How can we avoid greenwashing?

How greenwashing can be prevented

Companies are exposed to increasing pressure from their customers, investors, employees, NGOs and other interest groups to implement strategies for corporate ethics and social and ecological responsibility - corporate social responsibility (CSR).

The corresponding EU directive (2014/95 / EU) was implemented in Austria with the Sustainability and Diversity Improvement Act. Certain large corporations are required to include a non-financial statement in their annual report or to publish a separate non-financial report. The declaration, which is based on international frameworks - e.g. B. the standards of the Global Reporting Initiative (GRI) - must also relate to environmental issues.

Non-binding reports

Greenwashing is a problem especially in international supply chains. Large corporations, which are often at the top of supply chains, advertise their sustainability concepts in legally non-binding codes of ethics and CSR reports. It is not uncommon for the numerous international subcontractors and suppliers to simply accept or not control grievances in the area of ​​climate and the environment, and negative effects on the environment are not included in sustainability reporting.

Recently the European Parliament presented a report with recommendations to the Commission on business due diligence and accountability (2020/2129, INL).

The report contains the draft of an EU guideline to ensure that companies are held responsible for adverse effects on human rights and the environment along the entire value chain. In Austria, such an EU directive - as is currently the case in Germany - could lead to an extensive supply chain law.

Essential measures

What should such a law contain? From the author's point of view, several measures would be essential to reduce or prevent greenwashing:

Companies should be rewarded with tax breaks for certain voluntary CSR measures, especially in the environmental and climate area, which go beyond statutory minimum standards. A noticeable reduction in corporate tax is recommended for companies that implement the following CSR measures cumulatively along an international supply chain: Companies should be rewarded when they

  • opt for the comprehensive option instead of just the core variant of the GRI standards as part of their sustainability reporting;
  • ensure that all supply chain members are legally obliged to implement their green CSR strategies - e. B. by anchoring corresponding contractual provisions or by signing codes of ethics, which thus become legally binding); and
  • Monitor supply chain members' compliance with their CSR strategies through unannounced on-site inspections with the help of independent third parties. Infringements could be sued in international arbitration. Most international treaties contain arbitration clauses. The New York Convention enables the international recognition and enforcement of arbitral awards.

Internal control

In order to optimize internal control, corporations should set up a CSR committee, which consists of independent supervisory board members (vis-à-vis management and the controlling shareholders) and, in analogy to the financial expert of the audit committee in the German Stock Corporation Act, has at least one CSR expert.

CSR reports require extensive external verification by independent third parties. It is extremely questionable whether auditors or law firms are suitable.

This requires CSR experts with appropriate knowledge and practical experience. This could best be ensured by government-certified experts or by setting up a new government agency.

Whistleblowing wages

Whistleblowing, i.e. the reporting of certain irregularities in the company, should be financially rewarded, following the example of the US Dodd-Frank Act, if it really leads to the detection of corresponding misconduct along the supply chain. This applies above all to the climate and environmental sectors.

Apart from legislation, it would be necessary to advocate the development of environmental arbitration rules by institutional arbitration institutions, such as the Vienna International Arbitral Center. Such arbitration rules could be accompanied by lists in which established environmental NGOs are included.

The agreement of these environmental arbitration rules between the contracting parties should go hand in hand with the consent to enable individual environmental NGOs on the list to be involved in arbitration proceedings with environmental concerns between the contracting parties. (Adolf Peter, April 12, 2021)

Adolf Peter is Associate Professor at the Shanghai University of Political Science and Law and author of the book "CSR and Codes of Business Ethics in the USA, Austria (EU) and China and their Enforcement in International Supply Chain Arbitrations" (Springer-Verlag 2021).