An Environmental, Social and Governance framework in business (otherwise known as “ESG”) is a broad set of factors used to evaluate a company’s performance in a way that is focused on social responsibility, rather than purely short-term profit. This is in part due to consumer behaviour as many consumers move to making purchase decisions based on a variety of factors aside from the quality and cost of a product.
Companies who adopt ESG practices can have an easier time securing investors, growing their market, retaining employees, building trust within their communities, and potentially earning subsidies and support from government. They will also be less likely to encounter opposition from government, shareholders and communities, and to become involved in legal action such as being sued for breaching directors’ duties, engaging in misleading conduct, or failing to satisfy statutory reporting obligations.
ESG isn’t just something for big corporations to grapple with. All businesses are subject to consumer scrutiny, and so should be evaluating and modifying their business practices using the ESG model. Further, many larger companies looking to engage subcontractors will favour businesses with a strong ESG performance and reputation.
ESG also serves as key criteria for investors in assessing a particular company’s future success, as well as being an important guide for executives in making decisions which serve the company’s best long-term interests and not just short-term financial gains.
Ignorance of ESG may result in a loss of sales and an increased risk of being the subject of legal action, one of these areas being “Greenwashing” and “Bluewashing.” There can also be significant reputational damage to a business.
{For further reading check out our article on ESG frameworks here}
What is Greenwashing?
With growing awareness around climate change and an increasing demand for sustainable products, businesses are changing the way they operate to become more “green”. Many businesses are genuinely taking responsibility for their carbon footprints and are innovating in creative ways to adapt to meet the demand for sustainability. However, the increase in awareness of these issues may lead to some businesses feeling the pressure to appear more sustainable without doing the work to get there, or seeking to capitalise on the demand for sustainable products by marketing their products to appear sustainable, when in reality they are not. This is referred to as “greenwashing”.
In the past we’ve shared informative articles on:
Greenwashing Litigation – Sustainability and Misleading Conduct – click here.
and
Greenwashing Trade Marks – click here.
Greenwashing (and increasingly bluewashing) has been a focal point of the Australian Competition and Consumer Commission (ACCC) with many informative articles for Australian businesses. Click here for further information.
What is Bluewashing?
The same principles for greenwashing hold true for bluewashing however there is a slight difference. While greenwashing has a strong focus on environmental practices, bluewashing is primarily concerned with social and economic responsibility. As per this Forbes article (read in full here):
“The term bluewashing was first used to refer to companies who signed the United Nations Global Compact and its principles but did not make any actual policy reforms. Referring to the colour of the United Nations flag, bluewashing came to mean that some participating companies were using the Global Compact to improve the public perception of their values, social programs, and governance practices without introducing any real changes or reforms.”
A Final Note
Both greenwashing and bluewashing can constitute a contravention of the Australian Consumer Law and carry heavy penalties. For example, the Australian Consumer Law prohibits a person from engaging in misleading or deceptive conduct, and from making false or misleading representations about goods or services. More and more companies in Australia and around the world are being held to account for greenwashing and bluewashing, causing a trend in greenwashing and bluewashing litigation.
