How to prevent greenwashing with blockchain?

This article explores the growing concern of deceptive sustainability claims, regulatory frameworks and the role blockchain technology plays in ensuring transparency and authenticity of green efforts. Discover what greenwashing is and how blockchain can empower consumers and investors to make informed choices while holding businesses accountable for their environmental and social commitments.

What is greenwashing?

Greenwashing is a term that has become increasingly popular in today's world of environmental awareness. It refers to the practice of portraying products, services or corporate activities as environmentally friendly, despite the fact that they do not actually meet any sustainability standards or norms. Examples of greenwashing can be found in various sectors of the economy, including production, fashion, cosmetics, automotive, energy and others:

1. A food company that displays a picture of a tree or leaf on its product labels, suggesting that their products are green, when in fact it takes no environmental action.
2. An enterprise or financial organisation advertising their alignment with ESG policies on social media with no reports or verifiable records in place - just to be trendy and keywords competitive.
3. A car manufacturer advertising vehicles as "eco" or "zero-emission”, with no traceable supply chain or quantitative data on emissions.

All of the above are just some instances of how widespread and “easy” the practice is. “Innocent” marketing activities can have serious consequences for both consumers and the environment though.

‍What are the consequences?

Greenwashing has significant consequences for both consumers and the environment:

1. Consumer deception: misleading marketing can lead consumers to make uninformed choices, believing they are supporting environmentally responsible companies when, in reality, they are not.
2. Damage to legitimate efforts: companies genuinely committed to sustainability may face skepticism from consumers and investors due to the prevalence of greenwashing, making it challenging to gain trust and support.
3. Environmental harm: false claims can divert resources away from genuine sustainability initiatives, hindering progress toward a more sustainable future.

Legal aspects play a key role in the context of this subject. Greenwashing is often a violation of anti-consumer and anti-fraud laws. First and foremost, the Act on Combating Unfair Competition and Counteracting Unfair Market Practices will apply here. Many jurisdictions have also fair advertising regulations that prohibit misleading consumers about green issues.

In some cases, particularly when misleading activities cause actual harm to the environment or consumers' health, companies may be subject to civil or criminal liability. Courts can impose financial penalties on companies for false advertising and force damages on injured parties.

A provision explicitly addressing the use of pseudo-ecological claims, in turn, is found in the Law on Organic Agriculture and Production. Article 24(4) stipulates that if a company or individual markets products illegally labeled as "eco" or "bio," he or she is subject to a fine of up to 200% of the pecuniary benefit he or she has obtained or could have obtained from the sale of such products for the year preceding the initiation of inspection proceedings.

What legal measures are taken by Regulator?

As the problem of greenwashing becomes more apparent, regulators and investigative agencies are stepping up their efforts to detect and combat the practice. This increased oversight aims at stricter regulations and greater sanctions against companies involved in misinformation. In 2023 a couple of important regulatory events happened that combat greenwashing:

1. EU Parliament and Council have reached a provisional agreement on new updated rules to ban misleading advertisements and provide consumers with better product information. Among other requirements, the following will apply: sustainability labels based on approved certification schemes only (or established by public authorities) will be allowed; generic environmental claims, e.g. “environmentally friendly”, “natural”, “biodegradable”, “climate neutral” or “eco”, without proof of recognised excellent environmental performance relevant to the claim. Learn more here.
2. The European Commission has proposed the Green Claims Directive to address greenwashing. The proposed Directive establishes new standards and requirements for how businesses convey and authenticate their environmental assertions and outlines the definition of an ESG-compliant product. The information about the product or company to which the explicit environmental claim relates will be made available with the claim in physical form or in the form of a web link, QR code or equivalent. The Directive also introduces transparency requirements for environmental labeling ("environmental labels").

How blockchain helps combating greenwashing?

To address greenwashing issue and promote genuine sustainability efforts, blockchain technology is emerging as a powerful tool. It keeps businesses accountable and brings transparency and verifiability into green reporting and certification. Not only it offers trust to all the stakeholders of the market, it also secure and automate the processes. Here's how blockchain can help prevent greenwashing:

1. Immutable records: blockchain creates an immutable ledger where environmental data and certifications are recorded. Once information is added to the blockchain, it cannot be altered or deleted, ensuring data integrity.
2. Transparent traceability: stakeholders, including consumers, investors, and regulators, can access real-time, transparent data about a product's or company's environmental impact. this level of transparency prevents false claims and encourages accountability.
3. Verified data sources: blockchain can authenticate the sources of environmental data, ensuring that it comes from credible origins. Giving equal access to independent (decentralized) verifier of the records minimizes the risk of misleading information.
4. Smart contracts: smart contracts on the blockchain can automate certification processes. These contracts execute predefined actions when specific conditions are met, reducing the risk of human error or manipulation.

Many market players are aware of the necessity and some are already able to appreciate the benefits of blockchain. Swiss climate protection leader Carbon Connect AG, for instance, issues voluntary cancellation certificates on blockchain to leverage the certificates transparency and integrity and promotes anti-greenwashing with actions. DoxyChain, in turn, delivers a blockchain-based platform for anyone to issue certificates, credentials, analyses or reports, supporting the whole sustainability ecosystem.

“Blockchain ensures transparency in the supply chain by creating an immutable ledger of transactions. This can be used to trace the origin of materials, verify sustainability claims, and prevent greenwashing. Blockchain's smart contracts can be used to enforce accountability. Companies can commit to specific sustainability goals, and these commitments are encoded in smart contracts, ensuring that they are upheld.” - Pascal Freudenreich, Founder & CEO at Carbon Connect.

Blockchain-based use cases

With increasing technology adoption, more and more use cases appear. Some specific examples demonstrating the potential of blockchain technology in combating greenwashing are described below.

1. Carbon accounting: blockchain can securely record and verify greenhouse gas emissions, allowing organizations to accurately measure their carbon footprints. This information can then be used for transparent carbon offsetting and reporting.
2. Eco-certifications: certifying bodies can issue any kind of green certificates on the blockchain, providing consumers with real-time access to certification details, including the criteria met and the auditing process.
3. Sustainable supply chains: blockchain can track the journey of products from source to consumer, verifying their environmental credentials at each step. This prevents false claims about sustainable sourcing.

Takeaways

Greenwashing undermines the credibility of sustainability efforts and deceives consumers. Blockchain technology offers a promising solution to combat this problem by providing transparent, immutable, and trustworthy reporting and certification. As consumers become more environmentally conscious and demand authenticity, businesses and organizations that embrace blockchain-based solutions will not only prevent greenwashing but also build trust and loyalty among their stakeholders. It's time to leverage blockchain to ensure that green claims are backed by genuine environmental commitment, promoting a more sustainable and honest future for us all.

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Visit DoxyChain to learn more about an innovative blockchain-based solution for secure and transparent certificates issuance.

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