Is the grass greener or just greenwashed?
Leveraging internal audit to enable responsible sustainability
The growing preference for environmentally minded products can create new challenges for businesses. As organizations market their products as “sustainable” or “eco-friendly,” greenwashing claims are causing heightened scrutiny of products’ environmental impact. Learn how your internal audit team can help avoid greenwashing risk.
Is your green genuine?
Before businesses market their “sustainable” products, internal audit functions can provide preliminary insights to help determine if green claims are genuine. This additional oversight is necessary as claims of products being falsely branded as sustainable—greenwashing—are on the rise. Lawsuits, regulatory fines, and other risks are pushing organizations to evaluate and verify the environmental claims of their products.
Explore these four categories of greenwashing with your internal audit practice to help inform your marketing of sustainable products.
False or misleading communications
Consumers may choose to make purchases due to misleading statements, labeling, or advertising. Such tactics may exaggerate environmental claims, provide vague details, or market products as sustainable when they are not.
Inaccurate disclosures or material omissions
Organizations can be penalized for greenwashing due to incomplete disclosures. Additionally, omitting materials, such as information on climate risk, could cause stakeholders to infer sustainability goals are further along than they truly are.
Inconsistent communications and actions
Greenwashing claims can be based on inconsistent messaging of environmental-based action. Unclear transition plans and insufficient resource allocation can mislead stakeholders and elicit the attention of regulators.
Misleading commitments
Companies who fail to make progress on environmental pledges, such as reducing emissions and waste, are susceptible to greenwashing claims. Additionally, leaders must be mindful of “green-rinsing,” which is when sustainability goals are changed before they are achieved.
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The unseen risks of going green
Internal audit professionals can help businesses make strategic decisions based on the increased interest in sustainability while also implementing the proper risk management practices. As regulators, stakeholders, and consumers look for tangible efforts that live up sustainability commitments, business must consider the risks associated with falling short of expectations.
- Strategic risk: When there’s a lack of leadership buy-in, it can affect a company’s ability to implement sustainability strategies.
- Regulatory and legal risk: Organizations invite risk when they fail to abide by regulations surrounding sustainability reporting and marketing, which can lead to fines, penalties, and costly litigation.
- Reputational risk: A brand’s reputation can be harmed by greenwashing claims, leading to reduced repeat purchases and an erosion of stakeholder trust.
Giving internal audit the greenlight to prevent greenwashing
By collaborating with internal audit, businesses can prevent their sustainability efforts from being considered false or insubstantial. Your internal audit function can be a key player in transparent and reliable reporting. Examine the four A’s of how internal audit can mitigate greenwashing risk.
Assure
Internal audit functions can support organizations throughout the reporting journey. They can help enhance the reliability of your sustainability reporting by testing the accuracy of disclosures and metrics.
Advise
Before rolling out your sustainability initiatives, your internal audit team can provide insights on best practices related to processes, risks, and controls. This can help structure governance based on reporting requirements.
Anticipate
A well-informed understanding of regulatory obligations and voluntary commitments can help align claims, such as “net-zero” and “carbon neutral,” with the proper substantiation and prevent risk.
Accelerate
Leaders within internal audit can accelerate change by advocating for responsible marketing. Furthermore, the practice can inform the business of red flags, including hidden trade-offs and the implications of natural imagery, to mitigate greenwashing.
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Sarah Fedele
