The increasing demand of the market and society for companies to adopt ESG (Environmental, Social and Governance) principles has brought to the business scene a new unfair conduct: greenwashing.
Greenwashing is a term used to designate deceitful marketing strategies regarding sustainable practices that do not necessarily fall into the company's actual practices. It can be used to mislead consumers into believing that the company cares about environmental responsibility, without actually adopting the sustainable actions it advocates.
The use of speeches and advertisements on alleged eco-friendly products or initiatives (which, in reality, are not that sustainable)– has already been employed by big companies that, later on, were caught. Besides the legal consequences, this conduct also brought damages to these companies’ image, credibility and reputation, which inevitably led to financial impacts.
Integrity issues are getting increasingly relevant in the corporate world and stakeholders are paying more attention to it. This means that greenwashing practices can be identified more easily – either by verifying that a particular product is not as eco-friendly as advertised or that an environmental practice was not as sustainable as publicized.
Despite the profit earned during the period in which the inaccurate or misleading information was portraited, the identification of greenwashing may subject the company to heavy fines from regulatory agencies, loss of market value or decrease in the sale of its products, all due to the publication of negative medias showing the false marketing strategy that the company adopted and its actual activities.
However, greenwashing is not always necessarily deliberated. Many companies can greenwash without even realizing what they are doing.
For example, a company that advertises having a sustainable supply chain (and, in fact, internally it really does). However, in spite of that, the company does not investigate how their third parties work. Such situation can also be considered as greenwashing since the term does not only concern the company's operation and internal practices, but also how its third parties perform their daily activities.
That is when the “G” (governance) begins. The employees responsible for the corporate governance act to guide the actions of the company and to implement measures that confer legitimacy and effectiveness to its sustainable practices, avoiding or at least mitigating the risk of greenwashing.
Corporate governance is the system by which companies are directed and monitored. It involves not only the board of directors and partners, but also management, employees, customers, suppliers and other stakeholders.
When an efficient corporate governance system is adopted with transparent practices, greenwashing can be avoided and the economic value of a company is optimized in the long run. Moreover, good corporate governance contributes to the improvement of the quality of the organization's management and to the attraction of new investments. After all, when there is a well-structured governance, the "E" and the "S" of the ESG are effectively developed and complied throughout the company.
Below, we list a few integrity measures that can make a difference in the corporate governance of a company. These measures are not exhaustive and should not necessarily be implemented in the order considered below. However, they have been proven to be essential in strengthening sustainable practices, as well as promoting a work environment of respect for the integrity of the company.
- Implement a complete code of ethics, as well as social and environmental policies applicable internally and externally: documents are imperative for the establishment and dissemination of the company's guidelines, in addition to highlighting effectively sustainable practices.
- Dissemination, communication and training strategies: documents alone are not enough to create an organizational culture aligned with environmental issues and capable of engaging employees. It is essential that these documents are disseminated in banners, pamphlets and specific trainings to employees and third parties, specifically about the content of policies and other relevant conducts. With such practices, knowledge about internal conducts and rules will become a commonplace throughout the company.
- Commitment from senior management: it is extremely important that senior management strengthens integrity and ESG guidelines in its speeches and communications, highlighting these practices on a daily basis. When we refer to senior management, besides the directors and the president, it is also necessary to include managers and other supervisors, who, when observing and promoting ethical norms and conducts, pass that example on to their subordinates, even if indirectly (the so-called tone at the top).
- Implementation of efficient internal controls when hiring third parties: the effectiveness of internal controls is critical to mitigate the risks of greenwashing. As mentioned, it is possible that many companies do not even realize that they can be committing greenwashing when disclosing certain information and practices.
Therefore, it is recommended the establishment of procurement policies, not only to verify if a supplier has expertise to perform a service, but also to analyze issues, such as:
- Does the third party have appropriate environmental and labor processes?
- How is the third party production chain?
- How are the third party products disposed?
- How are internal integrity practices of the third party disseminated?
Having a system of internal controls allows the company to be aware of the attitudes of its third parties and makes it easier to disseminate its own environmental initiatives to other companies.
- Conducting risk assessments focused on social and environmental aspects: many risk assessments are based on large materialized contingencies. Although these analyses consider environmental aspects, they generally cover existing infractions or fines.
It is also relevant for the company to conduct preventive risk assessments, making the "E" effective within the organization. This means carrying out inspections to be able to anticipate environmental risks generated by the company's everyday decisions (construction, renovations, sewerage, etc.) and act beforehand on what can be improved, considering the least possible environmental impact.
As already pointed out, these practices are not exhaustive. Considering that there are companies with different structures, sizes and social capital, each of the suggestions outlined here should always take into account the reality of the company and its market.
It is possible to alter several internal proceedings on the subject in existing areas (such as legal, audit and human resources) or through an external consultancy, to start off the path to show real environmental concerns. When hiring an external consultancy, it will be up to the company, to maintain the practices pointed out by the consultancy, with the appropriate updates, considering the internal resources available.
 Definition proposed by the Brazilian Institute of Corporate Governance.