The global spotlight once again shifts to the issue of climate change, as COP-28 ends in the United Arab Emirates, a crucial platform where governments engage in discussions to combat the pressing issue of global warming while the private sector develops “green” developments and communication strategies.
The “green” demand driving corporate strategy
With growing environmental awareness across the board, companies are responding to upcoming regulations, financing requirements, and customer demand through a “green” corporate strategy. This turn, led by committed leaders, drove an increase in end mitigation targets in the largest companies covering both advanced and developing economies.
Companies: End Mitigation Targets
Covering the world’s largest 2,000 companies by annual revenue. Percentages by number.
*Rest of the World (RoW)
**The global total is 1,986 because some companies have been acquired or moved to private ownership.
Recognizing the momentum to act, companies are progressively formulating Paris Agreement-aligned Net Zero strategies and deploying “green” solutions, based on best practices (e.g. SBTi) and respecting the carbon mitigation hierarchy principle: avoid, reduce, and then offset.
Recent ambitious strategies to decarbonize include Apple’s pledge to produce 100% ‘carbon-neutral products’ by 2030, the Zero Emissions Maritime Buyers Alliance (including Ikea, Amazon, Michelin, and Nike, among others) launching the net-zero shipping tender, and EasyJet’s ambition to zero carbon flying with Carbon Removal Credits.
It is essential to celebrate these initiatives, bringing the world one step closer to a sustainable future. Nevertheless, companies shall remain vigilant not only in respecting the carbon mitigation hierarchy but also in communicating efforts for new “green” products and services to avoid misleading environmental claims that can already be considered or in the future, as greenwashing.
“Green” marketing business opportunities
“Green” products and services are on the rise as global companies are fighting to grasp market share on the ever-expanding demand for responsible market solutions with integrated low-carbon value chains. The profit-oriented strategy focuses on locking a strong market position in “green” solutions, acquiring an early advantage vis-à-vis the competition, while benefiting from healthy margins that in turn sustain such market share growth, feeding the positive circle. Healthy margins are possible through a green premium (greenium), where avoidance/reduction and offset associated costs are internalized under the total production cost and passed over to customers.
Additional revenue can be obtained in cases where such greenium surpasses associated costs to avoidance/reduction and offset carbon footprint of products or services. In fact, 70% of customers are willing to spend at least 5% more for “green” solutions (McKinsey 2022), which is way above the actual cost to offset.
Through a cost/profit analysis, it is possible to see how appealing it is for companies to engage in “green” solutions. Let’s take the fashion industry as an example:
Company A sells a $20 T-shirt (7kgCO2e of total footprint) and is willing to spend around $0,050 to offset it (assuming a Carbon Credit price of $7/tCO2e). Naturally, the associated offset costs increase the total production cost by about 0,25%.
However, now Company A can charge more for its carbon-compensated T-shirt given that most customers are willing to spend more on green solutions. Company A decided to increase its margin by 5%, charging now $21 per T-shirt. The price increase is enough to cover all associated offset costs and generate an additional 4,75% of total revenue.
Indeed, in most industries, the cost to mitigate products’ life cycle or services’ carbon footprint is less than 1% of the total price charged to clients, creating space for untouched revenue. Here are some industries that show strong traction:
• The aviation industry, amongst one of the most carbon-intensive industries, is advancing rather quickly, with most aviation companies already proposing voluntary carbon offsetting schemes, and even some moving towards systematic carbon offsetting routes. To illustrate, just last quarter, Swiss International Air Lines announced that all domestic flights between Geneva and Zurich are now fully carbon compensated.
• The textile and fashion industry is particularly under the spotlight as it is responsible for 10% of global GHG emissions (UNDP). Large fashion groups are developing carbon compensation programs, including H&M, Kering Group, Marks & Spencer, and even footwear brands. Aldo, a Canadian multinational, compensates its GHG emissions through carbon credits varying from clean energy projects in India and China, to forest conservation in the Amazon Forest.
“ Carbon offsetting definitely has a place in the market […]. It has to, while the fashion industry is still figuring out trying to improve, and industries have to evolve because things can't simply change overnight. The second you carbon offset, [businesses] are immediately vilified [by industry and climate crisis observers], but there has to be a nuanced conversation about it. It’s not black and white – carbon offsetting is a grey area.”
Edzard van der Wyck co-founder and CEO of British brand Sheep Inc in Drapers
Green marketing versus greenwashing: relevant green marketing efforts can quickly backfire, risking greenwashing charges
There is good intention in companies driving green marketing strategies aligned with best standards and practices. However, today, all related environmental communication is a sensitive issue. Hazy or even misleading communication can jeopardize not only corporate reputation but also lead to financial penalties. Companies should be strategic and precise when marketing their “green” products and services to the market.
Stricter regulations, such as the European Union Green Claim Directive, are set to regulate “green” marketing further by banning misleading environmental claims such as “eco-friendly”, “green”, or “carbon neutral”. Communicating about “carbon neutral” products where the carbon footprint is offset (even after a significant GHG reduction effort) is already considered as greenwashing.
“A ban on carbon neutral claims is great news for consumers. There is no such thing as ‘carbon neutral’ or ‘CO₂ neutral’ cheese, plastic bottles, flights, or bank accounts […]. Carbon neutral claims are greenwashing . . . The truth is that these claims are scientifically incorrect and should never be used.”
Ursula Pachl, Deputy Director of the European Consumer Organisation BEUC.
“We are clearing the chaos of environmental claims.”
Biljana Borzan, Member of the European Parliament - negotiations leader for the European Parliament on the European Union Green Claim Directive.
To avoid criticism and backlash, companies should rely on robust and credible communication at the core of their sustainability-based initiatives. It is not just about what they claim. It is also about what they can prove and are now allowed to communicate.
Any green communication done by a company will need to prove its “green” claims through third-party verification and certification bodies. Penalties are expected in case businesses do not follow suit, ranging from fines up to confiscation of products and associated revenues (4% of corporate revenues as per the EU regulation).
Green marketing and communication shall also be considered as a solution to educate consumers about the importance of sustainable choices. Encourage consumers to make informed decisions by providing resources and information on environmental issues and best practices. By doing this a company can initiate a virtuous circle by retaining consumers already demanding “green” solutions but also nudging new clients towards growing sustainable market shares.
How to act? Key principles for a robust green marketing strategy:
1. Carbon Mitigation Hierarchy: a company shall respect action priorities: i.e. committing and implementing a long-term reduction plan on science-based targets. Offsetting shall only be complementary to such a GHG reduction plan.
2. Authenticity and Transparency: clearly communicate their “green” initiatives, and the scope of their actions and use appropriate and accurate wording (e.g. avoid misleading wording such as ‘carbon neutral’).
3. Recognized Standards and Regulation: companies should base their strategy, KPIs, and reporting action on recognized methodologies and standards (e.g. GHG protocol, ISO14064 for Carbon footprint accounting and reporting), SBTi for reduction plan definition and measurement, Green Claims directives for environmental claims.
4. Verification and Certification: scrutiny on environmental claims is growing. Verification by a recognized assurance provider and third-party independent certification can ensure credible environmental claims compliant with stricter regulation, and then develop robust green marketing strategies (e.g. Carbon Offset Certification),
There is no question that stricter “green” regulations are here to stay, and with growing demand from consumers, credible environmental communication becomes essential. Companies must mitigate any reputational and financial risks while capturing business opportunities raised by the development of “green” demands and low-carbon markets.
- Net Zero Stocktake 2023, Net Zero Tracker (June 2023)
- SBTI (2020) - Foundations for Science-based Net Zero Target Setting in the Corporate Sector Apple Commitment for 100% Carbon Neutral products by 2030
- Zemba: Zero Emission Maritime Buyers Alliance
- Zero-Emission Shipping Tender
- EasyJet & Airbus Strike a Deal: Zero Carbon Flying with Carbon Removal Credits
- Drapers investigates: how fashion retail is carbon offsetting
- Empowering Consumers for the Green Transition: Council Adopts its Position - Consilium (europa.eu)
- EU proposes Green Claims Directive to combat greenwashing | White & Case LLP (whitecase.com)
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