As the demand for more sustainable goods is rising, so are environmental claims by companies. Greenwashing is especially prevalent in industries such as agriculture, forestry, real estate, fishing, and more. What gives? And what can be done about it?
News on circular product design, and what people call sustainable product innovation, is not so encouraging these days: In terms of circular product design, firms talk the green talk far more than they walk the green walk, and there is rigorous evidence to support this.
Circular product design is an area where firms greenwash the most. Specifically, in a paper I co-authored with Professors Papagiannakis, Kassinis and Kay, drawing on Thomson Reuters’ data, a novel index of circular product design greenwashing was crafted and applied to time series data tracking 7,365 firms in 47 countries over a 15-year period (from 2002 to 2017). This variable ranges from -1 to 1 where above zero and of course closer to 1 means more greenwashing. The findings showed that environmental product innovation greenwashing is .40 whereas product responsibility greenwashing (namely product quality, responsible marketing practices, etc.) is .16. Interestingly, the sectors that greenwash the most when it comes to environmental product innovation are Agriculture, forestry and fishing (.76) and Finance, insurance and real estate (.56)
It’s not what firms say but what they do
Fortunately, there is some good news also. It seems that firms have incentives to walk their talk concerning circular product design. Specifically, we have econometrically linked circular product design greenwashing with firms’ sales and find that the relationship is negative and significant (coefficient is -.17). Customers penalize firms that do not keep their circular product design promises and, reversely, reward those that do. So, firms have financial incentives to promise circular product design as long as they keep those promises. Overall, this evidence shows that stakeholders should be cautious regarding firms’ promises about circular business models, such as designing for recycling, extending product lifecycle, and retaining product ownership.
All this raises the question: What can we do about it? How can we practically deal with this kind of greenwashing? Regulation is an answer, but unfortunately, regulation enforcement is tough. Another answer to this conundrum is technology. I serve on the academic network of TruValue Labs, a fintech (recently acquired by FactSet) that applies AI to data mined from over 100,000 trusted third-party sources and scores 24/7 (i.e. real-time) thousands of listed firms on environmental, social, and governance issues utilizing SASB’s (Sustainability Accounting Standards Board) standards. Importantly, this innovation is outside–in; it’s not what firms say but what they do. So, no matter what you claim, what you actually do is what will be reflected in these kinds of scores.
For example, while most would expect reputable firms like Apple to score high on product design and lifecycle management — one of SASB’s metrics that TruValue Labs also uses in its scoring dashboard —Apple scores in the bottom 40% of the respective industry (Technology, communications and hardware). Volkswagen is another example (especially given diesel gate) that also scores in the bottom 40% of the respective industry. Hyundai Motors on the other hand scores in the top 20%. And Tesla? It scores in the bottom 40% in environmental product innovation.
The bottom line is that technology will disrupt the corporate social responsibility and sustainability (CSR) domain too. Firms are now scored on CSR 24/7 which means that, if you do not walk your CSR talk, you will be caught… “for there is nothing hidden that will not become visible, and nothing secret that will not be known and come to light” (Luke 8: 17).