How the E.U. — and Women CEOs — are Tackling Greenwashing

As the European Commission takes new steps to crack down on greenwashing in product labels and advertisements, research points to a foolproof way to avoid greenwashing in the first place: hire more women executives.

The E.U.’s proposed Green Claims Directive is expected to force the hands of major companies to be more transparent about their products’ climate impacts and change their labeling to accurately reflect their impacts.

The Green Claims Directive

According to an E.U. 2020 commission study, 53.3 percent of examined environmental claims in the E.U. were found to be vague, misleading, or unfounded, and 40 percent were entirely unsubstantiated. “The absence of common rules for companies making voluntary green claims leads to ‘greenwashing’ and creates an uneven playing field in the EU’s market, to the disadvantage of genuinely sustainable companies,” the Commission said in a statement.

The new rules will require businesses to assess and meet new minimum “substantiation requirements” for green claims. These requirements include relying on recognized scientific evidence and state-of-the-art knowledge, reporting greenhouse gas offsets in a transparent way, and providing information on whether the product performs environmentally significantly better than what is common practice.

Green claims can only cover environmental impacts that have been assessed in accordance with the substantiation requirements and identified as ‘significant’ for the product or business. Additionally, green claims will need to be accompanied by information on their substantiation, either in physical form or by way of a web link, QR code, or equivalent. This means that a number of businesses making green claims on products sold throughout Europe, may need to reconsider their product packaging.

The proposed rules will increase the enforcement of greenwashing in the E.U. and will create a class-action style mechanism in Europe, allowing consumer organizations to bring actions against green claims that they consider not properly substantiated.

Women leaders tackle greenwashing better

The announcement comes as another recent study found that when companies have women CEOs and in other leadership roles, they tend to be more transparent about their environmental, social, and governance (ESG) performance.

The research was conducted by a team from the University of Portsmouth, Brunel University, and Loughborough University, which looked at nearly 4,000 firms from 29 countries over a fourteen-year period.

When a company has a female corporate leader, they were also less likely to exaggerate how positive their environmental impact is, better known as greenwashing.

“ESG decoupling is a major issue in the current corporate landscape, with many firms misrepresenting their actual ESG performance in their disclosures,” said Dr. Ahmed Aboud from the University of Portsmouth’s School of Accounting, Economics and Finance and one of the study leads.

“Our study supports existing theories that women directors are crucial players in preventing this, as they are more likely to speak out against unethical behaviour, and support environmentally conscious decisions.”