As climate change progresses and more individuals pledge to a more climate-friendly lifestyle, consumer habits have followed suit. More consumers make purchase decisions based on organizations' dedication to climate change. As organizations' morals and dedication to societal issues are more closely scrutinized, large companies have begun to publicly pledge their commitment to environmental improvement. However, a new phenomenon, known as “greenwashing” where companies make false claims about their environmental standards has emerged. Individuals and communities are holding these organizations accountable by taking legal action against companies that are accused of these deceptive practices. These lawsuits are relatively new, but already gaining momentum. Understanding the factors that lead to greenwashing and the potential legal action that can occur will shed light on the rise of these legal battles.
How Environmentalism Made It into Corporate
One of the core reasons environmental practices entered the corporate world is the rise of climate consciousness in consumers and investors. People are more interested in transparency in corporate practices, including their sustainability methods. Some organizations want their appearance to align with the public’s vision but don’t necessarily want to act and invest in actual change, and this is where greenwashing or climate washing emerges. False campaigning and inaccurate public promises to align with social status ultimately can be considered fraud and continue to occur with large public companies.
Public Skepticism and Investigation
While some smaller, private companies may be engaging in these climate-washing campaigns, many lawsuits are toward larger public companies. Since their practices and data are available to the public, they become increasingly interrogated by the public and legal professionals. While some companies are certainly taking appropriate environmental action, 72% of North American executives have claimed their organization has overstated their climate efforts to some degree. These companies, including big brands like Whole Foods, Burts Bee’s, and Keurig - which landed in a $10 million settlement, are facing the consequences of overstating commitments. Corporations should use these examples as a warning against what the potential outcome may be for overstating or dramatizing environmental plans.
Intensifying Legal Action
The first legal case against greenwashing occurred in 2011 in California, when two companies were accused of falsely labeling their products as biodegradable. These companies, Balance and AquaMantra, reached a $20,000 settlement for the claim. Since the initial case, lawsuits have ramped up in frequency and associated monetary losses. Defenders are turning to consumer protection laws to act against climate-washing organizations, and as the cases increase, legal teams have more evidence to back their arguments. Companies attempting greenwashing are likely to be caught much earlier than before and face more than just legal action. Organizational success and reputation can be significantly damaged under these circumstances, which has proven true over the past 10 years.
How Your Organization Should Approach Climate Action
In today's socio-economic climate, it is important to act on environmental matters and do your part to be as green as possible. However, given the intensity of public scrutiny, it's crucial to always appreciate your efforts and action plan.
Overestimating the efforts you’re putting into climate protection can not only lead to legal action but severely damage your reputation and lead to a huge loss of profit and consumers. To ensure your climate statements are legal, fair, and true, consider the following touchpoints:
- Use clear and concise language. Do not throw around words like “natural,” “green,” or “climate-friendly” unless your statement is 100% accurate.
- Check your sources and ensure that not only are your products and action steps actually green, but that any third-party vendors manufacturers and partners also abide by the same standards
- Don’t utilize green terminology around products that are harmful in other ways
- Don’t dramatize efforts to go green, or set specific outlines of plans that aren’t attainable
- Don’t flat-out lie about green efforts
Does Insurance Cover Greenwashing?
Currently, there is little insurance coverage that directly addresses greenwashing and climate washing; however, some policies may have language added as an addendum. In most cases, it would need to be specifically requested during the underwriting process, but it's important to check with your providers to see if you have coverage.
With the rise of class action lawsuits against these types of cases, underwriters are exploring adding additional language to Directors' and Officers' coverage to incorporate limits in relation to greenwashing. There is potential for this coverage to be standard in the future, but right now it's on a case-to-case basis. That means, organizations should be especially vigilant in their public statements as they may not have insurance to protect them against a lawsuit, depending on the case.
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