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Paint it green

The EU vs Climate Change n. 2

You have probably noticed how more and more attention is being given to environmentalism in the media, and how this is reflected in the increasing number of brands that offer an 'Earth friendly' option, or politicians committing to certain green targets. Being all of this relatively uncharted territory, it is clumsily approached by governments seeking to actively limit their country's emissions and scarcely regulated for companies; meaning the scope and incentive for both privates and public officers to greenwash their actions is as of today very large.

The term greenwashing is most often used in relation to consumer products that, in order to add a premium to their prices, market themselves as 'sustainable' or 'green' largely overstating their environmental commitments (which often amount to nothing). Unlike some food labels that in the EU are more strongly regulated, more vague terms such as 'sustainable' in absence of external certifications are practically free to be used as pleased.

Greenwashing can also be used more broadly to denote any way of 'pretending to be green', whether it is in business or politics.

What is the big deal?

Source: Unsplash

Since the number of businesses that use this marketing practice has soared to unprecedented levels, it has become very difficult to distinguish greenwashed from truly sustainable companies.

Some argue that the increased exposure to ads of others becoming more green helps to change consumers' behaviour in this direction, but it can actually have the opposite effect if there is no proof of substance to back claims of being sustainable.

It is not only scandals like Volkswagen's Dieselgate that sow mistrust in consumers and decrease their willingness to pay extra for (fake) sustainable products. It's also the much less shocking but more common overstating of the environmental benefits of a brand. This loss of confidence constitutes a substantial roadblock to progress.

A recent survey about consumers' understanding of green claims in advertising, by Consumer Focus, reveals that 58% of consumers they consulted think that a lot of companies pretend to be green just to charge higher prices.

However, the focus of this article is not to point fingers to this industry or that company, but to highlight the ambiguous stance of the EU institutions on this practice: they condemn it and legislate against it, but deep down use the same rhetoric when talking about their own environmental action, (which - spoiler- is much more contained than it looks).

The Good (maybe)

Greenwashing as a marketing practice is not legal. Although there is no EU legislation harmonising environmental marketing (provisions apply to all claims made in the context of B2C commercial practices), there are some community laws that cover environmental claims, which are partly through regulations on environmental performance and partly by others prohibiting the misleading use of claims, logos or labels.

Green investing and ESGs

The trend towards greener products, whether really so or not, has also been felt in finance. Investors relying on ESGs standards (for environmental, social and governance policy) to make investment decisions have been increasing in number - and their funds outperforming their not-so-green counterparts, even during the pandemic. In the already opaque world of finance it is difficult to even trace back the original suppliers of big firms, especially due to the practice common in the developing world of subcontracting and outsourcing manufacturing to smaller factories. The scarce regulation of ESGs criteria adds another layer of uncertainty, leaving professional and private investors with few ways to know whether their money is really in green hands or not.

But fear not: the European Union is coming to their rescue. Amid a frenzy of other green policies aimed at a green transition, it is set to come out in March with a new set of rules (a new 'taxonomy' if one wants to use fancy words) that will give greater transparency and comparability to ECG parameters. Thanks to a bit of good old lobbying, companies will have more time than initially planned to disclose the required information - at least until 2022 - but when they do it will have many important consequences, all stemming from the reveal of the extent to which the recent ESG investment boom is founded in lies.

The other side of the coin

As anticipated, however, the EU is guilty of policy greenwashing as much as the private sector. This is not to deny that there is merit in the drastic change of the political discourse in the last few years to include climate change in the priorities of the Union. Considering that not long ago efforts to fight climate change were not really prioritised, Ursula Von der Leyen's Green Deal is a big step forward in bringing attention to it.

But a closer look at said Green Deal reveals that it's mostly just attention, not action.

First is the glaring issue of carbon exports, that is the fact that the proposed reductions do not include emissions caused by international aviation, shipping nor consumption of goods manufactured outside the EU. The sad truth is that imports make up for most of the EU's GHG reduction so far. Not to mention that these past reductions that are counted towards the target of 55% decrease until 2030: the EU's misleading targets actually use 1990 as a baseline to define reductions and use carbon sinks - the existence of forests - to offset reductions with limited proactive action. Overall, this means an effective reduction of emissions only about 42% from 2018 levels in 2030. Proposals of Border Carbon Adjustments (BCA) are vague and probably at the bottom of the EU's agenda.

Source: Unsplash

What's more, the €1 trillion proposed budget for the green deal will be generated mostly by borrowing, and partly reallocated from amounts already included in the budget from previous years- it is the case of the €40bn formally allocated to the plan in 2020. In relation to this, the debt financing of the plan raises some legal concerns; in theory the Commission cannot borrow but is in practice doing so through the EU's the intergovernmental rescue and investment funds (the EIB). And when buying the green bonds issued by the EIB, the ECB - an independent and non-democratic body - will be pursuing a specific political aim that could threaten its primary goal, which is actually to keep the economy stable.

A CAP on progress

Last but not least, the CAP (common agricultural policy) is a system of subsidies to farmers that started as a way to improve agricultural productivity and food security, but that has become an outdated and unaccountable mechanism to funnel funds to an extremely concentrated group of big farms: 80% percent of the funds go to 20% of the farms. 40% of the EU budget is funneled into this program.

Source: Unsplash

The design of the next funding period for 2021-2027 was approved by the European Parliament on October 23rd, and it was touted as another win for the environmental cause… except it could not be more far from that. One of the most glaring problems is the fact that the funds that companies get are calculated according to their area of operation and production capacity - favouring large estates, which are the ones using the most intensive farming practices, regardless of environmental harm.

Moreover, eco-schemes included in the CAP have many loopholes and possibilities for derogation, at least until 2023, due to a long transition period. In the phase of 2023-24, unspent funds from the schemes can be poured back into non-green farm projects.

It’s not easy being green

In summary, in European policy and business not all is black or white, the bad guys are the same as the good, and sometimes people with good intentions are not able to avoid wasting their efforts and resources on greenwashed products and initiatives.

In the end, greenwashing is the negative by-product of a positive change in public opinion, a lag between companies being conscious of the revolutionary expectations of the public and being able and willing to truly meet them, at the cost of some profit in the short term. This does not justify misleading consumers, but it is clear that in a competitive environment it is difficult for change to actually happen without the right incentives regulations from a higher authority. And what has been done so far by the EU often misses this point.


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