This is the fourth article in our BCG BrightHouse blog series about Environmental and Social Impact.
Balancing discussions about environmental action poses a challenge for companies. Saying too much risks misrepresentation, while saying too little may not accurately reflect the organization’s efforts. Achieving the right balance is crucial, but it’s a process fraught with risks and questions. How does one effectively convey complex business decisions and achievements in a clear, transparent, and informative manner for stakeholders? Can companies demonstrate commitment even when the outcomes of ongoing actions are uncertain? If so, how can they navigate the potential reputational risks associated with this type of messaging?
An answer from the European Commission
In 2020, the European Commission conducted a study scrutinizing environmental claims in the EU, spanning product packaging and advertising. The findings were alarming, with 53.3% of claims being categorized as vague, misleading, or unfounded, and 40% lacking substantiation. Three years later, in March 2023, the Commission proposed the Green Claims Directive, “empowering consumers for the green transition through better protection against unfair practices and better information.” In simpler terms, its objective was to shield consumers from greenwashing. On January 17th of this year, the directive was adopted by the European Parliament with overwhelming support (593 votes in favor, 21 against, and 14 abstentions), granting member states until 2026 to implement its guidelines.
Through this directive, the Parliament seeks to both ensure that consumers are equipped to make informed purchasing decisions and encourage sustainable consumption patterns. It states that environmental claims, understood as “a claim that implies that a product … has a positive or no impact on the environment or is less damaging to the environment than other products … or has improved their impact over time,” must be “fair, understandable, and reliable.” What does this mean in practice? Here are a few key takeaways. Environmental claims should not be:
- Irrelevant: avoid making claims that lead consumers to believe a product offers more benefits than it actually does, such as falsely asserting that “paper sheets do not contain plastic.”
- Exaggerated: avoid incorporating claims like ‘biobased,’ ‘climate friendly,’ or ‘environmentally correct’ unless there is demonstrated and recognized performance to support them.
- Ill-fitting: avoid terms like ‘conscious,’ ‘sustainable,’ or ‘responsible’ when describing outstanding environmental performance because they can also encompass social attributes, leading to potential confusion.
- Misleading: claims regarding greenhouse gas emissions require careful consideration, especially in cases involving offsetting. Terms like ‘carbon neutral’ or ‘climate positive’ used to disclose a company’s emissions can mislead buyers into believing that the product they purchase has no environmental impact. This is not the case. In reality, these claims signify that companies are offsetting emissions produced during the manufacturing process, but not within their entire value chain. Offsetting involves supporting projects that reduce, avoid, or remove emissions elsewhere. However, the term ‘offset’ itself can be misleading, as it implies equivalence, whereas emissions reductions should ideally occur directly within a company’s operations. Reforestation projects, for example, may not lead to immediate emission reductions. Furthermore, the scale of such projects shouldn’t be underestimated. For instance, Shell would require 28.6 million hectares, roughly the size of Italy, to meet its 2050 emission goals. While reforestation projects offer benefits, they should not overshadow the necessity for systemic change and individual behavioral adaptations. This is especially crucial given recent questioning of certain projects’ effectiveness.
What it means for you
By creating a level playing field, this regulation – far from being constraining – enables companies to rely on fundamentals to build trust with their audience. While the burden of building trust still sits with the company, the new context established by the European Commission in the markets it regulates will hopefully shift stakeholder perception away from skepticism and doubt. This is a propitious context for companies, and we at BCG BrightHouse welcome it and look forward to strengthening it.
At BCG BrightHouse, we work and live by five key purpose principles. These principles articulate who we are at our best and embody our defining strengths and non-negotiable values. One of them is “The Beauty of Eloquence.” It means we believe, as an organization, that “communication is a craft, and if something is worth saying, it’s worth saying well. (Because an idea without the right words is like good intentions without action.)”
For us, using “climate friendly” or “sustainable” to describe a product or service uncoupled from hard proof is a “good intention without action,” and this fuels confusion, doubt, and ultimately skepticism. The use of such words alone benefits companies while potentially compromising consumers’ moral values, especially considering that 80% of consumers now consider sustainability in their daily purchasing decisions.
All in all, we welcome this directive as it recognizes the immense power of words.
Words can lead or mislead, inspire or deceive, empower or manipulate.
Words hold the power to cultivate trust.
Words matter, so choose them wisely.