Why investors fear their corporates being accused of ‘greenhushing’
Corporates are finding new ways to pull wool over consumers' eyes when it comes to net zero credentials. One of these is greenhushing, increasingly feared by investors
Although the term 'greenwashing' was coined in the ‘80s, it’s fair to say that, we are — as Greenpeace recently put it — in its golden age.
Research has shown that greenwashing — where a company makes unsubstantiated claims about its sustainability credentials — is rife. The numbers do not lie.
According to the European Commission, 42% of corporate environmental claims made online are likely to be false or deceptive, while over half of online green claims lack evidence.
Numerous corporations have been called out for such practices in recent times, from the likes of Shell and BP, to companies such as Coca-Cola and IKEA.
Although businesses have been forced to re-evaluate their strategies as the public cotton on, many are unfortunately finding new ways to pull the wool over consumer’s eyes when it comes to their sustainability credentials.
One of these is greenhushing. It's a phenomenon investors increasingly fear, and try to stay well away from.
Lack of transparency
Instead of playing up their green credentials, businesses that greenhush instead under-report information to shareholders, regulators and consumers, or simply don’t report it at all.
"The practice is more prevalent than you might think," said Edward Coram-James, sustainability expert and CEO of London-based consultancy firm Go Up.
Coram-James singled out a 2022 study by carbon finance consultancy South Pole, which found that one in four businesses do not plan to talk about their science-aligned climate targets at AGMs.
"Generally speaking, small businesses are the main culprits of greenhushing, as they typically don’t have to adhere to sustainability reporting laws," Coram-James explained. "That said, we’ve seen big corporations guilty of the practice too."
For instance, ASOS recently removed the 'Responsible Edit' clothes filter section of its website without any public announcement.
Meanwhile, in November 2022, asset management firms like HSBC and Blackrock downgraded various Article 9 funds — those exclusively invested in sustainable assets — to Article 8 vehicles. Although these funds must promote environmental or social factors, they no longer need to achieve a sustainable outcome.
Arguably the primary reason for a company greenhushing is the fear of diminishing its investor appeal, namely being criticised for either not doing enough for the planet or greenwashing, and thereby scaring away asset owners.
"In these instances, it may be better for its reputation if it just doesn't report any sustainability credentials at all," Coram-James said.
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In addition, legal issues may arise. Companies accused of greenwashing may face legal action and potential penalties, from fines to trading restrictions.
"With governments cracking down on greenwashing — such as the EU's Green Claims Directive — and introducing harsher sanctions for such practices, it can again make sense for companies to refrain from making any green claims at all," Coram-James noted.
Then there is the cost of sustainability certifications. "Speaking of costs, proving your green credentials can be expensive in itself," he added.
"More and more companies are obtaining sustainability certifications, but their prices can be inhibitive to small businesses in particular, while also being time-consuming to secure."
Coram-James stressed that big corporations in particular have huge influence and can drive real change by inspiring other businesses with their actions.
"We’ve seen so many examples of this down the years — just look at Calvin Klein for example," he noted. "The company’s pioneering fur-free policy in the 1990s set the standard for the fashion industry, and we’ve seen so many other designers follow suit since."
"However, by greenhushing sustainability initiatives, such precedents are much less likely to be set by industry leaders," Coram-James said.
Then, again, the investor appeal plays a key role: businesses won’t receive eco-friendly investment.
"Companies that are transparent about their sustainability initiatives are more likely to receive funds from those looking to invest in eco-friendly ventures," Coram-James pointed out.
"This funding could potentially lead to the development of new sustainable technology, while also accelerating the drive towards a more sustainable economy generally."
Again though, by greenhushing such initiatives, the possibility of receiving such funding and making this progress is reduced.
Coram-James concluded that "greenhushing is a massive barrier for businesses looking to be environmentally-friendly and inspire others to do the same."
He added that "although there are certainly challenges to discussing one’s sustainability credentials, these can be navigated with enough forethought and care."
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