Essec Business School

Following the publication of his article "Do Actions Speak Louder than Words? An Empirical Investigation of Corporate Environmental Reputation" within the academic journal Acounting Organizations and Society, ESSEC ProfessorCharles Cho answered a few questions about the difficulty in identifying a truly green business.

How do businesses report on their sustainability initiatives?

When firms communicate on their sustainability initiatives, we call this “environmental disclosure.” This can include anything from statements in regards to how the company cares about the environment, their environmental policies, projects to control pollution etc. These can be simple mentions in corporate annual reports or full-blown stand-alone sustainability reports in which the entire document is dedicated to this type of information.

More and more companies – and not only those working in environmentally sensitive industries – are disclosing information about their potential environmental impacts. Today, even industries where you wouldn’t automatically think about environmental concerns – like banks or financial services – are jumping on the bandwagon. I cannot think of a large company today that does not disclose on its environmental activities. The catch is, today’s tendency to disclose environmental information is often not so much about transparency as it is about marketing. That’s where we run into the term “greenwashing.”

What is greenwashing?

“Greenwashing” is when a company presents or markets itself as being sustainable or environmentally responsible without effectively backing up the claim. This is encouraged by the fact that many environmental reports are completely unregulated and allow companies to present information inaccurately. In my research, my co-authors and I recently ran across many companies that included graphs showing a sharp decrease in carbon emissions. When we looked more closely, we actually found that the scale was wrong and that they were making the decrease in emissions appear much more dramatic than what in reality occurred.

Even when these reports are audited, we have some debate about whether the audit is valid. Whereas these reports were originally intended as a means for transparency, they have become more of an impression management tool and have allowed certain environmental offenders to “greenwash”.

What then distinguishes a truly ‘green’ company?

Truly sustainable, environmentally conscious companies are not always the ones who say the most or speak the loudest on their commitment to the environment. In fact, the opposite can even be true. Research shows that firms which are performing poorly tend to disclose more extensively – they draw focus towards things that are not necessarily related to their poor performance, they talk about the environment as though they’re being proactive, and the worse they do, the more they talk. Companies that greenwash understand they don’t necessarily have to do well to have a good reputation; all they really need to do is say nice things.

The purpose of our recent study – “Do Actions Speak Louder than Words? An Empirical Investigation of Corporate Environmental Reputation” – is really to make companies more accountable, to draw attention to the problems inherent in environmental disclosure. To break free from this tendency to greenwash we need to recognize the problem and draw public attention to falsely marketed “green” companies. People should really look closely at real performance measures to distinguish the truly green firms, and they should be especially aware when a company talks a lot about their ‘commitment’ in a glossy way. They should beware of firms using the term “green” as a marketing tool.

Can you name a company who is sincere with their sustainable image?

When I was teaching in an executive program at Concordia University in Canada, I worked with Rona, a Canadian hardware chain. They asked me to put together an executive program for their store managers and executive managers on business ethics and sustainability. In my research, I’m often looking at data and analyzing firms’ commitment to sustainability but I really had the opportunity to get to know Rona because I had to teach them all day long. They really stand out in my mind as a good example.

As with many truly “green” firms, they don’t actually do a lot of glossy reporting on their CSR initiatives. Rona actively avoids using anything that might be perceived as greenwashing. They report and communicate exclusively on what they are really doing, in concrete terms, backed up by facts. 

In all honesty, I was skeptical about the environmental commitment of a large, publicly traded, profit-based company like this. I was pleasantly surprised and impressed by what I found, which was real sincerity and a desire to combat this trend to greenwash.

Ultimately, this example really underlines the fact that truly green companies are not always easy to spot.