How Greenwashing Distorts Supply Chain Sustainability

How Greenwashing Happens in Offshoring

The complexity of global supply chains, often magnified by offshoring practices, can create opportunities for greenwashing. This is because these intricate networks can:

• Obscure supply chain transparency.

Offshoring can make it harder for companies to monitor and track the environmental practices of their suppliers and partners across different countries, especially when there are multiple layers within the supply chain.

• Shift responsibility and exploiting regulatory gaps.

Offshoring enables companies to potentially shift the responsibility for environmental damage or unsustainable practices onto their suppliers or partners in other countries. A company might claim to uphold high environmental standards while sourcing products from a supplier in a country with weaker environmental regulations. This practice allows them to appear environmentally responsible to consumers while potentially contributing to environmental harm through their offshored operations.

• Facilitate deceptive use of certifications.

Companies may obtain sustainability certifications or labels based on their overall operations or headquarters’ practices, even if those certifications don’t reflect the environmental impact of their offshored production processes.

• Engage in selective disclosure.

Companies might engage in selective disclosure, highlighting minor environmental initiatives or improvements in their offshored operations while downplaying or ignoring more significant negative impacts. 

According to a climate think tank, thirty major financial institutions often publicise long-term climate targets while continuing to finance fossil fuel expansion and lobbying against climate-aligned financial regulations.

This exemplifies selective disclosure, as they emphasised a relatively small, environmentally friendly aspect of their business while obscuring the larger, less sustainable reality.

Variation In Greenwashing Regulations Across Different Regions.

There is a growing trend of regulations and legal frameworks aimed at tackling greenwashing in general. These regulations, though not specifically targeting offshoring, can be applied to offshoring practices to ensure companies uphold their sustainability commitments even when operating across borders:

Extended Producer Responsibility (EPR): EPR is a policy approach that holds producers responsible for the entire lifecycle of their products, including post-consumer waste management. It enforces producer responsibility for product end-of-life management and mandating transparency in waste handling processes and ensure regulatory compliance such as for ethical offshoring practices.

EU’s Green Claims Directive: The EU saw a 20% decline in greenwashing incidents due to stricter regulations. The Green Claims Directive mandates companies to substantiate environmental claims with evidence, curbing misleading practices.

The UK’s Green Claims Code: Introduced in May 2024, this code offers guidance to businesses operating in the UK on how to make truthful, clear, and accurate environmental claims.

The US Federal Trade Commission’s Green Guides: The FTC’s Green Guides provide a framework for companies in the US to make truthful and non-deceptive environmental claims. Although not legally binding, the FTC often uses these guides to evaluate claims and can result in enforcement actions against companies engaging in misleading environmental marketing.

Combating Greenwashing in Supply Chains 

While offshoring can offer cost advantages, it also raises ethical questions about transparency and accountability in sustainability claims. As regulatory scrutiny increases and consumer awareness grows, companies will need to ensure that their environmental claims are substantiated by actual practices, both domestically and abroad.

Here’s how companies can achieve these goals:

1. Enhance supply chain transparency: Companies should implement robust systems to track and monitor environmental practices throughout their supply chains. This includes conducting audits, requiring supplier disclosures, and using technology to enhance data collection and analysis.
2. Prioritise data-driven insights: Companies proactively gather data directly from their suppliers and partners throughout the supply chain to gain accurate insights into their environmental performance. This data can then be used to identify areas for improvement and support transparent communication with stakeholders.
3. Engage with suppliers on sustainability: Companies should actively engage with suppliers to promote sustainable practices and provide support for improvement. This can involve sharing best practices, offering training, and collaborating on solutions.
4. Develop clear and specific sustainability criteria: Companies should establish clear and specific criteria for selecting suppliers based on their environmental performance. These criteria should go beyond simple certifications and delve into actual practices and impacts.
5. Standardised reporting: The lack of standardised reporting frameworks for ESG data contributes to greenwashing. To enhance transparency and comparability, companies should align their sustainability reporting with established frameworks such as those developed by the Global Reporting Initiative (GRI) or the International Sustainability Standards Board (ISSB).