Greenwashing by Companies: Consumers Preference for Certain Products Based on Sustainability Perspective

1.   Introduction

The phenomenon of environmentally friendly living is currently a social issue that looks good, after the establishment of the Sustainable Development Goals (SDG) on September 25, 2015, SDG was then included as one of the goals included in the Sustainable Development Goals (SDGs) (Alisjahbana & Murniningtyas, 2018). SDGs themselves aim to realize development that maintains and pays attention to improving the economic welfare of the community in a sustainable manner, the sustainability of the community's social life, the quality of the environment, and ensures justice and the implementation of governance that is able to maintain an increase in the quality of life from one generation to the next. The support of companies that make claims of an environmentally friendly living movement is easily spread. This issue that looks good, turns out to have a background that is not in accordance with the movement that contains claims of an environmentally friendly and "green" movement issued by a company is suspected of being only a form of advertising, promotion, or event as a form of good image built by the company in handling the environment that is "green" (Litelnoni, 2019).

Greenwashing is a marketing and communication strategy of a company to provide an environmentally friendly image, both in terms of products, values, and goals of a company without actually carrying out activities that have an impact on environmental sustainability. This strategy is a way for large companies to attract product buyers, with claims of being environmentally friendly, and "green" in product promotions (Valencia et al., 2021). The current problem is that there is a contradiction between advertisements, promotions and events issued by a company with facts that influence consumer perceptions. This incident can be considered to ignore moral aspects and obscure public access to environmental justice. Industry should not distribute the risk of injustice by creating a good image and hiding the negative impacts of the production process and even the end result of industrial activities.

Greenwashing practices cause green consumer confusion, placing consumer ignorance in making decisions to purchase environmentally friendly products (Jandrianto & Kurniawati, 2024). Consumer ignorance is claimed by companies as information and benefits that can be obtained from a product, but this is not entirely true. Consumers with environmental concerns have certain product preferences that contribute to environmental protection (Wulandari, 2021).

This article describes three crucial issues in the practice of industry that carries out greenwashing by companies from the perspective of risk distribution and risk described in the second part, and greenwashing in the context of sustainable finance in the third part. In the final part, the authors will describe the responsibilities of companies that carry out greenwashing from the ecological sustainability perspective.

2.   Greenwashing Practices by Companies from The Perspective of Risk and Benefit Distribution

Since the worsening of environmental pollution, many companies around the world pay more attention to environmental issues, in order to achieve the integration of social and environmental issues in business operations, companies must carry out sustainable and socially responsible missions. Indirectly, companies provide methods to attract consumers, capital markets, products, services, and firms to develop further using advertisements containing Go Green elements (environmentally friendly), with the increase in Green Branding (green market) and Green Marketing (green marketing) which results in the presence of the greenwashing phenomenon. (de Freitas Netto et al., 2020).

The term greenwashing emerged in the 1980s and gained widespread recognition by describing the practice of making offensive or exaggerated sustainability claims in an attempt to gain market share (Richard Dahl, 2010). Greenwashing is a marketing and communication strategy of a company to present an environmentally friendly image, either in terms of products, values, or goals of a company without actually carrying out activities that have an impact on environmental sustainability, in other words poor environmental performance and positive communication about environmental performance are contradictory (Richard Dahl, 2010). This has actually implied the existence of "sins" between half-truths and lies. Examples include "hidden sins" (when only one or a few behaviors are truly green), "irrelevant sins" (when green behaviors do not actually make significant improvements), and "lesser of two evils" (when green behaviors only reflect a comparison with previous behaviors that were truly bad); "lying sins" refer to lies. Regarding communicative features, it mentions the “sins of no evidence” (when claims are unfounded), the “sin of vagueness” (when claims cannot be verified), and the “sin of worshipping false labels” (when fake or questionable certification icons are used) (TerraChoice Environmental Marketing, 2007).

Greenwashing has no positive effect on the overall performance indicators of the organization. because some studies focus on the effects of unsubstantiated green claims, without making potential customers aware that they have been affected by greenwashing (De Jong et al., 2018). Consumer awareness of environmental issues encourages consumers to adopt a healthy lifestyle by consuming organic products, namely products that contain safe, non-toxic, recyclable components, and use environmentally friendly packaging.(Putra I Putu Agus Surya Setiawan & Suryani Alit, 2015).

Increasing consumer awareness of the environment has caused companies to implement environmental issues as one of their marketing strategies (Feriandy, 2021). This is where consumers prefer environmentally friendly products and ultimately companies use marketing strategies to attract the attention of potential consumers by providing advertising claims that contain elements of Go Green (environmentally friendly). Companies use the term "sustainable" or "green" in their marketing without providing concrete evidence, and it can be said that this greenwashing marketing technique can mislead potential consumers towards products that use the term Go Green (environmentally friendly) (Yildirim, 2023) .

The world is making concerted moves to achieve the goals set out in the Paris Climate Agreement. The past few years have seen a massive increase in regulatory, corporate and investment activities around climate change, environment, social and corporate governance, and sustainability. The current state of the environment has increased awareness among the global community regarding the environmental damage caused by industrial activities. This is easily found on the internet which allows consumers especially in developing countries to be aware of sustainable marketing (Qayyum et al., 2023). Nowadays, people as consumers are more likely to choose environmentally friendly products or services. A significant increase in corporate activities is seen in the creation of the Green Economy movement, Green Economy, (Go Green) Environmentally Friendly, which adopts several environmentally friendly management systems, such as Green Branding and Green Marketing(Berrone et al., 2017).

Green development here means maintaining product quality while making it environmentally friendly, while sustainable refers to the company's obligation to realize the Sustainable Development Goals (SDGs) (Kisworo et al., 2022). Companies realize SDGs by conducting campaigns or issuing advertisements with an environmentally friendly theme. Sustainable Development Goals (SDGs) are international actions that have been agreed upon by world leaders, including Indonesia, with the aim of ending poverty, reducing inequality and providing environmental protection. The SDGs contain seventeen goals and one hundred and sixty-nine targets that are expected to be achieved by 2030 (Sustainable Development Goals, n.d.).

Before the SDGs were launched, the Millennium Development Goals (MDGs) were its predecessors, but in 2015 with specific goals and targets, the SDGs were finally born as an update of the MDGs. The SDGs are a global action plan from leaders of developing and developed countries, with the aim of ending various challenges to end poverty, reduce inequality and protect the environment. The image of companies that use products with claims of "sustainability" or "green" to attract people to buy products, this is done by companies to attract younger consumers. The development of information and more aware consumers will have a significant impact when the advertised product has a claim of "sustainability" or "green". By acknowledging the environmental impact of their services, companies can look like 'good guys' who represent the progressive attitudes of millennials and Gen Z (Coombs, 2010). The emergence of trends from this marketing strategy brings up a reality that is not in line with what is in the field, through these advertisements, companies try to look 'greener'.

Figure 1. Sustainable Development Goals Programs

As seen in the image above, SDG has several sustainability programs, but these sustainability programs do not necessarily receive attention from companies that claim to be carrying out the Green Movement. With the desire to gain greater profitability, some companies may hesitate whether to keep their image untainted or fall into the temptation of practicing greenwashing, that is, deliberately deceiving consumers with false propaganda about their environmental practices (Terrachoice, 2010). Many companies also try to show that they do not practice greenwashing, and they show it transparently and clearly in their Corporate Social Responsibility (Porter & Kramer, 2006). This causes a distribution of risk due to the greenwashing practices implemented by the company, greenwashing leads consumers to think that they have made environmentally friendly movements but in reality no action has occurred according to the Company's promotional advertisements (Rake & Repman, 2021). The benefit of greenwashing to society is to help society change over time by making sustainable environmental friendliness a normal thing. The benefit of greenwashing to companies is that when consumers walk around the supermarket, constantly seeing advertisements for environmentally friendly products, it normalizes the purchase of these products. Consumers get a sense of pride when a company tells them that their product helps something or someone, and are more likely to buy from that company again when they need the product. Gradually surrounded by campaigns related to environmentally friendly society, and the more we are immersed in it, the more likely we are to make it a habit (Maushart & Snaije, 2017).The image of a company that provides sustainable and green "claims" as a marketing strategy can "mislead" consumers into choosing products, because consumers think that they have made environmentally friendly movements but in reality they have not.

3.   Greenwashing in the Framework of Sustainable Finance

Nowadays, the key to success in the current era is a business or industry that is related to green and sustainable things (Singh & El-Kassar, 2019). The business industry is a sector involved in the emergence of environmental problems. Many industries emerge to meet the needs of society, but this fulfillment does not pay attention to environmental problems. This causes many industries to prioritize profits over preserving the environment (Leonard Silalahi et al., 2024). A better understanding of the implications of environmental justice first requires an integrative and systematic assessment of various predecessor conceptions such as environmental sustainability and sustainable development, one of which is sustainable finance, which is a new pattern that must be achieved in economic development at the national and international levels by claiming that the current global economic growth is not sustainable and needs to be revised (Ehresman & Okereke, 2015).

Greenwashing can be linked to the realm of sustainable finance which refers to financial practices that in decision making consider several factors, namely environmental, social, and corporate governance factors. This concept is used as a measurement tool to evaluate the social and sustainability impacts of investments made by the company. Companies that comply with this standard will integrate these three criteria in their business operations and in their investment decision making (Kisworo et al., 2022). Sustainable finance aims to promote sustainable economic growth, reduce negative impacts on the environment and society, and support inclusive and sustainable development.

Greenwashing can be connected to sustainable finance because basically sustainable finance can occur when a corporate entity uses the label "sustainable" or "green" under the pretext of attracting investors or consumers without knowing in the field whether it has met the appropriate standards for the claim. This can be seen in the form of "misleading marketing" practices where companies use the terms "sustainable" or "green" in their marketing without providing concrete evidence or transparency about how their investments or products are in line with sustainable goals, this can mislead investors and consumers of companies that claim to be "sustainable" (Marciniak, 2009).

The relationship between sustainable finance and ensuring people's well-being is explored in the long-term perspective (Stukalo & Simakhova, 2018). This implication is seen from the discourse and practice of global environmental sustainability is still unclear especially regarding sustainable finance. The term remains subject to different interpretations in different places, and is used for very different policy goals and objectives. Therefore, rather than resolving the old controversy of the relationship between business as an economic connector and sustainability as an environmental connector, the green economy has only revived the existing debate about the vision, actors, and policies that are most suitable for securing a sustainable future for all. The main controversy surrounding the green economy is about how the concept relates to the idea of ​​social and environmental justice. The systematization of the sustainable economy provides a context for future re-analysis because the idea of ​​a sustainable economy is essentially connected to various conceptions of justice, especially environmental justice.

4.   Dynamics of Greenwashing Regulations from Sustainability Perspective

So far, companies are increasingly interested in presenting themselves as sustainable. This will improve their image and, in turn, increase their profits. But companies do not always practice what they claim and rely heavily on publicity stunts where environmental responsibility is just a façade. Consumers are increasingly paying attention to environmental issues and pushing companies to achieve and, as a result, not only relate to economic, but also environmental and social results. However, some companies, considering the economic and social benefits obtained from corporate policies that pay attention to environmental issues, define their products as "environmentally friendly." One of the social responsibilities of companies is usually called Corporate Social Responsibility (CSR) and today it is normal, as an obligation carried out as a company's actions are considered to care about the environment and its surroundings. The author summarizes that there are several large companies in Indonesia that make environmentally friendly claims, such as Unilever, Mayora, Indofood, Wings, and PT Santos Jaya Abadi. Four of the five companies even provide social responsibility statements on the Company's website.

Figure 2. Website appearance of several companies in Indonesia

Figure 3. Indonesia’s Companies Plastic Waste Production, data based on Green Peace Indonesia

Figure 2 shows four large company websites in Indonesia that provide “Corporate Social Responsibility” especially for the environment. The four companies are Salim Group, Mayora Indah, Unilever, and Santos Jaya Abadi.

Figure 3 Greenpeace Indonesia through its official website stated that the four big companies above released products that cause marine pollution, most of which is plastic waste. Through a civil society network consisting of Greenpeace Indonesia, Ecoton, Walhi, Trash Hero Indonesia, and Yaksa Pelestari Bumi Berkelanjutan (YPBB) conducted brand audits at 34 audit locations with 9,698 sachets collected. The results showed that there were 5 producers of the most sachet pollutants, namely Wings (1251), Salim Group (672), Mayora Indah (629), Unilever (603), Santos Jaya Abadi (454) (Indonesia, 2014). These companies provide evidence that they are promoting Go Green in an environmentally friendly way, but behind all that there is a reality that still contradicts these claims. The data above is only from large companies in Indonesia, which have hurt the environment, while several of the large companies above have subsidiaries throughout the world.

On the surface it may seem that companies have an environmentally friendly sustainable movement, but in most cases, corporate claims about being environmentally friendly and saving the environment are all unfounded (Smyth, 2017). Companies will be seen to treat the environment with more care, pay attention to their consumer behavior, and stand out as companies that reflect sustainable values, this leads to a situation where companies feel motivated to adjust their business models where they can attract consumers with less capital.

The Green Business Bureau in its article entitled The Seven Sins of Greenwashing: Identifying False Eco Claims states that there are 7 (seven) greenwashing concepts, namely (Green Business Benchmark, 2021):

1.     The Sin of the Hidden Trade Off, advertising “green” products, even though the product has other features or uses methods that are not environmentally friendly.

2.     The Sin of No Proof, “green” environmental claims are not supported by reliable evidence or certification.

3.     The Sin of Vagueness, “green” products are unclear and cause misunderstanding by consumers.

4.     The Sin of Worshiping False Labels, purchasing “green” label claims obtained from certification bodies to deceive consumers.

5.     The Sin of Irrelevance, “green” environmental statements are accurate but only provide a diversion from the core issue.

6.     The Sin of Lesser of Two Evils, “green” claims are accurate but serve as a diversion from worse health or environmental issues.

7.     The Sin of Fibbing, “green” claims are false.

Companies risk contributing to greenwashing by mobilizing consumer support for their green claims (Partzsch et al., 2019), but in reality companies that present themselves as greener are actually companies that engage in greenwashing (i.e., appear to wear a green hat but are not green at heart) (Just, 2021). False claims about a company’s greenness can be dangerous because they risk hindering efforts to address real environmental impacts, and consumers can be tricked into buying products that are not in accordance with the facts.

The use of advertisements and websites with eco-friendly claims has undeniably raised awareness of environmental issues, which strengthens the green movement(Maushart & Snaije, 2017). Those who represent the majority of consumers who like eco-friendly are most likely to use products that are truly eco-friendly, so there is a chance that there will be some left for future generations to live in. One approach to long-term success in eco-friendly marketing is to use an advertising approach. There are various dimensions in eco-friendly advertising, one of which is education-focused which aims to increase consumer understanding of nature and the environment; the other is Commercial-focused which is designed to increase sales of products or services.

In 2021, the Competition and Markets Authority (CMA) published some damning evidence. Up to 40% of green claims found online were found to be unfounded. In response to these dire findings, industry experts began to develop a six-point code, such as:

1. Claims must be honest and accurate.

2. Claims must be clear and unambiguous.

3. Claims must not omit or conceal important relevant information.

4. Comparisons must be fair and meaningful.

5. Claims must consider the full life cycle of the product or service.

6. Claims must be substantiated (CMA’s Green Claims Code to Prevent Greenwashing, 2021).

The “green” claim obtained from an international certification body is a strategic step for companies to brand their products. It should be noted that the “green” claim is not a standard in marketing, but only creates public trust that the products sold are the best goods by paying attention to the sustainability of the surrounding environment and the fulfillment of human rights. However, the “green” claim is misinterpreted with certain goals by companies to increase the demand for the number of target markets.

Several countries implement regulations for greenwashing, This is a step for these countries to protect consumer rights. The Chinese government uses a regulatory approach through the State Administration for Market Regulation (SAMR) or interpreted as a market regulation administration to combat false advertising, although specifically China does not have a law specifically regulating greenwashing, but the Chinese government regulates this action through the Advertising Act where the Chinese government stipulates that advertisements must not contain false content, and must not deceive and mislead consumers (Bey et al., 2023) Click or tap here to enter text., The Canadian government in November 2023 in the Government's Fall Economic introduced a new law that was included in the amendments to Canadian competition law, in the law there is a section on "deceptive marketing practices" as one of the Canadian government's commitments to increasing consumer protection related to greenwashing claims that can be misleading (Segal, 2024). Governments from several countries see that the potential for "misleading" from greenwashing can have an impact on consumers, therefore the countries above regulate regulations related to greenwashing in real terms by providing prohibition of deceptive marketing.

From the perspective of Indonesian legal politics, the regulation on the issue of greenwashing has not been a concern of the authorized institution. This condition places very minimal protection and facilitates the needs of the industry from the market side. The lack of regulation will cause inequality in access to quality life assurance through a protection system that is oriented towards maintaining public safety from environmental damage caused by the exploitative practices of industry players.

Currently, greenwashing may still sound unrecognized, not everyone knows the meaning of greenwashing, it is not wrong if the existing regulations do not specifically explain greenwashing. The context of greenwashing is difficult to apply considering the subjectivity of the industry in the application of marketing techniques. Meanwhile, regulations are also difficult to enforce because greenwashing does not actually violate the rules, it is just unethical. The unethicality of a company can be seen when the company does not carry out its responsibilities when suspected of greenwashing, this responsibility can be categorized as social responsibility which refers to a company's actions to protect or improve the welfare of living things (Renata et al., 2024) So far, the company's responsibility is still limited to implementing CSR, concretely the responsibility of companies suspected of greenwashing still does not exist, either in regulations or in action, although there is no concrete responsibility related to companies suspected of greenwashing, but ethically the business carried out by a company must be based on social and ecological aspects(Haliwela, 2013). The role of the government is needed in regulating greenwashing, because basically companies only create a good image to attract consumers by appealing to claims that the products they produce look sustainable or green and ignore social responsibility and justice towards the environment.

5.   Conclusion

Greenwashing practices as a marketing strategy often mislead consumers who want to contribute to environmental preservation. Sustainability and environmentally friendly claims that are not supported by real evidence can create the impression that consumers have taken positive action towards the environment, when in fact they have not. Greenwashing can be connected to sustainable finance because basically sustainable finance can occur when a corporate entity uses the label "sustainable" or "green" on the pretext of attracting investors or consumers without knowing in the field whether it has met the appropriate standards for the claim. Several countries such as China and Canada see that the "misleading" potential of greenwashing can have an impact on consumers, therefore these countries regulate regulations related to greenwashing in real terms by prohibiting deceptive marketing. The role of the government is needed in regulating greenwashing, because basically the company only forms a good image to attract consumers with the appeal of making claims that the products they produce look sustainable or green and ignore social responsibility and justice towards the environment.

Author Contributions: All authors contributed to this research.

Funding: it is funded from the authors own budget, no fund is provided by any institution..

Conflicts of Interest: The authors declare no conflict of interest.

Informed Consent Statement/Ethics approval: Not applicable