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Climate Crisis: What Is Greenwashing and Why Is It Concerning? | Sarah Light — Ripple Effect Podcast

April 11, 2023 / 24:59

This episode of The Ripple Effect discusses greenwashing, its prevalence in the business community, and the legal implications surrounding it. Host Dan Loney interviews a Wharton professor about the intersection of environmental claims and legal standards.

The professor defines greenwashing as misleading claims about a company's environmental impact, emphasizing that it can refer to both product-specific claims and broader corporate statements. The conversation highlights the shift from product-based claims to firms making overarching commitments to sustainability.

Key discussions include the challenges in defining greenwashing and the difficulty in identifying its prevalence. The professor notes that while some companies genuinely aim for net-zero emissions by 2050, others may be exaggerating their commitments.

The episode also touches on the First Amendment's role in regulating commercial speech, particularly regarding misleading environmental claims. The professor explains how legal frameworks like the Federal Trade Commission's green guides and the Securities and Exchange Commission's proposed climate disclosure rules aim to address these issues.

Finally, the conversation reflects on the impact of consumer expectations and social movements on corporate behavior, suggesting that increased transparency and regulation could lead to a reduction in greenwashing.

TL;DR

The episode covers greenwashing, its legal implications, and the impact of consumer expectations on corporate environmental claims.

Episode

24:59
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in the last few years there's been a
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kind of shift in the way that
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greenwashing has entered the public
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Consciousness for many years it was
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really all about product-based claims
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but what the shift has been is over the
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past few years firms have increasingly
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been making claims about their
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environmental impact as a whole or their
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climate impact welcome to the ripple
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effect the podcast that takes you on a
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journey through the minds of Wharton
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faculty I'm your host Dan Loney and in
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each episode we'll be diving deep into
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ready to dive into new ideas with the
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ripple effect
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all right so this topic of green
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watching we've heard it talked about a
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lot in the public it's obviously come up
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with a lot in the media for those that
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maybe don't have a total grasp on it
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give us a definition of what green
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watching is absolutely so green washing
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is kind of this umbrella expression that
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refers to situations in which an entity
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is publicly making statements about its
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environmental impact or the
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environmental impact of its products or
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services that are not actually borne out
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by the evidence so it could be a
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directly false claim like this product
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made by this company is 50 recycled
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material when in fact there's no
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recycled material in it at all it could
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be
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um a kind of more vague you know our
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product is all natural we don't really
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know what that means
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um and it could be sort of there are
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many many different other forms but
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what's really important to understand
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about greenwashing is that it can refer
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not only to a product like a specific
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advertisement or a product or a service
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it can also refer to sort of efforts to
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paint the entire firm as being more
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environmentally conscious than it is and
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I think that's the way in which it's
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been coming up a lot more recently so
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what was it that piqued your interest
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about green washing and also kind of
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also about the First Amendment as well
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absolutely so as you know from our many
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conversations over the years
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um I'm a professor at Wharton in the
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legal studies and business ethics
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department and
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um and so my interest in kind of uh the
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intersection of business and environment
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relates primarily to the legal rules and
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sort of the legal and policy environment
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that addresses the ways in which
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business firms interact with the
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environment and green washing is this
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really interesting case because you know
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not only has it been coming up kind of
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more and more as firms are becoming more
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and more aware of the fact that their
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stakeholders want them to be more
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environmentally friendly or aware
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um but the question of are these claims
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real are they backed by evidence or are
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they greenwashing has raised questions
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about how we need to think about
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enforcement and how can we prevent firms
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from misleading members of the public be
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they consumers or investors or
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Regulators about the kind of Bona fidas
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of their environmental marketing claims
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so um so that's kind of The Big Picture
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answer about how I'm you know why I'm
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interested in this topic the most
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specific answer actually is
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um is that in the last few years there's
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been a kind of shift in the way that
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greenwashing has entered the public
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Consciousness for many years it was
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really all about product based claims
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you know this product contains recycled
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material when it doesn't or this product
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is you know
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um non-toxic but it's toxic
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but what the shift has been is over the
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past few years firms have increasingly
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been making claims about their
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environmental impact as whole or their
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climate impact so for example more than
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a thousand firms in the past few years
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have made public statements or
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commitments that they're going to get to
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Net Zero greenhouse gas emissions by
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2050.
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some of those claims may be uh real and
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bet you know backed by evidence and
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others may be just kind of puffery and
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kind of trying to go along with the flow
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and so what I'm really interested in and
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what piqued my interest was situations
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in which the firm itself is kind of
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trying to characterize itself or its
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business as making a transition to Net
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Zero uh by 2050 World
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um when in fact many of the firms are
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kind of continuing business as usual or
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you know uh sort of how to tell the
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difference so that's really what piqued
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my interest in this project a few years
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ago how prevalent do you think green
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washing is out there in the in the
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business Community these days right so
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the truth is I think it's really hard to
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tell I think that
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um in a way the prevalence depends very
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much on what your definition is and it's
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this is the really hard part right
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because when you think about certain
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legal terms like assault or murder or
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something like that or you know fraud
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those terms have legal definitions a
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court can say is this fraud well is it a
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material misrepresentation of fact that
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harmed you know that that caused harm
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right there are elements green washing
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is not a legal term of art green washing
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is like the word that we all use when we
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feel deceived and so you might have a
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much broader definition of greenwashing
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than I do or I may have a broader
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definition than you do right and so when
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I teach the topic of greenwashing to my
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students this is actually really
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interesting I give them a set of
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examples that are based on reality
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um you know real life uh cases and I ask
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them is it greenwashing or is it not
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brainwashing and of the six examples
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that I give you know two of them at the
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very extreme ends one is clearly
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everybody's hand goes up yes this is
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definitely green washing and On The
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Other Extreme not a single hand goes up
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definitely not green washing but in the
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middle you get kind of 50 50 and it's
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really hard to know and part of the
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reason why is because there can be
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directly false claims where you know
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either it's factually true or factually
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not true and you can test it like the
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content of a product
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um but then they're the kind of
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misleading ones like a major fossil fuel
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company having an ad that
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um uh highlights its investments in
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renewable energy and those Investments
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are real
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but those Investments comprise less than
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one percent of the entire business right
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and so it's trying to create an
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impression or a kind of halo effect that
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may be misleading
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um as customers or investors are
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thinking well should I buy this stock or
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that stock should I go fill up my tank
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at this gas station versus that gas
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station right and so it affects consumer
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choices in the marketplace as well as
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investor decisions so it's really the
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truth is it's really really hard to tell
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there have been a few studies
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um particularly looking at for example
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The Net Zero claims by Major firms in
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like the SNP S P 500 and one recent
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study
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um uh suggested that the while you know
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the firms in the sample had uh stated
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publicly that they were going to get to
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net zero emissions uh by 2050. in fact
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they were only going to get about 40
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percent of the way there
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so that's one study but that's kind of
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the the range that we're dealing with so
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on the other side of this as I alluded
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to there's a component of First
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Amendment here yeah uh and I guess the
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question is with the rights that we have
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under the First Amendment does the issue
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of green washing violate those
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great so super interesting question and
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um and you know the reason why I think
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the First Amendment comes into play here
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is because the since 1976 the Supreme
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Court has protected not only political
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speech right like I'm gonna vote for so
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and so but also certain forms of
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commercial speech as long as that
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commercial speech is truthful and
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accurate and not deceptive or misleading
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and before 1976 there was essentially no
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protection like you couldn't say I have
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a First Amendment right to advertise for
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my business
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right
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um you know a state could say no your
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your lawyers cannot advertise right and
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that wouldn't pose a First Amendment
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problem but beginning in 1976 the the
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court basically said even commercial
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speech is protected what's interesting
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about it is that the reason why the
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Supreme Court decided to protect
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commercial speech like advertising or
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marketing claims
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um is not based on the kind of autonomy
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interest of the speaker it's not about
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you know the Chevron corporation's
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autonomy to say what it wants in the
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marketplace it's about you and me as
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listeners
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and our interest in the marketplace in
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ensuring that there is accurate factual
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information so that we can make choices
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in the marketplace and we can make
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choices about how we want to regulate
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the marketplace that's basically what
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the Supreme Court said
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so yeah go ahead so so when you think
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about that that issue of misinformation
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yes and you think about the the
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potential impact that it might have on
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the marketplace there are a variety of
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different elements where it could have
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impact from bottom line benefit to the
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company to the impact on its uh
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shareholders to the public you know
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there are so many areas that could
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potentially be impacted here absolutely
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absolutely so we know from Empirical
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research some of which has been done by
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my Wharton colleagues that
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um as well as people from other schools
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of course
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um that uh
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marketing information about firms sort
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of corporate social responsibility or
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their environmental programs
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um can have an impact in kind of two
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primary ways the first is on the
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consumer
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so there's one study that demonstrates a
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kind of halo effect
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um for products uh produced by a firm
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that engages actively in corporate
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social responsibilities so participants
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in this study
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um were provided information about you
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know firm a donates money to X cause and
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then we're asked to rate
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um a hair regrowth product
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um a tooth whitener and a uh an optical
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character recognition text scanning
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program to to basically rate the
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programs rate these products as to how
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good they were you know how wide are the
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how much hair grew back how how clear is
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the scan
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um and another group of participants
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were asked to rate the same product but
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were given no information about
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donations by The Firm
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and the participants who learned that
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the firm had engaged in corporate social
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responsibility rated the teeth as wider
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the text is clearer and the hair is
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fluffier
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um and this is sort of a really clear
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demonstration of a halo effect right so
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when you you know when there are other
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studies that say that or that
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demonstrate that when consumers learn
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that a firm makes product X using
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renewable energy or in some other kind
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of you know environmentally conscious
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way they attribute that environmental
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Consciousness to the firm's other
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products they'll say oh well if that
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product is made with renewable energy
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then you know all the products may be
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made with renewable energy there's an
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assumption to that effect so there's
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kind of this Halo of greenness that
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comes about and if I'm making a choice
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in the marketplace about whether to
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purchase you know from firm a or firm B
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and I find out that firm a is using
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renewable energy I might buy from firm a
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and so if that's true that I'm making a
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good choice if that's green washing and
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in fact the firm isn't using renewable
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energy or they're only using it in some
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really limited way but they're hyping it
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up and they're advertising
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um then I'm being misled and maybe I
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would have chosen the other product
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right so it distorts voices in The
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Marketplace the second Major Impact
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relates to
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um our role not as consumers but as
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voters
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and there are a number of different
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studies that show that when when
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um in sort of in both directions that
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there are policies delivers so on the
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one hand there is the negative policy
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spillover meaning
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study has shown that when
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um participants learn that all firms in
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an industry are setting targets that
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they're going to use you know recycled
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materials in their products they're less
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likely to support public regulation on
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the same subject matter largely because
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of this impression that like the firms
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have got it right this is under control
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this isn't an area that we need to
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address with regulation on the flip side
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there are also studies that show that
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certain segments of the population may
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be more likely to support public
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regulation when they learn that a firm
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has taken action rather than like the
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state of California so my favorite study
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in this regard his one uh done by uh
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some uh faculty at Northwestern who
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basically showed participants in the
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study information about either
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California using cage-free eggs or
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McDonald's using cage-free eggs in their
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supply chains and then they
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disaggregated the participants by
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political affiliation and what they
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found was that if you're on the liberal
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side of the spectrum didn't really
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matter that much if you learned that
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California or McDonald's was using
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cage-free eggs you were generally
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supportive of laws against battery hen
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egg production battery cage and egg
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production sorry I'm not saying that
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right but you know what I mean
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um whereas people who identified as very
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conservative when they learned that the
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state of California was purchasing only
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cage-free eggs they weren't super
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supportive of public policy they're like
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you know those Tree Huggers uh they're
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gonna do what they want crazy State of
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California but when conservatives
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learned that McDonald's was purchasing
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cage-free eggs
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they were as supportive of public policy
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on cage-free eggs as liberals
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why maybe if a major corporation thinks
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that this is an issue as well as if a
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major corporation thinks that it can do
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this you know consistent with its profit
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maximizing goals then this is really a
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problem so I as a conservative and more
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likely to trust it if McDonald's thinks
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it's a problem than if the state of
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California
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right and so we so there's an impact
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also on like the interest in members of
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the public to regulate the problem
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so there's a component then of of trust
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that is kind of involved in that
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messaging as well especially when you're
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talking about an element of the
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government versus a a corporate entity
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as well yeah absolutely and I think that
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that's pretty well estab lished there's
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this concept
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credibility right so depending upon you
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know how I self-identify whether it's as
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a matter of partisan politics or as a
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matter of other you know identity-based
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characteristics that I may find certain
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uh sources more credible so I might find
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the state of California more credible
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than the US military someone might find
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the US military more credible than
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McDonald's right you can you can kind of
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see where it goes based upon sort of
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different
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values that we hold or D or you know uh
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different factors that that play into
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our identity but I want to mention uh
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just to sort of pick up your question
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from earlier about the first amendment
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that the way in which the First
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Amendment really begins to come into
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play is because the first amendment is a
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limit on what the government can do
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right the first amendment basically says
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I have a right not to be bothered by the
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government not to be told what to do by
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the government in certain types of
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Regulation and so if we're thinking
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about what we want to do to prevent or
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deter or punish green washing
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the First Amendment kind of sets the
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outer boundaries of what legal
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institutions like the Federal Trade
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Commission or the states or the
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Securities and Exchange Commission can
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do to either required disclosure of
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environmental information or after the
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fact to allow the government to sue a
00:17:23
firm for a false or misleading statement
00:17:25
and so that's kind of the way that the
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First Amendment comes into play is sort
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of what are the outer boundaries of what
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the regulatory State can do to address
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this problem
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so in this era that we're in right now
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where uh social is playing such an even
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greater role uh in our communities and
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with the impact around around businesses
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how much impact you think a
00:17:52
an expectation from the public or uh
00:17:56
uh that that that social expectation how
00:18:00
much do you think that that can actually
00:18:01
play a role in changing the mind or
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changing the path of a company uh around
00:18:07
some of these issues
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so I actually think it's playing a
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really important role I mean I think
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it's playing an important role in in
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sort of multiple different ways at one
00:18:16
level there's like the organized social
00:18:19
movement
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that's you know boycotting company X for
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not doing more on
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choose your issue whether it's
00:18:29
environmental or social or the organized
00:18:32
environmental movement you know or the
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organized movement on the other side
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boycotting the company that's doing too
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much right I mean so there's there's
00:18:41
sort of that level
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I think that at a kind of More
00:18:44
disaggregated Level there are empirical
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studies that show that consumers have
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expressed a greater willingness to pay
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for products that are more
00:18:53
environmentally friendly
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um and the fact that you know I have
00:18:59
colleagues at Wharton who's who have
00:19:03
said and I think that they're right that
00:19:05
as soon as we begin to live in a world
00:19:08
in which
00:19:09
the marketplace values environmentally
00:19:12
friendliness we're likely to see not
00:19:14
only genuine environmental friendliness
00:19:17
but also greenwashing right because
00:19:19
firms want to you know some of them it
00:19:22
may be completely benign right they want
00:19:25
to do something they're like seeing all
00:19:27
of their industry you know competitors
00:19:30
announcing these pledges and they're
00:19:32
like oh we've got to do something and
00:19:33
they don't necessarily know quite what
00:19:35
to do and so they make the pledge and
00:19:37
they're not quite ready to support it
00:19:38
with the facts but you know if if they
00:19:42
can kind of get on the bandwagon then
00:19:43
you know nobody's going to be upset and
00:19:46
then there's the like really you know
00:19:48
intentional efforts to mislead
00:19:52
um to hide you know and I think
00:19:55
okay
00:19:56
so then what do you think needs to occur
00:19:58
then
00:19:59
to be able to get kind of a more
00:20:02
accurate picture of what companies are
00:20:04
doing especially if they are not telling
00:20:07
the truth absolutely so
00:20:10
um so as a lawyer it's very important to
00:20:12
me to work in at least one or two Latin
00:20:14
phrases during our conversation and so
00:20:16
here they are we have the right we have
00:20:19
the X ante and we have the X post so X
00:20:22
Auntie means before the fact X post
00:20:24
means after the fact so often when we
00:20:27
think about something like greenwashing
00:20:29
we think about Expo who can sue the
00:20:31
company when they've published the ad
00:20:33
and the ad is misleading
00:20:36
um that would be the FTC the Federal
00:20:38
Trade Commission which has power under
00:20:40
the Federal Trade Commission act to
00:20:44
um go after companies that are engaged
00:20:49
in deceptive uh marketing practices that
00:20:52
affect Commerce and so the FTC has
00:20:55
published something called the green
00:20:56
guides which are its interpretation of
00:20:59
how that statute applies to
00:21:00
environmental marketing claim and the
00:21:03
FDC just a couple of months ago
00:21:05
requested and that sort of comment on
00:21:08
how it needs to update the guides it
00:21:09
hasn't updated them since 2012 it's due
00:21:12
for an update I will be submitting you
00:21:14
know some suggestions right um but at
00:21:17
the end of the day that's the x-post
00:21:18
that's there was an ad somebody thinks
00:21:21
that it's misleading the FTC Sues and
00:21:25
seeks you know cease and desist orders
00:21:27
you know take down that ad and pay a
00:21:29
penalty
00:21:31
the ex-ante approach is the one that
00:21:35
frankly I think is probably more
00:21:36
important and more effective and that's
00:21:38
the one that's embodied in the
00:21:40
Securities and Exchange Commission
00:21:43
um mandatory disclosure uh ideas right
00:21:47
so last year the SEC
00:21:52
um published a proposed rule on climate
00:21:56
disclosures that would apply only to
00:21:57
publicly traded companies but basically
00:21:59
said that in their annual you know
00:22:01
periodic report that in addition to all
00:22:04
the other information that they need to
00:22:06
disclose on an annual basis they also
00:22:08
need to disclose their greenhouse gas
00:22:10
emissions they need to disclose if they
00:22:13
are have made a public commitment to
00:22:15
reduce emissions how they tend to
00:22:18
achieve that goal do they plan to use
00:22:21
carbon credits and offsets
00:22:23
Etc
00:22:24
um we are now waiting for the SEC uh
00:22:27
issued a proposed rule has accepted
00:22:29
comments on the rule got many many many
00:22:31
many comments and is now working its way
00:22:34
through them and we're anticipating that
00:22:36
sometime this spring
00:22:38
um the SEC is going to publish a final
00:22:40
rule which will immediately be litigated
00:22:43
in the courts and so not going to come
00:22:46
into effect immediately but the idea of
00:22:48
disclosure and and I'm a big fan of
00:22:50
disclosure is
00:22:52
you know if we're putting more accurate
00:22:56
factual information out into the
00:22:58
marketplace not only does that deter
00:23:01
companies from putting false or
00:23:03
misleading information into the
00:23:04
marketplace but it also gives us a
00:23:06
better handle on sort of what companies
00:23:09
are actually doing in a way that we can
00:23:11
maybe do a better job of judging when
00:23:13
claims are false or misleading
00:23:16
right yeah do you think then do you
00:23:19
think we're on on the right path in
00:23:21
terms of really making some significant
00:23:24
change uh in this area and having less
00:23:27
green washing out there in you know kind
00:23:29
of in the business public business
00:23:31
community and with the public as well
00:23:33
right so I think that the I think that
00:23:36
if the SEC does go forward with this
00:23:39
disclosure rule my understanding and you
00:23:41
know the sort of the word on the street
00:23:43
is that the final rule will probably be
00:23:46
narrower than the proposed rule based on
00:23:48
the comments but you know we'll have to
00:23:50
see I think that it will be a step in
00:23:51
the right direction
00:23:54
um I you know I think that it's really
00:23:57
really hard for Regulators to catch up
00:24:00
with marketing right Regulators have to
00:24:02
go through these really really long and
00:24:04
tortured processes to publish a you know
00:24:07
proposed Rule and then accept comment
00:24:09
and then a final Rule and all in the
00:24:12
meantime more and more claims are being
00:24:15
made about you know the the greenness of
00:24:17
our
00:24:18
you know of our our Industries and um
00:24:22
and so whether it'll stamp out the
00:24:24
problem I don't know but I think that it
00:24:26
it's a definite step in the right
00:24:27
direction and probably a better one than
00:24:30
just you know
00:24:32
expecting that either the Federal Trade
00:24:35
Mission or the states which have similar
00:24:36
Powers
00:24:38
um are going to go after every
00:24:39
advertisement right that's a very that's
00:24:42
a very um laborious process
00:24:46
thank you for listening to the ripple
00:24:48
effect we hope you found this episode
00:24:50
informative and engaging don't forget to
00:24:52
subscribe and leave us a review so that
00:24:54
we can continue to bring you the best
00:24:56
Insight from the warden School

Episode Highlights

  • Understanding Greenwashing
    Greenwashing refers to misleading claims about environmental practices. It's crucial to discern real efforts from mere marketing.
    “Greenwashing is kind of this umbrella expression.”
    @ 01m 08s
    April 11, 2023
  • The Role of the First Amendment
    The First Amendment protects truthful commercial speech, impacting how greenwashing is regulated.
    “The First Amendment protects commercial speech as long as it's truthful.”
    @ 08m 30s
    April 11, 2023
  • Consumer Influence on Companies
    Consumers are increasingly willing to pay for environmentally friendly products, affecting corporate behavior.
    “Consumers are more willing to pay for environmentally friendly products.”
    @ 18m 51s
    April 11, 2023
  • The SEC's Proposed Rule on Climate Disclosures
    The SEC is working on a rule requiring companies to disclose greenhouse gas emissions and reduction commitments.
    “The idea of disclosure is crucial.”
    @ 22m 48s
    April 11, 2023
  • Challenges in Regulating Marketing Claims
    Regulators struggle to keep up with the rapid pace of marketing claims in the industry.
    “It's really hard for Regulators to catch up with marketing.”
    @ 24m 00s
    April 11, 2023

Episode Quotes

  • Greenwashing is kind of this umbrella expression.
    Climate Crisis: What Is Greenwashing and Why Is It Concerning? | Sarah Light — Ripple Effect Podcast
  • It's really hard to tell if claims are real or just greenwashing.
    Climate Crisis: What Is Greenwashing and Why Is It Concerning? | Sarah Light — Ripple Effect Podcast
  • The First Amendment protects commercial speech as long as it's truthful.
    Climate Crisis: What Is Greenwashing and Why Is It Concerning? | Sarah Light — Ripple Effect Podcast
  • Consumers are more willing to pay for environmentally friendly products.
    Climate Crisis: What Is Greenwashing and Why Is It Concerning? | Sarah Light — Ripple Effect Podcast
  • Disclosure is key to deter false claims.
    Climate Crisis: What Is Greenwashing and Why Is It Concerning? | Sarah Light — Ripple Effect Podcast
  • It's a step in the right direction.
    Climate Crisis: What Is Greenwashing and Why Is It Concerning? | Sarah Light — Ripple Effect Podcast

Key Moments

  • Greenwashing Defined01:08
  • First Amendment Insights08:30
  • Consumer Power18:51
  • Environmental Marketing21:00
  • SEC Disclosures21:52
  • Regulatory Challenges24:00
  • Final Thoughts24:50

Words per Minute Over Time

Vibes Breakdown

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