Greenwashing: How dirty firms are given an unspoken social licence to pollute and to lie about it

 

This article is based on a presentation given to the Cranfield Strategic Marketing Forum by Professor Pavlos Vlachos, who shared insights from his research on greenwashing[1].

 

What is greenwashing?

Greenwashing is defined by the Cambridge Dictionary as "behaviour or activities that make people believe that a company is doing more to protect the environment than it really is.” In practice, this means firms misrepresenting themselves as more socially and environmentally responsible than they really are.

As many people will have observed, greenwashing is a growing phenomenon. A study published in 2022[2] highlighted that the number of climate-related words included in the annual reports of major oil and gas companies increased significantly between 2009 to 2020, reflecting a desire to be seen take the issue seriously. But as we will discover, this kind of talk does not necessarily translate into action.

 

Organisational stigma

Stigma is generally recognised as a serious liability for businesses. It can stem from the customers they serve, the products they sell, or the industries they operate in, and these firms fall into two categories:

Sinful – including those selling tobacco, alcohol or gambling.

Dirty – including those involved with oil and gas, mining or chemicals.

But what if, for some companies, stigma is an asset? What if the stigma a firm has means that perceptions of their behaviour are different to those of 'clean' companies?

When looking at the reactions to stigmatised companies engaging in greenwashing, two key responses can be summarised as:

• Inclination to punish stigmatised firms more – in the same way a judge may be harsher on a repeat offender in court (the moral deficit hypothesis).
  
  
• Inclination to punish stigmatised firms less – as a parent may overlook poor behaviour with excuses like 'boys will be boys' (the moral insurance hypothesis).

The research

Tracking 7,365 companies in 47 countries over 15 years, the research looked at whether consumers penalised firms for greenwashing. This could be through actions such as reduced purchases, negative word-of-mouth, or negative social media posts.

The researchers found that consumers did indeed punish the firms for greenwashing, resulting in loss of sales of around 9%, but NOT if those firms were stigmatised as “dirty”. 

So greenwashing has a direct impact on sales, yet some firms seem to get away with it, and in particular stigmatised firms.

 

Expectancy violation

A further study looked at the effect of 'expectancy violation'. This showed that stigmatised firms start from a lower base in the minds of consumers; they are already perceived as untrustworthy and so are expected to follow poor practice. This results in low expectancy violation as they are behaving in the way that customers expect.

Yet firms which are trusted by consumers are penalised more heavily because of a high expectancy violation. Because consumers have higher expectations of their behaviour, the fall from grace damages the integrity of so-called virtuous firms more in the minds of their customers. Before they are caught greenwashing, they are considered to have more integrity than the stigmatised firms. But when caught, there is a higher penalty to pay as their integrity plummets, and so do their sales.

 

What does this mean for business?

It is often assumed that consumers punish greenwashing companies, but Professor Vlachos’ research illustrates that there is no data to support this. However, for many companies greenwashing does result in real financial costs.

In the past, stigmatised firms were considered to be a liability, yet the research revealed that these companies have a competitive advantage when they engage in greenwashing. It is in fact 'clean' industries that need to be especially careful to 'walk their ESG talk' as consumers come down especially hard on those 'clean' companies compared to 'dirty' companies for the same transgressions.

Professor Vlachos explained “This means that stigmatised firms can play fast and loose with their ESG commitments: make empty promises with relative impunity.” This is akin to a ‘boys will be boys’ attitude where poor behaviour is condoned and accepted as the typical way they work – it’s to be expected.

It may be time for regulators to step in and ensure greenwashing is outlawed. Virtuous firms, such as clean energy suppliers, need to work especially hard to ensure they avoid any forms of greenwashing as the impact is more severe. As consumers, we also need to recognise that this ‘boys will be boys’ attitude enables and normalises bad behaviour, and that our leniency is perhaps misplaced.

 

Notes

 ₁ Stigma as Moral Insurance: How Stigma Buffers Firms from the Market Consequences of Greenwashing https://onlinelibrary.wiley.com/doi/10.1111/joms.12873

² https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0263596