Greenwashing: Consumers and Companies want clear Legal Requirements

In today’s marketing landscape, the term “sustainability” has become as sales-critical and brand-defining as the words “quality” or “new.” In addition, while it remains a powerful theme in any company’s communicative arsenal, its misuse—or “greenwashing”— has made sustainability communication increasingly difficult to navigate and successfully implement.

Just how confusing greenwashing and its definition are can be seen in Germany, where the number of cases involving allegations of greenwashing has recently increased. Adding to the general uncertainty are often contradictory court rulings where one company is prohibited from using terms such as "climate-neutral" or "environmentally-neutral," while another is not.

A study by the Nuremberg Institute for Market Decisions (NIM) found that the desire for compulsory regulations regarding sustainability claims was equally important among consumers and companies. For the study, 805 marketing and retail managers and 8,008 consumers from eight countries were surveyed on their attitudes toward and use of sustainability claims and their openness to more regulation concerning such use. The results showed that a very high percentage on both sides agreed with the regulatory ideas presented to them. Interestingly, a large majority of both consumers and marketing managers at the same time rejected the idea to scrap existing regulations in the area of CSR/sustainability-related communication and leave further development to the free play of market forces. The figures can be interpreted as approval in principle of the European Commission’s current intention to establish legal criteria for voluntary environmental claims.

Sustainability sells. The NIM study showed that 76% of the consumers surveyed said that sustainability influences their purchasing decisions. The respondents were also willing to pay an average premium of 22% for products whose CO2 emissions have been verifiably avoided or offset. This message is not lost on companies: Half of them already use a commitment to sustainability in their communication, with another 32% planning to do so. However, with the growing utilization of claims in combination with an ever more critical public, the danger of greenwashing is also growing.

Establishing concrete regulations for sustainability claims is not done overnight. This means that until then, consumers will have to take companies at their word. However, consumers’ trust and loyalty can be easily lost when a company is caught making false claims. When this happens, the damage can be immense: Out of 10 consumers, 7 say they would turn away from companies or brands that are accused of making false or misleading sustainability promises. The NIM study also shows that 29% of the companies surveyed have already been publicly confronted with allegations of greenwashing. As a result, 1 in 5 have significantly toned down their sustainability communication in a phenomenon known as greenhushing. Still, keeping quiet about one’s efforts doesn’t help anyone because it makes it even harder for sustainability-minded consumers to shop according to their preferences. Moreover, companies will not be able to explain to consumers the higher costs of more sustainable production compared to competing products.

• Sustainability is a guiding factor in consumer behavior. Every second company addresses the customer’s desire through sustainability promises.
• Consumers are willing to pay more for products that promise sustainability. This is an opportunity for companies to increase revenue and thus cover additional costs related to sustainability.
• Consumers trust sustainability promises if the company advertising them is credible to them. Credibility can also be achieved through certifications, transparency, and cooperation with external stakeholders.
• Credibility is often called into question. About one in three companies has already been confronted with greenwashing allegations. The associated risks weigh heavily: 7 out of 10 consumers turn away from such companies or brands.
• Interest in sustainability is great. However, the potential for misunderstandings and accusations of fraud in sustainability promises is also great. To resolve this dilemma, consumers and companies want clear standards and legal requirements.