The EU Taxonomy & Greenwashing: why are they so interlinked?

Greenwashing is a deceptive marketing practice where a company exaggerates or falsely claims to be environmentally friendly in order to attract environmentally conscious consumers and improve its public image. This term is derived from the combination of "green," which is often associated with environmentalism, and "whitewashing," which means covering up undesirable facts.

The EU taxonomy is a classification system that defines environmentally sustainable economic activities. Its primary goal is to provide a common language for investors, businesses, and policymakers to identify and support these activities. The taxonomy aims to prevent greenwashing*, which refers to the practice of misleadingly presenting environmental credentials to appear more environmentally friendly than is actually the case.

The EU Taxonomy has thus been created in alignment with the CSRD to establish clear standards for all companies globally, allowing them full transparency with customers, investors and the outside world in general.  

The reporting on six major objectives (detailed at the end) will collectively contribute to building trust in the accuracy of claims regarding the environmental sustainability of economic activities.

Transparency plays a crucial role in addressing greenwashing effectively. It helps with accountability, builds trust, and ensures that sustainability claims align with actual practices.

Companies now have to communicate their environmental performance accurately, or risk becoming embroiled in scandals with increasing negative consequences.  Specific examples include companies claiming to do good with their GHG emissions, aiming to reach carbon neutrality by 2030 or 2050 at the latest with no specific realistic, actionable plan.  In the same vein, some companies are promising carbon offsetting actions to balance out their emissions by paying for activities that might store carbon like planting trees. While this is a good start, it’s usually nowhere near enough to actually cancel out the company's total emissions. A more effective strategy requires a portfolio of initiatives aligned to several material objectives with specific metrics and measures across scopes 1, 2, and 3.

One of the biggest industries practicing greenwashing is Fashion:

Nearly 60% of sustainability claims by fashion brands are greenwashing’.* 

Yet a surprising number of people expect more from these brands: 57% of consumers have shifted behavior to being more sustainable during the last few years.*

*McKinsey & co

Up until now, experts have had a hard time fact-checking the traceability of the production and supply chain across products, making it ‘easy’ for companies to mislead consumers.

The EU Taxonomy is now the official regulatory framework that will play a significant role in putting an end to most of these false claims.

Different types of Greenwashing:

Source: https://nbs.net/how-to-avoid-greenwashing/ 

A good example of greenwashing on US soil, is the meat and milk industry claiming that they want to change the narrative that eating meat at current industrial levels is bad for the planet, or that eating plant-based is better. As much as they may be truly using better ways of producing beef, like regenerative agriculture, research shows that beef contributes the most global greenhouse gas emissions from food production, while a glass of dairy milk generates three times more greenhouse gas emissions than a glass of plant-based milk.

Whilst the United States is behind in terms of sustainability regulations compared to the European Union and other markets, it will eventually have to catch up in reporting accurately about Greenwashing and other disclosure directives.  While, we are seeing some encouraging steps, such as the SEC’s recent approval of new regulation requiring company disclosures on climate risks, we expect this process to be more lengthy and uncertain given the political environment in the country. 

5 tips to prevent Greenwashing from happening in your company:

1. Be transparent and honest: with your customers, investors and suppliers: sustainability is a work in progress and better admit this than oversell.

2. Set targets that you can achieve: don’t promise the moon, or be too ambitious, as you will have to report on these goals.

3. Support your messages with evidence – Support your marketing campaigns with facts that help consumers see the broader impact. 

4. Avoid vague language or unverified labels – Vague statements like ‘eco-friendly’ or ‘green’ don’t offer value to consumers or help you explain sustainability practices, instead be specific on a particular point that can be verified: ‘locally-produced’ (with details).

5. Share regular reports – To ensure accountability, share reports on your sustainability progress with your consumers, stakeholders, as well as regulators.

For reference, the six objectives of the EU taxonomy include:

• Climate Change Mitigation:

• Activities contributing to the reduction of greenhouse gas emissions, such as renewable energy generation (e.g., wind, solar, hydropower), energy efficiency improvements, and low-carbon transportation.

• Climate Change Adaptation:

• Activities that enhance the resilience of systems, infrastructure, and communities to the impacts of climate change. This can include measures like flood defenses, drought-resistant agriculture, and sustainable water management.

• Sustainable Use and Protection of Water and Marine Resources:

• Criteria related to water include sustainable water use, efficient water management, and pollution prevention. For marine resources, the focus is on activities that support marine biodiversity, prevent pollution, and promote sustainable fisheries.

• Transition to a Circular Economy:

• Activities that promote circularity by reducing waste generation, promoting recycling and reuse, and encouraging sustainable resource management. This can include eco-design practices, waste reduction initiatives, and sustainable consumption and production.

• Pollution Prevention and Control:

• Criteria here cover activities that aim to prevent, reduce, or eliminate pollution across various environmental media, such as air, water, and soil. This includes measures to minimize emissions, waste management, and the use of environmentally friendly technologies.

• Protection of Biodiversity and Ecosystems:

• Activities that contribute to the protection and restoration of biodiversity and ecosystems. This involves criteria for sustainable land use, habitat preservation, and measures to prevent harm to ecosystems and species.

For all your reporting inquiries, get in touch with our team: