How ‘Greenwashing’ Affects the Bottom Line

Greenwashing is a form of marketing in which consumers are deceptively persuaded that an organization is using environmentally friendly business strategies or is doing good for the environment through its products.

In 2022, a Harvard Business Review research study found when companies overcommit or do not deliver on promised socially responsible initiatives, they damage the company-to-consumer relationship. However, “A company’s reputation for product quality or innovation may partially mitigate such a negative impact on customer satisfaction.”

“Customers are highly likely to be aware of the gap between stated goals and implementation, and that customer satisfaction levels, as measured by the American Customer Satisfaction Index (ACSI), fall as the number of goals outweighs the number of actions,” the authors of this study said. “This disconnect triggers perceptions of corporate hypocrisy, which affects the customers’ experience with the product itself.”

New research from consultancy, Brand Finance, expands upon those findings, as it reveals that brands have value at “imminent risk” if sustainability perceptions of stakeholders are not aligned with sustainability performance. First launched at the World Economic Forum in Davos earlier this year, The Sustainability Perceptions Index showed that billions of dollars of financial value could be gained from enhanced environmental, social and governance (ESG) action and associated communication.

“Our research found that where performance exceeds perception, there is an opportunity to rapidly generate value by communicating the brand’s genuine commitment to sustainability more effectively,” says Robert Haigh, strategy and sustainability director, Brand Finance. “Conversely, where perception exceeds performance, value is at imminent risk, as brands leave themselves open to public backlash and a ‘correction’ of their sustainability perceptions value.”

Brand Finance recalculated the valuations of each brand by considering their ESG performance, utilizing data from CSRHub. The newly derived values, in conjunction with the Sustainability Perceptions Scores (SPS) disclosed in the latest Sustainability Gap Index report, expose whether the public perceptions align with the actual performance of each brand.

Tesla is one such brand, according to the study. Tesla’s image as a pioneer of electric vehicle technology has carried across into the perceptions held by global consumers. Tesla has the highest proportion of value underpinned by sustainability perceptions of any brand (26.9%), resulting in a Sustainability Perceptions Value of $17.8 billion. However, Brand Finance says that the strength of this perception creates its own risk because though Tesla performs well on environmental components of sustainability, it is weaker on governance and social sustainability measures. Tesla’s weaker CSRHub scores create a value at risk of up to $4.1 billion, more than any other brand in the report.

Other companies that made the list were Microsoft and Chanel. According to Brand Finance’s research, Microsoft has the highest positive gap value of any brand – $1.5 billion. This reveals Microsoft’s sustainability performance exceeds its sustainability perception, meaning there is an opportunity for Microsoft to generate up to $1.5 billion through enhanced communication of its sustainability initiatives and services. Chanel is a brand with a (relatively) high Sustainability Perceptions Score (4.88/10) and a high CSRHub score. By engaging with various stakeholder groups, Chanel can better align its sustainability performance with its sustainability perception. Better communication of its sustainability initiatives would yield a positive financial result.

Finances suffer when companies don’t properly communicate ­­– and adhere to – their environmental promises. As more research and anecdotal evidence accumulate, License Global will update. Watch this space.