Awareness of the risks of greenwashing is creeping into corporate boardrooms from Singapore to Tokyo as Asian regulators grapple with how to stop companies from making false or exaggerated sustainability claims.
While global brands including H&M, HSBC, Shell, Deutsche Bank and Danone have already felt the sharp end of the law for greenwashing in the West, action against sustainability overclaims has been slower in Asia – but it is coming.
South Korea became the first country in Asia to introduce penalties for greenwashing in February, following a law suit against an energy major that claimed it could produce “CO2-free” natural gas.
In recent months, Japan, Singapore and Australia have started to tighten the rules for environmental, social and governance (ESG) reporting to clamp down on greenwashing in the finance sector.
Greenwashing is a problem because it distorts the financial markets and undermines the allocation of capital into the most deserving funds, according to a recent report by ClientEarth, a non-profit, on how Asia’s finance sector can avoid greenwashing.
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We want to believe in the lie. We want to believe that bottles are 100 per cent biodegradable. We want to believe that everything is recycled. And when companies tell us that, it makes us feel good, and we don’t really question it.
Kim Schumacher, associate professor, sustainable finance and ESG, Kyushu University
Finance will be the first sector to be hit with regulations to curb greenwashing – because of the rapid growth in ESG investing and the scrunity the industry has come under since the Covid-19 pandemic, when there has been an explosion in sustainability claims by businesses, according to Kim Schumacher, associate professor at Kyushu University in Japan.
Schumacher coined the term “competence greenwash” through his work examining how people and companies embellish their sustainability skills or expertise to get a better job or land a lucrative sustainability consulting contract.
The academic believes that there is a cultural element to companies and people getting called out for greenwashing – which partly explains why there have been fewer law suits and regulations against sustainability over-claims in this region to date.
Since Asian cultures tend to be more conflict-avoidant than in the West, companies are less likely to be accused of wrongdoing or pursued in the courts, he told the Eco-Business Podcast.
“People [in Asia] do not want to question too much,” he said. “There is also this belief that everything might not be perfect, but the hard decisions are being taken care of by governments or companies.”
National pride could be another factor in policing greenwash in Asia.
A company such as Toyota, a national icon in Japan, emerged top of a recent survey of the country’s most sustainable brands – despite the carmaker being cold on the transition to electric vehicles and revelations emerging last year that it had cheated on emissions tests, Schumacher pointed out.
“It’s hard to go against them [big brands that fly the flag for their countries, such as Petronas in Malaysia, Singapore Airlines in Singapore or Samsung in Korea]. You don’t want to be too strict on them – you want their soft power, their positive representation of your country,” Schumacher said.
People are equally susceptible to greenwashing as companies, he told the Eco-Business Podcast.
In Japan, it’s hard to find a salaryman without an Sustainable Development Goals (SDGs) pin on his suit, which is worn to signal a personal commitment to sustainability. “The SDG pin is omnipresent in Japan. But I would be hard pressed to find any of the people who wear SDG pins who could name three SDGs,” said Schumacher.
Kim Schumacher, associate professor, sustainable finance and ESG, Kyushu University. Image: LinkedIn
Tune in as we talk about:
- Asia is starting to crack down on greenwashing
- Tackling greenwashing will start in finance
- Intentional or unintentional greenwashing?
- Is there a cultural element to calling out greenwashing?
- Asia’s most glaring greenwashing firms
- Competence greenwashing in Asia
- AI, Big Data and the future of greenwash
Edited transcript:
When will genuine action to tackle greenwashing come to Asia?
Greenwashing is now at least on the agenda in East and Southeast Asia, although it has taken a while for regulators and legislators to introduce concrete frameworks [to tackle the issue].
South Korea is a good example of policymakers taking action over green claims made about brand products and services (although the fines for greenwashing firms are extremely small), whereas in Japan, they have recently announced they will monitor ESG claims made in the financial markets.
Singapore and Hong Kong are also considering tightening the rules for ESG disclosure to tackle greenwash, and there’s talk of eventually broadening those rules out for the general economy.
When a company or a financial institution makes a sustainability claims, it is extremely important how they communicate that claim and what terminology they use. What would a reasonable person or third party think when they hear it or read it? Did they provide evidence or disclose any relevant data to back up any of the statements they make?
Some considerations are: whenever a greenwashing claim is made, should there be fines or legal liabilities, and how do you define greenwashing? It’s a very broad term. Is it just an overzealous statement undermined by poor performance? Or is it that someone intentionally misrepresenting a product or service, knowing fully well that its capacities and resources are inadequate?
In tackling greenwashing, Japan and Australia have started with the finance sector before moving on to the general economy. Do you think that’s a model that could be replicated in other markets in Asia that have yet to tackle greenwashing?
I think finance has been tackled first, because sustainable finance and ESG investing have been growing so quickly. Also, as it’s a relatively new market, regulators have a lot of leeway in how they manage risk in the market and want to establish a code of conduct early on. It is also sort of a testbed – whatever is promised by the financial market will also have ramifications for the general economy. A lot of capital that companies do mobilise is through financial markets.
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Cases of unintentional greenwashing are quite rare. Greenwashing is mostly an intentional behaviour.
On the issue of whether greenwashing is always intentional or if it can be done by mistake, the International Standards Organisation’s standard for best practice in green finance, 14100, defines greenwashing as either intentional or unintentional. But I think you need to work really hard to engage in unintentional greenwashing, especially at the level that we’re talking about – corporate leaders with a superior knowledge of their organisations and corporate structures. Cases of unintentional greenwashing are quite rare. Greenwashing is mostly an intentional behaviour.
Of course, the severity of greenwashing varies. A good example is the Volkswagen Diesel scandal [the German carmaker was found to have cheated in emissions tests to sell more diesel cars in the United States]. It started with Volkswagen, but it turned out that a large part of the automotive industry was engaged in similar behaviour of trying to artificially downplay harmful emissions. It was very intentional greenwashing.
Unintentional greenwashing would mean that you don’t know your company very well, you don’t understand the supply chains or the business model, and haven’t properly managed risks. Either way, there will be legal ramifications for greenwashing, and we’re likely to see more of that going forward.
Action against greenwashing has been relatively slow in Asia. There has been less media scrutiny. Is calling out greenwashing a cultural issue?
I think that the different approach to greenwashing in Asia is partly a reflection of different social structures, development statuses and cultural norms. The pursuit of societal harmony very much stands above everything else, which is why calling out large companies for greenwashing is rare.
One example of this is Toyota. The carmaker came top of a recent poll of the leading green brands in Japan, and yet the company was found to be uninterested in the electric vehicle transition and was fined in the US for lying about their emissions. You see businessmen and businesswomen in Japan wearing SDG pins on their suits but I would say it is more a feel-good thing. A lot of the businesses are actually unambitious when it comes to sustainability targets.
People do not question too much and there is this belief that everything might not be perfect, but the hard decisions are being taken care of by the government and by the companies.
A general issue with greenwashing is that we want to believe in the lie, to some extent. We want to believe that beverage bottles are fully biodegradable. We want to believe we can drive zero-emissions cars that have no environmental impact. We want to believe that everything is being recycled. When companies tell us that it makes us feel good and we do not really question anything.
Which companies are the region’s most glaring greenwashers?
As I mentioned, Toyota stands out in Japan.
It’s one of the few companies that supported the Trump administration’s efforts to repeal a law that would have weakened emissions controls in the United States.
That should already be a canary in the coal mine. Toyota was a canary in the coalmine for the EV transition. Supporting Trump’s repeal efforts showed that either the company did not think that it had what it takes to properly innovate, or they’re just late to the game and did not think that it can catch up. As it turns out, it was the latter. So they tried to lower the bar [for emissions] instead of becoming more ambitious in transitioning to EVs – because selling internal combustion engines (ICE) has worked very well for them.
And what the world’s largest car manufacturer does matters, particularly in Asia where the brand is omnipresent.
Their strategy for sticking with ICEs means they are locking in carbon emissions in Asia for a very, very long time. Because once a car is sold in an emerging economy, people will not just replace it in five years with an EV. They will drive that car for quite a while. So that means the entire infrastructure is locked into fossil fuel consumption.
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Competency greenwashing is becoming more prominent because companies now face more scrutiny from regulators. They now need to show that they have what it takes to implement their transition towards net-zero – often just by rebranding their staff as sustainability savvy.
So how is greenwashing changing in Asia? What did you make of the report that emerged from Planet Tracker a few months ago, which identified new forms of greenwashing, such as green-lighting, green-shifting and green-hushing?
The report shone a spotlight on variations or subcategories of mostly intentional greenwashing. For instance, green-hiding, where companies hide among good performers, or through selective disclosure, where companies present only the good stuff in their sustainability reports.
But I would say that – and this is a bit of self-plug here – that competence greenwashing is a major emerging trend [Schumacher coined the phrase ‘competence greenwashing’. This is the practice of over-selling or inflating sustainability-related knowledge or skills by companies or individual practitioners.]
This is becoming more prominent because companies now face more scrutiny from regulators and they now need to show that they have what it takes to actually implement their transition towards net-zero to protect themselves against potential accusations or legal liabilities – often just by rebranding their staff as sustainability savvy or even sustainability experts. A lot of these people have just been relabelled.
A good example is a large asset manager based out of Japan, where they just labelled half of their board as ‘sustainability’ professionals without providing any explanation whatsoever [of their expertise].
Greenwashing is also the SDG pin [which is ubiquitously worn by salarymen in Japan – as reported by the New York Times last year]. If I see a CEO wearing one I immediately think, oh, that company, and that CEO, are aware of the SDGs, and they have what it takes to render the company more sustainable – when often it is just a marketing move.
If you have one prediction for tackling greenwashing in 2023, what would it be?
There are two developments that make me hopeful. And I think they do not have a lot to do with regulation. I don’t think regulation will be strict enough to fully take into account the gravity of greenwashing.
Ever since 1970, when the environmental impact assessment concept was established, there’s always been this dichotomy between what we know is right, and what we want to burden companies with. I use the term ‘burden’ because most of the time, companies will say, “we’re being burdened with environmental laws, they’re a cost to us, they’re unnecessary, it makes us less competitive, it takes time [to transition].” Regulators will always see it from the point of view that, yes, we want to promote environmental protection and sustainability, but on the other hand, we don’t want to be too strict, because that could drive companies away or even provoke an economic downturn.
What I see is AI [artificial intelligence], ESG and big data making the difference. We need to develop a database of what could be considered greenwashing, look at cases where companies have made claims, then use AI and natural language processing to determine in which instances greenwashing actually did occur. I think technological advancement, especially using data, can do more to identify greenwashing and provide more clarity and transparency than what governments are doing now.
