Home Commodities Robust environmental claims vs risk of greenwashing – Trade Finance Global

Robust environmental claims vs risk of greenwashing – Trade Finance Global

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In October 2023, Apple announced all its products will be ‘100% carbon-neutral by 2030’. This objective, in line with the company’s commitment, emerged following the establishment of partnerships with suppliers for ‘green aluminium’.

Recognising the momentum to act, companies are progressively formulating Paris Agreement-aligned Net Zero strategies and deploying ‘green’ strategies. 

Commodity and logistic companies are among the most carbon intensive industry. 

  • Steel: 10% of global GHG 
  • Concrete and cement: 8% 
  • Shipping: 3% etc.

This led to  growing scrutiny from the public and financiers. Increasingly, sustainability is becoming a pivotal criterion in financing decision, as evidenced by initiatives such as Société Générale’s ‘green trade finance’ strategy and the joint sustainable supply chains financing programme by Citi and the European Bank for Reconstruction and Development (EBRD).

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.

Source: Net Zero Tracker

In an effort to highlight sustainability efforts, global mining company BHP and Japan’s JX Metals developed the Green Enabling Partnership to reduce GHG emissions in the copper supply chain.

Kazuhiro Hori, director and deputy chief executive officer of JX Metals said,”We respond to our stakeholders’ needs by enhancing our ESG efforts in upstream sectors.” 

These marketing strategies, focused on environmental sustainability, are designed to meet both financiers’ expectations and clients’ demands. They also enable businesses to generate extra profit by adding a margin on top of the ‘greenium’ (green premium) – the additional cost incurred to reduce and offset the carbon footprint of products.

Green marketing? Approach carefully

In the shipping industry 82% of customers are willing to pay a premium for zero-carbon shipping, and more generally 70% of customers are willing to spend at least 5% more for ‘green’ solutions, which is far above the actual cost to offset most of products’ life-cycle carbon footprint. 

The cost to compensate cradle-to-grave commodities life-cycle range on average between 0.5% and 2% of their market value (e.g. copper: 0.5%, steel: 1.6%) and the cost to mitigate final products’ or services life cycle or services’ carbon footprint is less than 1% of the total price charged to clients, creating space for untouched revenue.  For example, a T-shirt sold at $20 has on average a 7kgCO2e footprint that can be offset for $0.05 leading to greenium of 0.25% on the sales price.

Regardless of the drivers, we can express enthusiasm for the growth of green commodities markets. 

However, authentic green marketing efforts must be approached with caution, as any communication related to the environment is a sensitive issue. This is particularly relevant today, as regulators are beginning to address this unregulated landscape. 

Hazy or misleading communication can jeopardise not only corporate reputation, but also lead to financial penalties. Companies should be strategic and precise when marketing their “green” products or services to the market. 

Enough greenwashing: the start of strict regulations

Stricter regulations, such as the European Union Green Claims Directive, are set to regulate green marketing further by banning misleading environmental claims such as ‘eco-friendly’, ‘green’, or ‘carbon neutral’ that are considered greenwashing (when carbon footprint is offset). Penalties for noncompliance with the Green Claims Directive could include administrative fines of up to 4% of the annual turnover of the company.

For example, a French company who manufactures and sells coffee products has recently come under scrutiny for claiming that their products had “Zero CO2 impact” through their offsetting initiatives. Under the new EU rules, this type of claim becomes unlawful. The same applies to “carbon neutral flights” or “carbon neutral fuels” for example.

“The message needs to be clear, we are not banning carbon offsets, they are allowed.”
“The only thing is that the consumers must be fully informed. If you’re stating that the product you are selling is carbon neutral, and it’s carbon offset, additional information is needed to specify its carbon offset.” 

Virginijus Sinkevičius, EU Environment Commissioner

“We are clearing the chaos of environmental claims.” 

Biljana Borzan, Member of the European Parliament

There is no question that stricter ‘green’ regulations are here to stay. 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. Environmental claims shall be transparent, verified by a third party, and subject to regular reviews as provided by Carbon Offset Certification a Swiss-based and first global independent certification label for carbon offset products or services developed in partnership with Bureau Veritas.

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