The business case against greenwashing

Most of us are used to seeing companies pump out green-friendly messaging. Most of us, I suspect, also think the claims are a bit dubious. It turns out we are probably right - research suggests that 42% of green claims were exaggerated, false or deceptive, i.e. there is a lot of 'greenwashing' goes on.

A recent paper shows, however, that companies should be careful about greenwashing not just for morale reasons but also for the good of their bottom line.

The research looked at the over 200 large US companies, their stated goals and actions related to green product innovation (GPI), related customer satisfaction data and their financial performance. 

The key takeaways are:

• customers aren't idiots - customers were highly aware of the gap between the stated goals and implementation
• customer satisfaction fell as a result of greenwashing - the effect was on average a 1.34% fall in customer satisfaction (as measured using the ACSI)
• this blow to customer satisfaction has knock on effects on earnings per share and return on investment. 

Interestingly, while customers punish those they think are greenwashing they were more likely to let companies they hold in high regard get away with it. Companies with a reputation for high product quality or innovativeness had a lower drop in customer satisfaction when they engaged in greenwashing than those with a worse reputation. 

It seems there are some real costs to overpromising on green initiatives. Those costs are especially high when you do not have a good reputation to fall back on. 

The results of the research can be found here (with one of the authors being a former professor of mine at London Business School).

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