What Is Greenwashing? How It Works, Examples, and Statistics


Investopedia / Xiaojie Liu

What Is Greenwashing?

Greenwashing is the process of conveying a false impression or misleading information about how a company’s products are environmentally sound. Greenwashing involves making an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do.

In addition, greenwashing may occur when a company attempts to emphasize sustainable aspects of a product to overshadow the company’s involvement in environmentally damaging practices. Performed through the use of environmental imagery, misleading labels, and hiding tradeoffs, greenwashing is a play on the term “whitewashing,” which means using false information to intentionally hide wrongdoing, error, or an unpleasant situation in an attempt to make it seem less bad than it is.

Key Takeaways

  • Greenwashing is an attempt to capitalize on the growing demand for environmentally sound products.
  • Greenwashing can convey a false impression that a company or its products are environmentally conscious or friendly.
  • Critics have accused some companies of greenwashing to capitalize on the socially responsible or environmental, social, and governance (ESG) investing movement.
  • Genuinely green products or businesses back up their claims with facts and details.

How Greenwashing Works

Also known as “green sheen,” greenwashing is an attempt to capitalize on the growing demand for environmentally sound products, whether that means they are more natural, healthier, free of chemicals, recyclable, or less wasteful of natural resources.

The term originated in the 1960s, when the hotel industry devised one of the most blatant examples of greenwashing. They placed notices in hotel rooms asking guests to reuse their towels to save the environment. The hotels enjoyed the benefit of lower laundry costs.

More recently, some of the world’s biggest carbon emitters, such as conventional energy companies, have attempted to rebrand themselves as champions of the environment. Products are greenwashed through a process of renaming, rebranding, or repackaging them. Greenwashed products might convey the idea that they’re more natural, wholesome, or free of chemicals than competing brands.

Companies have engaged in greenwashing via press releases and commercials touting their clean energy or pollution reduction efforts. In reality, the company may not be making a meaningful commitment to green initiatives. In short, companies that make unsubstantiated claims that their products are environmentally safe or provide some green benefit are involved in greenwashing.

Products that are actually eco-friendly can benefit from green marketing, which highlights the environmental benefits of the product and company making it. However, if a company’s green marketing activities are found to be false, the company may be accused of greenwashing and be hit with penalties, bad press, and reputational damage.

How the Federal Trade Commission (FTC) Helps Protect Consumers

Of course, not all companies are involved in greenwashing. Some products are genuinely green. These products usually come in packaging that spells out the real differences in their contents from competitors’ versions.

The marketers of truly green products are only too happy to be specific about the beneficial attributes of their products. The website for Allbirds, for example, explains that its sneakers are made from merino wool, with laces made from recycled plastic bottles, and insoles that contain castor bean oil. Even the boxes used in shipping are made from recycled cardboard.

The U.S. Federal Trade Commission (FTC) helps protect consumers by enforcing laws designed to ensure a competitive, fair marketplace. The FTC offers guidelines on how to differentiate real green products from the greenwashed:

  • Packaging and advertising should explain the product’s green claims in plain language and readable type in close proximity to the claim.
  • An environmental marketing claim should specify whether it refers to the product, the packaging, or just a portion of the product or package.
  • A product’s marketing claim should not overstate, directly or by implication, an environmental attribute or benefit.
  • If a product claims a benefit compared with the competition, then the claim should be substantiated.

Examples of Greenwashing

The FTC offers several illustrations of greenwashing on its website, which details its voluntary guidelines for deceptive green marketing claims. Below is a list of examples of unsubstantiated claims that would be considered greenwashing.

  • A plastic package containing a new shower curtain is labeled “recyclable.” It is not clear whether the package or the shower curtain is recyclable. In either case, the label is deceptive if any part of the package or its contents, other than minor components, cannot be recycled.
  • An area rug is labeled “50% more recycled content than before.” In fact, the manufacturer increased the recycled content to 3% from 2%. Although technically true, the message conveys the false impression that the rug contains a significant amount of recycled fiber.
  • A trash bag is labeled “recyclable.” Trash bags are not ordinarily separated from other trash at the landfill or incinerator, so they are highly unlikely to be used again for any purpose. The claim is deceptive because it asserts an environmental benefit where no meaningful benefit exists.

What are some other types of greenwashing?

One common form of greenwashing is to include misleading labeling or bury environmentally unsound practices in the fine print. This can include use of terminology such as “eco-friendly” or “sustainable,” which are vague and not verifiable. Imagery of nature or wildlife can also connote environmental friendliness, even when the product is not green. Companies may also cherry-pick data from research to highlight green practices while obscuring others that are harmful. Such information can even come from biased research that the company funds or carries out itself.

How can you spot greenwashing?

If greenwashing is going on, there is often no evidence to back up the claims that a company is making. Sometimes verifying can be difficult, but you can look to third-party research and analyst reports, as well as check the product’s ingredients list. True green products will often be certified by an official vetting organization, which will be clearly labeled.

Why is greenwashing bad?

Greenwashing is deceitful and unethical because it misleads investors and consumers that are genuinely seeking environmentally friendly companies or products. Often, green products can be sold at a premium, making them more expensive, which can lead consumers to overpay. If greenwashing is revealed, it can seriously damage a company’s reputation and brand.

The Bottom Line

Environmentalism and environmental, social, and governance (ESG) criteria have become important considerations for some investors. This has led many businesses to focus on becoming more eco-friendly by reducing waste, cutting emissions, recycling, and using renewable energy, among other efforts. However, some companies can instead cut corners and claim that they are doing these things to gain favor when, in reality, they are not. Greenwashing is an unethical practice that can mislead investors and the general public.

Article Sources
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  1. Allbirds. “Our Materials: Wool.”

  2. Code of Federal Regulations. “Title 16—Commercial Practices: Chapter I, Subchapter B, Part 260, § 260.3.”

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