Greenwashing -the practice of companies making false or exaggerated claims about their environmental credentials in order to build a sustainable brand image- is nothing new. But what does this mean as sustainable finance and ESG investing are gaining more and more ground in shipping and beyond?
Greenwashing and the shipping industry
As public awareness of climate change and environmental challenges continues to grow, consumers are demanding more sustainable products and services. In response, many companies are jumping on the “green” bandwagon, presenting their services as environmentally friendly. When these claims are not accurate, this is known as “greenwashing”.
An example of corporate greenwashing is using vague or meaningless terms, such as “eco-friendly” or “green,” without providing any evidence to back up the claims. Greenwashing can also involve using environmental symbols or labels that are not properly regulated or validated.
In the shipping industry, competence greenwashing refers to companies that claim to have a high level of environmental competence, such as low carbon emissions or sustainable practices, but in reality, they may not be as environmentally friendly as they claim.
ESG and greenwashing
The Intergovernmental Panel on Climate Change has identified the finance sector as playing a key role in addressing the ongoing climate crisis and sustainable development. This is increasingly pushing corporate entities to integrate environmental, social, and governance (ESG) factors across their financial decision-making. These factors help companies’ ESG efforts to be quantifiable, so more easily measured. This sets out the criteria that investors use to evaluate a company and determine if they are worth investing in.
However, among many financial and corporate stakeholders, a large disconnect can be observed between their positive sustainability performance claims and their actual ESG resources and capacities, which can easily pave the way to greenwashing, latest research shows. Accordingly, the same research shows that the issues of greenwashing have been increasing in line with the general growth of the sustainable finance sector and ESG investment markets.
Greenwashing VS Competence greenwashing
While both greenwashing and competence greenwashing involve misleading claims about sustainability, they differ in their focus. Greenwashing is primarily focused on making exaggerated or false claims about the environmental benefits of a product or service, while competence greenwashing is focused on claiming expertise or credentials in sustainability or environmental practices that a company does not actually possess. Therefore, greenwashing in sustainable finance and ESG investing, which is hampering green growth, is directly linked to competence greenwashing.
Competence greenwashing: Common practices
According to a recent scientific paper, most common practices of Competence Greenwashing from the Human Resources sector include:
- Adding words like “ESG,” “sustainability,” and “climate” to existing job titles, especially for executives.
- Recruiting as “ESG experts” people who have completed introductory ESG courses and have little experience in the field.
- Creating influential positions such as “Chief Sustainability Officer” or “Head of ESG” without recruiting people with the right track record to fill them.
- Declaring that employees or board members have material sustainability-related skills without providing any evidence of it.
- Advertising membership in a sustainability-related committee or expert group as being equivalent to having in-house expertise in these areas.
How can Competence Greenwashing affect shipping?
As in every other industry, competence greenwashing can lead to a lack of trust between companies and their stakeholders, be they passengers, business partners, NGOs or lobby groups, who may feel deceived. This can lead to irreversible reputational damage and loss of business.
For example, investors may rely on companies’ claims of sustainability to make investment decisions, without realizing that these claims are not backed up by concrete actions. This lack of transparency can make it difficult for investors to accurately assess a company’s ESG performance and make informed decisions about where to allocate their capital.
This can lead to a misallocation of capital in the industry. If investors believe that a company is taking significant steps towards sustainability, they may be more likely to invest in that company, even if there are other companies that are actually doing more to reduce their environmental impact. This can lead to a situation where companies that are genuinely committed to sustainability are overlooked in favor of those that are merely paying lip service to the concept.
Avoiding competence greenwashing: Tips for shipping
- Be transparent: Companies should be open about their environmental practices and be willing to provide evidence to back up their claims. This can include data on carbon emissions, waste management, and other sustainability metrics.
- Verify claims: Third-party certifications and audits can help to verify environmental claims and provide independent assurance that a company is truly environmentally responsible.
- Avoid vague language: The world is becoming more and more conscious. This means that, using vague or subjective terms such as “green,” “eco-friendly,” or “sustainable” without clear definitions or explanations of what these terms mean, can lead to irreversible reputational damage.
- Focus on real improvements: Instead of simply making claims, shipping firms should focus on making real improvements to their environmental performance. This can include investing in clean technologies, reducing carbon emissions, and improving waste management practices.
By implementing a mandatory public-blind peer review process, integrating non-financial ESG experts throughout all organizational decision-making, and establishing a common knowledge baseline for ESG practitioners, the shipping industry can demonstrate its commitment to sustainability and ESG reporting.
