What greenwashing says about the future of the economy

Little infuriates sustainability advocates more than greenwashing, generally defined as "a form of spin in which green PR or green marketing is deceptively used to promote the perception that an organization's products, aims or policies are environmentally friendly." But as crazy as it sounds, I'd be happy to see more evidence of greenwashing.

Here's why: Greenwashing shows that companies feel obliged to abide by social norms promoting sustainability, or believe that such positioning will help them with consumers. This is a great thing, in some ways! It means that these norms are starting to take sufficient hold in the public consciousness that it's no longer considered acceptable for a company to act in way that generates excessive environmental or social costs.

There's a parallel that garnered a lot of attention last week. The New England Patriots loaned their private jet to students protesting gun laws, and David Frum remarked, "Risk-averse corporate entities making highly visible contributions to formerly controversial causes is exactly what profound cultural change looks like." Similarly, greenwashing happens when companies realize they can no longer ignore calls to act in a responsible fashion.

This isn't perfect, of course. In an ideal world, citizens, companies and governments would start to absorb social norms about sustainability without being deceitful about it. But here's my completely made-up and unscientific Corporate Sustainability Index:

(A) Number of companies committing to sustainability measures


(B) Proportion of those who are actually executing


(C) Impact per company

Even if you see a slight decrease in B (i.e. an increase in greenwashing), this is likely to be accompanied by more corporate commitments of greater impact (A and C). And even if greenwashing becomes ever more subtle (something that governments and NGOs should monitor), it shows that the old, crude ways are no longer deemed socially acceptable.

After all, nothing is more powerful than a change in social norms. Norms make it more likely that people will engage in simple behavioural change to reduce their carbon footprint, such as avoiding unnecessary car trips, or limiting meat consumption to healthy levels. Norms make it politically palatable to implement policies like carbon pricing which sting in the short term but help consumers and producers deal with the externalities of greenhouse gas emissions. And norms make it more likely that the brightest minds go into fields deemed socially beneficial. Economic incentives aside, I find it quite unlikely that the best young engineers will want to work on coal instead of renewable energy. This infusion of talent will only reinforce the current trend of rapidly falling renewable costs.

Long-term investors would do well to take note of these shifting norms, because they have deep implications for asset values. Oil company Shell recently released its scenario analysis for how the world might limit global temperature to rise to 2 degrees Celsius. No forecast is perfect, but there's little arguing with the statement that any serious attempt to reach the 2 degree goal will "ultimately transform all sectors of economic activity. The changes are economy-wide, sector-specific, and amount to re-wiring the global economy in just 50 years." Many sound investment strategies are predicated on identifying companies with wide economic moats, whose profitability will withstand the test of time. But those moats could prove fleeting in a "re-wired" global economy. This could create a whole host of companies trading at putatively cheap valuations, when in fact markets are rightly ascribing lower value to long-term cash flows.

So yes, greenwashing should continue to earn the ire of sustainability advocates. But when it's signalling a wider change in norms about sustainability, it's worth paying attention to - and perhaps deserves the occasional cheer.