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Greenwashing: The Guidelines Set to Tighten Requirements

Updated: Jan 17, 2023

The UK government is trying to combat greenwashing by requiring certain sustainability disclosures, reports Emily Davies.

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The environment is at the top of many people’s priorities right now, especially after COP26. But it can be challenging to separate the eco-friendly products and companies from those that are merely pretending to be. This is called greenwashing – the act of misleading customers about the sustainability of a brand or product. The government has now released guidelines to help combat greenwashing in the UK.


Chancellor of the Exchequer Rishi Sunak has published a roadmap setting out new Sustainability Disclosure Requirements (SDRs) for businesses, meaning they have to disclose their environmental impact.


Both businesses and buyers will now have a more developed understanding of whether they are spending in a way that aligns with the UK’s goals of reaching net-zero carbon emissions. These new requirements, which aim to create a greener financial system in the UK, will apply to pension schemes, investment products, and asset managers and owners.  


“We want sustainability to be a key component of investment decisions and our plans will arm investors with the right information to make more environmentally-led decisions.” - Rishi Sunak


Greenwashing


The Corporate Finance Institute defines greenwashing as when “a firm spends time and money advertising and marketing that their goods/services are environmentally friendly”, even when they are not.


With environmental considerations growing in consumer preferences, companies that aren’t ‘green’ are losing business. The cheap and easy solution is for them to use buzzwords like ‘eco-friendly’ and ‘natural’ with no evidence or criteria, thereby tricking buyers into supporting them. On top of manipulating consumers, doing this is an easy PR gambit that boosts brand image with little effort. Being ‘eco-friendly’ is more attractive than not caring.



According to the government, 70% of people in the UK want their money to help the planet, not harm it. However, there is a problem wherein there is a lack of environment-related terms for use in describing products, let alone legal definitions, making greenwashing easy for companies.


The new SDRs will make sure investors have all the information they need to ensure products are actually green, not just appearing to be. Every investment product will have to set out the planetary impact of what it finances, and clearly give evidence for any claims of “green credentials” it makes. 


The guidelines will also highlight expectations for transition plans to be published by some firms to show how they align with the UK net-zero goals.



Why Now?


In 2019, the UK enshrined the net-zero emission ambition into law, and in 2021, announced a plan to cut emissions by 78% by 2035 (compared with 1990 levels). This month, Boris Johnson hosted COP26 in Glasgow. While he has been heavily criticised for his handling of the conference, with activist Greta Thunberg calling it just more “blah, blah, blah”, the UK does seem to be making some progress in transitioning to a greener economy.


Hopefully, these new government guidelines will help consumers and investors spot greenwashing, resulting in more money going towards companies and products with genuinely green priorities, instead of cheap, green-washed marketing.


 

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