Tackling Greenwashing: why and how?

Climate awareness is on the rise as the tangible negative effects of climate change become more evident with each passing day. Besides, the activism of environmental groups and repeated warnings from the scientific community are further accelerating the transition of consumer preferences towards environment-friendly products. The newly created demand for green products is driving businesses to adopt green marketing practices, resulting in a more prevalent usage of the term "Green" than ever before. This has sometimes led to the practice of Greenwashing. Now, the question arises: what exactly is Greenwashing? Quoting from a research paper by Lyon and Maxwell published in 2011, Greenwashing is the "selective disclosure of positive information about a company's environmental or social performance, without full disclosure of negative information on these dimensions, so as to create an overly positive corporate image".

While it's well-known that buyers are price sensitive, modern consumers and young generations (Gen-Z) are not only sensitive to price but also the environmental footprint of their purchases. In today's business landscape, a consumer buying a product from a European city is keen to know whether both the manufacturing process and the country of origin of the product have adhered to Environmental, Social, and Governance (ESG) compliance standards.

Favourable reports regarding carbon emission reductions and other ESG initiatives allows a competitive edge to a manufacturer over other manufacturers. This is just one of the multiple reasons why companies frequently exaggerate their ESG initiatives. However, if the asserted green credentials are untrue, this could potentially lead to a substantial backlash. If Greenwashing is exposed and becomes widely known, it will hit harder than a company could potentially benefit from the Greenwashing. It can even result in legal actions. For instance, in developed countries such as those in Europe, the USA, the UK, and Australia, environment activists and NGOs have initiated multiple litigations against major corporations for engaging in Greenwashing and climate-washing.

Bangladesh has established stronger ties with the global community, particularly in the realm of climate change and sustainability in recent years. Over time, Bangladesh will need to harmonise its corporate disclosures with standardised mechanisms, especially to fulfill its Nationally Determined Contributions (NDCs) commitments. Accurate data from the private sector's contribution in climate mitigation and adaptation is imperative for the country to meet its NDC targets successfully. In order to enhance the effectiveness, accuracy, and international acceptance of the country's future decarbonisation strategy, precise and error-free data are essential. As we engage in negotiations with developed nations for climate assistance, which includes technology transfer, concessional loans, and grants, it is vital for Bangladesh to ensure high-quality disclosures of environmental and climate performances from its private sectors.

Presently, the global landscape encompasses few standards for disclosure mechanisms. Notably, these include the Task Force on Climate-related Financial Disclosures (TCFD), Partnership for Carbon Accounting Financials (PCAF), Carbon Disclosure Project (CDP), Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI) and others. Those standards are developed in such a manner that will help companies in accurately and scientifically reporting their ESG performance and climate-related information. The higher the accuracy of the disclosure, the lower the risk of Greenwashing. Thus, disclosing information using those standards can significantly reduce the risk of Greenwashing.

In an increasingly carbon-constrained world particularly after the Paris Agreement, it is expected that private firms will address this issue in a comprehensive, transparent, and accountable manner for their own need. One of the corporate responses could be the systematic measurement and reporting of their environmental and climate change impact.

The RMG sector of Bangladesh continues to be the cornerstone of our export revenue and sustainability initiatives. Among all the private sectors in Bangladesh, the RMG sector stands out as a leader in sustainability, largely driven by the demands of its international buyers. A prime example of this is H&M, which has committed to reducing its carbon emissions by 56 per cent from both its direct operations (Scope 1), indirect operations (Scope 2) and supply chain emissions (Scope 3) by 2030, using a 2019 baseline as reference. Consequently, H&M will rely on our RMG factories to play a pivotal role in achieving these supply chain emission reductions. As H&M adheres to international reporting standards such as the TCFD, it is likely that they will eventually require their suppliers to disclose their climate and sustainability performance in alignment with TCFD or other internationally recognised standards to avoid the risk of Greenwashing.

The banking and financial sector of Bangladesh has been doing well in terms of ESG disclosure, attributed to consistent guidance from the central bank, the Bangladesh Bank. The Sustainable Finance Department of Bangladesh Bank has taken a proactive role in ensuring that all banks and financial institutions under its purview submit Sustainable Finance Report to Bangladesh Bank on a quarterly basis. The quarterly review report on sustainable finance collects a wide range of information including green finance disbursement, water consumption, CO2 emissions, gender balance and other relevant metrics. Moreover, few of the banks of Bangladesh have already committed to achieve net zero emission by 2050 upon joining the Net-Zero Banking Alliance of UNEP-FI, that requires comprehensive reporting of their direct emission (Scope-1) & indirect emissions (Scope-2, and Scope-3 emissions).

Nonetheless, in most cases, the ESG reporting practices of banks and financial institutions in Bangladesh do not currently align with internationally recognised ESG and climate reporting standards like TCFD, PCAF, and similar frameworks. However, considering the existing familiarity of the banking industry of Bangladesh with sustainability, there is an opportunity for the Central Bank to introduce internationally accepted ESG reporting standards like TCFD, PCAF, GRI or others. By doing so, banks can effectively minimise the risk of Greenwashing.

Bangladesh Securities and Exchange Commission (BSEC) holds a pivotal role in driving listed companies to transparently disclose their ESG (Environmental, Social, and Governance) impact. A notable example is Britain, which pioneered mandatory TCFD reporting for its listed companies. As part of a larger trend, G20 member nations are progressively moving towards making TCFD disclosures obligatory. This framework encompasses direct and indirect emissions reporting, with indirect emissions necessitating the inclusion of supply chain emissions. Given the growing interconnections between many Bangladeshi companies and the companies operating in G20 nations through supply chains, it becomes imperative for our domestic conglomerates to align. To sustain business relationships with the G20, our companies must proactively divulge climate-related data in accordance with TCFD or other internationally accepted reporting standards. Thus, proactive measures are vital to ensure our corporations remain in step with these developments, preventing any lag in environment and climate disclosure related compliance.

Karimul Tuhin is an Environmental Economist & Green Finance professional. [email protected]

Rifa Sajida Antora, LL.B& LL.M, University of Rajshahi, is an Environmental Law Aspirant. [email protected]