Responsible business is key to achieving the UN’s SDGs, but with consumers watching, companies can’t afford to stray off the straight and narrow.
Companies (will) play a major role in achieving the United Nations Sustainable Development Goals (SDGs) including zero hunger, good health and wellbeing, responsible consumption and production, and climate action. Looking at food waste, for example, 1.4 billion hectares of land and 25% of the total freshwater used in agriculture globally are used to grow produce that is later thrown away. In the US alone, farmers discard up to 30% of their crops—66.5 million tons of edible produce—each year due to cosmetic imperfections; consumers don’t buy ugly produce because they expect it to be less tasty. Yet research shows that emphasizing aesthetic flaws via labeling, e.g. “Ugly Cucumbers”, can increase sales of unattractive produce.
The market penalizes firms for greenwashing, as reflected in lower sales
Marketing (which should not be equated with advertising and communication, but includes communication) is key to addressing global challenges. But it needs attention. Green/socialwashing, making misleading claims about the environmental and social soundness of a company’s offerings, can majorly undermine ESG efforts. So do companies greenwash? Which sectors greenwash the most? And how are consumers responding? We tried to answer these questions in a study that we recently published1, crafting a novel index of greenwashing that tracked 7,365 firms in 47 countries over 15 years (2002–2017). Ranging from -1 to 1, with positive, higher scores indicating greenwashing, the index showed that firms greenwash—they do not walk their sustainability or ESG talk. Agriculture, Forestry and Fishing emerged as the sector that greenwashes the most (scoring .38), especially regarding circular product design (.76).
Sector Greenwashing Score
Agriculture, Forestry and Fishing 0.38
Professional Services 0.27
Finance, Insurance and Real Estate 0.26
Transportation and Public Utilities 0.25
Manufacturing 0.23
Mining / Construction 0.23
Personal business and entertainment Services 0.23
Wholesale and Retail Trade 0.23
Figure 1. Greenwashing scores in major sectors
Importantly, we found that the market penalizes firms for greenwashing, as reflected in lower sales. But things are never that simple. Further classifying firms as operating in so-called sinful/dirty or virtuous industries and comparatively examining how consumers penalized them for greenwashing, we found that unlike sinful firms (e.g. tobacco, oil, weapons, chemicals, extraction), companies in comparatively clean or virtuous industries (e.g. food companies) must really walk their sustainability talk. While consumers are more lenient with dirty firms for greenwashing (they expect them to greenwash and don’t seem to penalize them when they do), they come down hard on clean companies for the exact same transgression; our analyses show that the market penalizes them harshly, with approximately 9% loss in sales.
My advice to firms on how to communicate their ESG or sustainability efforts is this: Tell but don’t sell your ESG; be humble about your ESG commitments; abstain from ESG awards; and apply what Greeks usually say: “Cast thy bread upon the waters.”
- Kassinis, G. I., Kay, A. A., Papagiannakis, G., and Vlachos, P. A. (2022). Stigma as moral insurance: How stigma buffers firms from the market consequences of greenwashing. Journal of Management Studies, 59(8), 2154-2190. For a popularized version of this study see: ‘Boys will be boys’: why consumers don’t punish big polluters for greenwashing lies (theconversation.com)
