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in the last few years there's been a kind of shift in the way that greenwashing has entered the public
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Consciousness for many years it was really all about product-based claims but what the shift has been is over the
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past few years firms have increasingly been making claims about their environmental impact as a whole or their
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climate impact welcome to the ripple effect the podcast that takes you on a journey through the minds of Wharton
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faculty I'm your host Dan Loney and in each episode we'll be diving deep into
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the inspiration behind the groundbreaking research that Wharton professors have conducted and exploring
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how their findings resonate with the world today we'll be covering a diverse
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range of topics bringing you the latest insights and knowledge that you can apply to your life and to work so get
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ready to dive into new ideas with the ripple effect all right so this topic of green
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watching we've heard it talked about a lot in the public it's obviously come up
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with a lot in the media for those that maybe don't have a total grasp on it give us a definition of what green
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watching is absolutely so green washing is kind of this umbrella expression that
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refers to situations in which an entity is publicly making statements about its environmental impact or the
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environmental impact of its products or services that are not actually borne out
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by the evidence so it could be a directly false claim like this product made by this company is 50 recycled
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material when in fact there's no recycled material in it at all it could be um a kind of more vague you know our
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product is all natural we don't really know what that means um and it could be sort of there are
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many many different other forms but what's really important to understand about greenwashing is that it can refer
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not only to a product like a specific advertisement or a product or a service it can also refer to sort of efforts to
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paint the entire firm as being more environmentally conscious than it is and I think that's the way in which it's
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been coming up a lot more recently so what was it that piqued your interest about green washing and also kind of
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also about the First Amendment as well absolutely so as you know from our many conversations over the years
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um I'm a professor at Wharton in the legal studies and business ethics department and
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um and so my interest in kind of uh the intersection of business and environment
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relates primarily to the legal rules and sort of the legal and policy environment
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that addresses the ways in which business firms interact with the environment and green washing is this
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really interesting case because you know not only has it been coming up kind of more and more as firms are becoming more
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and more aware of the fact that their stakeholders want them to be more environmentally friendly or aware
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um but the question of are these claims real are they backed by evidence or are they greenwashing has raised questions
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about how we need to think about enforcement and how can we prevent firms from misleading members of the public be
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they consumers or investors or Regulators about the kind of Bona fidas of their environmental marketing claims
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so um so that's kind of The Big Picture answer about how I'm you know why I'm
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interested in this topic the most specific answer actually is um is that in the last few years there's
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been a kind of shift in the way that greenwashing has entered the public Consciousness for many years it was
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really all about product based claims you know this product contains recycled material when it doesn't or this product
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is you know um non-toxic but it's toxic but what the shift has been is over the
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past few years firms have increasingly been making claims about their environmental impact as whole or their
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climate impact so for example more than a thousand firms in the past few years have made public statements or
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commitments that they're going to get to Net Zero greenhouse gas emissions by
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2050. some of those claims may be uh real and bet you know backed by evidence and
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others may be just kind of puffery and kind of trying to go along with the flow and so what I'm really interested in and
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what piqued my interest was situations in which the firm itself is kind of trying to characterize itself or its
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business as making a transition to Net Zero uh by 2050 World um when in fact many of the firms are
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kind of continuing business as usual or you know uh sort of how to tell the difference so that's really what piqued
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my interest in this project a few years ago how prevalent do you think green washing is out there in the in the
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business Community these days right so the truth is I think it's really hard to
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tell I think that um in a way the prevalence depends very much on what your definition is and it's
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this is the really hard part right because when you think about certain legal terms like assault or murder or
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something like that or you know fraud those terms have legal definitions a court can say is this fraud well is it a
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material misrepresentation of fact that harmed you know that that caused harm right there are elements green washing
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is not a legal term of art green washing is like the word that we all use when we
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feel deceived and so you might have a much broader definition of greenwashing than I do or I may have a broader
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definition than you do right and so when I teach the topic of greenwashing to my
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students this is actually really interesting I give them a set of examples that are based on reality
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um you know real life uh cases and I ask them is it greenwashing or is it not brainwashing and of the six examples
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that I give you know two of them at the very extreme ends one is clearly everybody's hand goes up yes this is
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definitely green washing and On The Other Extreme not a single hand goes up definitely not green washing but in the
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middle you get kind of 50 50 and it's really hard to know and part of the reason why is because there can be
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directly false claims where you know either it's factually true or factually
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not true and you can test it like the content of a product um but then they're the kind of
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misleading ones like a major fossil fuel company having an ad that um uh highlights its investments in
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renewable energy and those Investments are real but those Investments comprise less than
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one percent of the entire business right and so it's trying to create an impression or a kind of halo effect that
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may be misleading um as customers or investors are thinking well should I buy this stock or
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that stock should I go fill up my tank at this gas station versus that gas station right and so it affects consumer
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choices in the marketplace as well as investor decisions so it's really the truth is it's really really hard to tell
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there have been a few studies um particularly looking at for example The Net Zero claims by Major firms in
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like the SNP S P 500 and one recent study um uh suggested that the while you know
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the firms in the sample had uh stated publicly that they were going to get to net zero emissions uh by 2050. in fact
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they were only going to get about 40 percent of the way there so that's one study but that's kind of
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the the range that we're dealing with so on the other side of this as I alluded
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to there's a component of First Amendment here yeah uh and I guess the question is with the rights that we have
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under the First Amendment does the issue of green washing violate those great so super interesting question and
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um and you know the reason why I think the First Amendment comes into play here is because the since 1976 the Supreme
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Court has protected not only political speech right like I'm gonna vote for so
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and so but also certain forms of commercial speech as long as that commercial speech is truthful and
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accurate and not deceptive or misleading and before 1976 there was essentially no
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protection like you couldn't say I have a First Amendment right to advertise for
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my business right um you know a state could say no your your lawyers cannot advertise right and
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that wouldn't pose a First Amendment problem but beginning in 1976 the the court basically said even commercial
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speech is protected what's interesting about it is that the reason why the Supreme Court decided to protect
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commercial speech like advertising or marketing claims um is not based on the kind of autonomy
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interest of the speaker it's not about you know the Chevron corporation's
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autonomy to say what it wants in the marketplace it's about you and me as listeners
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and our interest in the marketplace in ensuring that there is accurate factual information so that we can make choices
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in the marketplace and we can make choices about how we want to regulate the marketplace that's basically what
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the Supreme Court said so yeah go ahead so so when you think about that that issue of misinformation
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yes and you think about the the potential impact that it might have on the marketplace there are a variety of
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different elements where it could have impact from bottom line benefit to the company to the impact on its uh
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shareholders to the public you know there are so many areas that could potentially be impacted here absolutely
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absolutely so we know from Empirical research some of which has been done by my Wharton colleagues that
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um as well as people from other schools of course um that uh marketing information about firms sort
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of corporate social responsibility or their environmental programs um can have an impact in kind of two
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primary ways the first is on the consumer so there's one study that demonstrates a
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kind of halo effect um for products uh produced by a firm that engages actively in corporate
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social responsibilities so participants in this study um were provided information about you
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know firm a donates money to X cause and then we're asked to rate um a hair regrowth product
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um a tooth whitener and a uh an optical character recognition text scanning program to to basically rate the
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programs rate these products as to how good they were you know how wide are the how much hair grew back how how clear is
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the scan um and another group of participants were asked to rate the same product but
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were given no information about donations by The Firm and the participants who learned that
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the firm had engaged in corporate social responsibility rated the teeth as wider
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the text is clearer and the hair is fluffier um and this is sort of a really clear
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demonstration of a halo effect right so when you you know when there are other studies that say that or that
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demonstrate that when consumers learn that a firm makes product X using renewable energy or in some other kind
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of you know environmentally conscious way they attribute that environmental Consciousness to the firm's other
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products they'll say oh well if that product is made with renewable energy then you know all the products may be
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made with renewable energy there's an assumption to that effect so there's
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kind of this Halo of greenness that comes about and if I'm making a choice in the marketplace about whether to
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purchase you know from firm a or firm B and I find out that firm a is using renewable energy I might buy from firm a
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and so if that's true that I'm making a good choice if that's green washing and
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in fact the firm isn't using renewable energy or they're only using it in some
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really limited way but they're hyping it up and they're advertising um then I'm being misled and maybe I
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would have chosen the other product right so it distorts voices in The Marketplace the second Major Impact
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relates to um our role not as consumers but as voters and there are a number of different
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studies that show that when when um in sort of in both directions that there are policies delivers so on the
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one hand there is the negative policy spillover meaning study has shown that when
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um participants learn that all firms in an industry are setting targets that they're going to use you know recycled
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materials in their products they're less likely to support public regulation on
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the same subject matter largely because of this impression that like the firms have got it right this is under control
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this isn't an area that we need to address with regulation on the flip side there are also studies that show that
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certain segments of the population may be more likely to support public regulation when they learn that a firm
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has taken action rather than like the state of California so my favorite study in this regard his one uh done by uh
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some uh faculty at Northwestern who basically showed participants in the study information about either
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California using cage-free eggs or McDonald's using cage-free eggs in their supply chains and then they
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disaggregated the participants by political affiliation and what they found was that if you're on the liberal
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side of the spectrum didn't really matter that much if you learned that California or McDonald's was using
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cage-free eggs you were generally supportive of laws against battery hen egg production battery cage and egg
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production sorry I'm not saying that right but you know what I mean um whereas people who identified as very
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conservative when they learned that the state of California was purchasing only cage-free eggs they weren't super
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supportive of public policy they're like you know those Tree Huggers uh they're
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gonna do what they want crazy State of California but when conservatives learned that McDonald's was purchasing
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cage-free eggs they were as supportive of public policy on cage-free eggs as liberals
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why maybe if a major corporation thinks that this is an issue as well as if a major corporation thinks that it can do
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this you know consistent with its profit maximizing goals then this is really a problem so I as a conservative and more
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likely to trust it if McDonald's thinks it's a problem than if the state of
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California right and so we so there's an impact also on like the interest in members of
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the public to regulate the problem so there's a component then of of trust that is kind of involved in that
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messaging as well especially when you're talking about an element of the government versus a a corporate entity
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as well yeah absolutely and I think that that's pretty well estab lished there's
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this concept credibility right so depending upon you know how I self-identify whether it's as
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a matter of partisan politics or as a matter of other you know identity-based characteristics that I may find certain
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uh sources more credible so I might find the state of California more credible than the US military someone might find
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the US military more credible than McDonald's right you can you can kind of see where it goes based upon sort of
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different values that we hold or D or you know uh different factors that that play into
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our identity but I want to mention uh just to sort of pick up your question from earlier about the first amendment
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that the way in which the First Amendment really begins to come into play is because the first amendment is a
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limit on what the government can do right the first amendment basically says I have a right not to be bothered by the
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government not to be told what to do by the government in certain types of Regulation and so if we're thinking
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about what we want to do to prevent or deter or punish green washing the First Amendment kind of sets the
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outer boundaries of what legal institutions like the Federal Trade Commission or the states or the
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Securities and Exchange Commission can do to either required disclosure of environmental information or after the
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fact to allow the government to sue a firm for a false or misleading statement and so that's kind of the way that the
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First Amendment comes into play is sort of what are the outer boundaries of what
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the regulatory State can do to address this problem so in this era that we're in right now
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where uh social is playing such an even greater role uh in our communities and with the impact around around businesses
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how much impact you think a an expectation from the public or uh uh that that that social expectation how
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much do you think that that can actually play a role in changing the mind or changing the path of a company uh around
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some of these issues so I actually think it's playing a really important role I mean I think
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it's playing an important role in in sort of multiple different ways at one level there's like the organized social
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movement that's you know boycotting company X for not doing more on choose your issue whether it's
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environmental or social or the organized environmental movement you know or the organized movement on the other side
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boycotting the company that's doing too much right I mean so there's there's
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sort of that level I think that at a kind of More disaggregated Level there are empirical
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studies that show that consumers have expressed a greater willingness to pay for products that are more
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environmentally friendly um and the fact that you know I have colleagues at Wharton who's who have
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said and I think that they're right that as soon as we begin to live in a world
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in which the marketplace values environmentally friendliness we're likely to see not
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only genuine environmental friendliness but also greenwashing right because firms want to you know some of them it
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may be completely benign right they want to do something they're like seeing all
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of their industry you know competitors announcing these pledges and they're like oh we've got to do something and
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they don't necessarily know quite what to do and so they make the pledge and
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they're not quite ready to support it with the facts but you know if if they
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can kind of get on the bandwagon then you know nobody's going to be upset and
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then there's the like really you know intentional efforts to mislead um to hide you know and I think
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okay so then what do you think needs to occur then to be able to get kind of a more
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accurate picture of what companies are doing especially if they are not telling the truth absolutely so
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um so as a lawyer it's very important to me to work in at least one or two Latin
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phrases during our conversation and so here they are we have the right we have the X ante and we have the X post so X
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Auntie means before the fact X post means after the fact so often when we think about something like greenwashing
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we think about Expo who can sue the company when they've published the ad and the ad is misleading
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um that would be the FTC the Federal Trade Commission which has power under the Federal Trade Commission act to
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um go after companies that are engaged in deceptive uh marketing practices that affect Commerce and so the FTC has
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published something called the green guides which are its interpretation of how that statute applies to
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environmental marketing claim and the FDC just a couple of months ago requested and that sort of comment on
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how it needs to update the guides it hasn't updated them since 2012 it's due
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for an update I will be submitting you know some suggestions right um but at the end of the day that's the x-post
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that's there was an ad somebody thinks that it's misleading the FTC Sues and
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seeks you know cease and desist orders you know take down that ad and pay a penalty
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the ex-ante approach is the one that frankly I think is probably more important and more effective and that's
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the one that's embodied in the Securities and Exchange Commission um mandatory disclosure uh ideas right
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so last year the SEC um published a proposed rule on climate disclosures that would apply only to
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publicly traded companies but basically said that in their annual you know periodic report that in addition to all
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the other information that they need to disclose on an annual basis they also need to disclose their greenhouse gas
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emissions they need to disclose if they are have made a public commitment to reduce emissions how they tend to
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achieve that goal do they plan to use carbon credits and offsets Etc um we are now waiting for the SEC uh
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issued a proposed rule has accepted comments on the rule got many many many many comments and is now working its way
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through them and we're anticipating that sometime this spring um the SEC is going to publish a final
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rule which will immediately be litigated in the courts and so not going to come into effect immediately but the idea of
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disclosure and and I'm a big fan of disclosure is you know if we're putting more accurate
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factual information out into the marketplace not only does that deter companies from putting false or
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misleading information into the marketplace but it also gives us a better handle on sort of what companies
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are actually doing in a way that we can maybe do a better job of judging when claims are false or misleading
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right yeah do you think then do you think we're on on the right path in terms of really making some significant
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change uh in this area and having less green washing out there in you know kind of in the business public business
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community and with the public as well right so I think that the I think that if the SEC does go forward with this
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disclosure rule my understanding and you know the sort of the word on the street
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is that the final rule will probably be narrower than the proposed rule based on
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the comments but you know we'll have to see I think that it will be a step in
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the right direction um I you know I think that it's really really hard for Regulators to catch up
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with marketing right Regulators have to go through these really really long and tortured processes to publish a you know
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proposed Rule and then accept comment and then a final Rule and all in the meantime more and more claims are being
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made about you know the the greenness of our you know of our our Industries and um
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and so whether it'll stamp out the problem I don't know but I think that it
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it's a definite step in the right direction and probably a better one than just you know
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expecting that either the Federal Trade Mission or the states which have similar
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Powers um are going to go after every advertisement right that's a very that's
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a very um laborious process thank you for listening to the ripple effect we hope you found this episode
00:24:50
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