel carbon calculators, like the one offered by the UN’s International Civil Aviation Organization. It can also be something as direct as purchasing energy generated through carbonless means.

Rade suggested companies consider changing their more carbon-intensive practices. The interconnected issues of work location and travel is a key area to examine, she said.

“If you are a tech company, and you have a service or good that does not require an in-person environment — like it really is well suited to this distributed workforce — think about maintaining a remote-first policy and how to disincentivize individual modes of transit, like car use or even long-term flights,” she said. “[This] can have a really significant impact.”

Though not the most directly tied to the ultimate goal of avoiding greenwashing, Noble also recommended that companies educate their employees on — or at least get them thinking about — how their decisions at work and at home can impact carbon generation. 

The decision to drive a private car to work versus taking public transit or biking has a fairly obvious carbon angle to it, for example. But there are other decisions that don’t have as obvious a carbon connection. Choosing to charge a cell phone at night — non-peak hours for an electrical grid — versus during peak hours, is an example. 

The impact of choosing to charge a phone at night might be minuscule on the individual level, but the strategy of targeting energy-hungry activities to non-peak hours can also apply to workload decisions, Noble said.

 

Impose an Internal Cost on the Carbon You Generate 

For a company to avoid greenwashing, it must be transparent about its carbon footprint. And, according to Noble, “to be transparent is to impose a cost.”

“Companies must impose (or have imposed) an internal cost of the amount of carbon they are causing to be produced,” he said. “If companies are held accountable for the amount of power that they’re using and there’s a cost to that, then companies will start changing it.” 

This, in turn, helps address the issue of greenwashing “because it’s not about these offsets and transferring that carbon load to somebody else, it’s actually taking accountability for how much carbon you’re actually causing to be produced by your consumption,” he said.

Returning to his example of the hypothetical company deciding between Irish or French data centers, Noble pointed out that the price tags would change if it sets an internal cost on carbon. If, for instance, the company placed an internal cost on every kilo of carbon generated, the effective cost on the Irish data center would increase quite a bit considering the carbon-heavy nature of the energy mix in that area. By comparison, the French data center cost would only increase slightly since the energy mix in that area relies heavily on carbonless sources.

“Whether it’s company imposed or government imposed, there’s got to be a cost of carbon,” Noble said. Better — and more transparent — for companies to make that decision themselves rather than have it imposed on them, he said.

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Fully Understand the Terms You Are Using Before Making Sustainability Claims

While there are bad actors out there, from Rade’s perspective, a lot of tech companies — particularly startups — engage in greenwashing without realizing it. Instead, they are using what they might think is marketing jargon without knowing that some terms and claims actually have very specific, regulated meanings. She gave examples like “compostable,” “biodegradable” and “plastic free.” 

“They don’t have anybody there who knows that these words have a specific meaning. And that’s where I think a lot of companies do get into some trouble.”

“There have been companies that find themselves in lawsuits because they use these words with their marketing department, and maybe they honestly don’t have an in-house sustainability person,” she said. “They don’t have anybody there who knows that these words have a specific meaning. And that’s where I think a lot of companies do get into some trouble.”

She recommends companies read the Federal Trade Commission’s green guides and become familiar with the terms it covers. The guides also offer tangible, real-world examples related to sustainability claims to give a better idea of what different terms and claims mean. 

 

Be Specific When Communicating About Sustainability

When communicating about sustainability topics, make sure your company is being specific to avoid greenwashing.

“Don’t say your product is provided by renewable energy if actually one of the plants that makes this product is served by 30 percent renewables,” Rade gave as an example. Saying your product is made in a facility that is served by 30 percent wind-generated electricity might not sound as impressive on your website, she acknowledged, but it is far more transparent, which is key to avoiding greenwashing. 

Rade specifically recommended companies provide “transparent contextualization of your strategy, your goals and having a regular reporting period.” This could come in the form of an annual report that a company posts publicly on their website, for example.

Not only is transparent, contextualizing communication on sustainability the right thing to do, but stakeholders want and value it, Rade said. It is especially important when a company falls short of their sustainability goals because the details of why are likely relevant.

“In New York, where I live, they’re taking the nuclear power plant offline that used to provide, I think, 25 percent of the region’s power,” Rade gave as an example. “And so in the short run, all of your emissions for your electricity consumption are going to go up because the grid is actually getting dirtier before they’re able to bring online cleaner sources.”

If a company is being transparent about their sustainability communication and experiences something like that, sharing contextualizing details would be important for stakeholders to better understand the situation. “And I think that kind of storytelling is really important,” Rade said.

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