How to spot greenwashing in a sustainability report: A guide to spotting false environmental claims

Key points:

This guide shows how to unpick a sustainability report and spot greenwashing in 11 areas. Each section explains a type of greenwashing that could be discovered in a sustainability report. This guide is intended for journalists, professionals working in climate and climate activists. At the end of each section, questions help to guide your judgement on a company’s greenwashing practices. If the answer to the majority of green questions 🟢 is no and the answer to most of the red questions 🔴 is yes, then a company may be greenwashing.

What is greenwashing?

Greenwashing is when companies portray themselves as sustainable or environmentally friendly despite their products or concrete actions not matching their claims. Greenwashing can take various forms, such as false advertising, misleading labelling or exaggerated environmental benefits or actions. It involves using corporate communications and marketing strategies to mislead consumers.^[1]For more information, read Stop Funding Heat’s report on greenwashing in the fossil fuel industry.

Greenwashing is harmful to the environment, society and the company: Consumers feel discouraged from taking action, policymakers get the wrong signals about progress and investments decrease due to shareholder mistrust. It can also undermine other companies’ genuine action on climate, as greenwashing makes their progress look less ambitious.

Greenwashing is part of a broader concept called climate disinformation or misinformation. According to the global coalition Climate Action Against Disinformation, one aspect of climate disinformation is that it “falsely publicises efforts as supportive of climate goals that in fact contribute to climate warming or contravene the scientific consensus on mitigation or adaptation.”

What does the UN say about greenwashing?

The United Nations has warned that greenwashing is a major obstacle to tackling climate change. In 2022, a UN high-level expert group published a report named ‘Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions’. The report outlines 10 recommendations as “a roadmap to prevent net zero from being undermined by false claims, ambiguity and ‘greenwash’”. They include how to announce and set a net zero pledge, what role voluntary carbon offsets should play, and the importance of phasing out fossil fuels. Catherine McKenna, chair of the group, said: “We urgently need every business, (…) to walk the talk on their net-zero promises. We cannot afford slow movers, fake movers or any form of greenwashing.” The UN report and recommendations form the basis of this guide.

Where is the company positioned in rankings or reports?

Rankings can provide an understanding of whether and how a company is greenwashing. Rankings either aggregate different metrics to give an overall company score or focus on one aspect (such as deforestation). Screening rankings for your company of choice is the first step to understanding what the company’s problems are. Here is a non-exhaustive list of company rankings^[2]https://greenwash.com/:

Is the company ranked poorly in terms of sustainability claims?

When and where to find sustainability reports

Companies publish annual reports and sustainability reports. Annual reports must be published by listed corporations every year to show shareholders how their operations and financial situations are evolving. Sustainability or Environment, Social and Governance (ESG) reports are optional in most jurisdictions. The US and the EU will soon require companies to publish some climate and sustainability information.

For publicly listed companies, annual reports are usually published in the so-called “proxy season” between mid-April and mid-June, when annual shareholder meetings are held. When a sustainability report is published usually depends on the schedule of the annual report and on the initiatives in which the company is engaged. Global disclosure system CDP, for instance, releases some of its results in Q4. Sustainability reports are usually found on a company’s website under a “sustainability”, “ESG” or “climate” tab. Rather than just reading examples of a company’s sustainability measures, it is important to look for greenhouse gas emissions data, usually under “climate”.

1. Scope 1, 2 and 3 emissions

Sustainability reports are often designed to demonstrate the company’s positive environmental impact. However, those impacts have to be corroborated with emissions data. This data can be found in the appendix as an emissions table or by using Ctrl+F and typing “scope”. Three categories of emissions are typically used to measure a company’s overall emissions. The distinction is not based on a scientific definition but was established by the industry-led GHG Protocol.

Scope 1 emissions, often referred to as “direct emissions”, are all emissions that arise directly from the production process, e.g. from fuel combustion in furnaces.
Scope 2 emissions come from purchased energy, such as electricity, heating and cooling (often referred to as “indirect, from electricity purchased and consumed”).
Scope 3 emissions are all other indirect emissions not included in Scope 2. Companies often call them “emissions from manufacturing sites”. Scope 3 emissions can represent 90% of a company’s total emissions. They are emissions generated both upstream and downstream:

Upstream emissions are created in the supply chain during production. For example, the emissions of a motorbike producer would include those emitted during the production of wheels bought from a third party. Business flights and employee commuting also belong here.
Downstream emissions are created from the use of a product and can include waste disposal, the energy used to maintain a product, and distribution to shops.

Companies usually report scope 1 and 2 emissions and sometimes scope 3 emissions, though often this is incomplete. Frequently, companies highlight the reductions achieved in the first two scope categories, as those usually represent a smaller portion of total emissions and their reduction is easier to achieve compared to scope 3.

A table with total emissions, often available in the appendix of a sustainability report, will give a more accurate view of a company’s emissions. Alternatively, former sustainability reports can be used to add up the emissions from each year to see if the total emissions have increased or decreased. There are usually two ways of accounting – market-based vs. location-based – and it is important that one method is used consistently.

Box 1: Market-based vs. location-based emissions accounting

For scope 2 emissions, most companies must provide emissions data based on both market-based and location-based calculations.

Market-based emissions are calculated from the company’s local power grid. The company may purchase certificates stating that its energy comes from a renewable source and then claim that it emits zero emissions. Scientists have criticised this method as evidence shows these purchases do not encourage more renewable energy investment. It also distorts the perception of real emissions mitigation measures taken by committed companies. A recent trend involves companies highlighting only ‘market-based’ data, resulting in a rosier picture for their emissions – but arguably a less honest one. One recent study published by Nature highlighted that “if this trend continues, 42% of committed scope 2 emission reductions will not result in real-world mitigation”.

Location-based emissions are calculated from contracts with the company’s electric utilities. Usually, the company provides the emissions average for the regional grid on which it is located.

The measure used for emissions is called CO2e, which takes all emissions that are produced as equivalent to carbon dioxide (CO2) so that it is possible to compare the quantities. If there is no “e” next to the CO2, a company is failing to account for methane and other greenhouse gases.

Are the company’s total emissions from scope 1, 2 and 3 increasing?

Does the company omit to report on CO2e or other greenhouse gas emissions by only reporting on CO2 emissions?

Box 2: The devil’s in the details: Find the small print

Headlines in a sustainability report are the big achievements the company wants the reader to focus on. The aspects of which they are less proud are often in the footnotes. That is where indicators of greenwashing might be found. The smaller the font, the more important it is to read. Moreover, as a guide by the journalism platform Clean Energy Wire outlines: “Sometimes when a company says their disclosure includes “all xyz”, consider what is excluded from XYZ rather than interpreting this at face value as a confirmation of comprehensiveness.” This is typically the case when a company describes what it has included in its scope 3 emissions.

2. Omitting parts of scope 3

There are 15 different categories of scope 3 emissions – indirect emissions emerging from a company’s value chain – which typically represent 90% of total emissions. The numbers relating to scope 3 emissions are important: while a company may not solely be responsible for these emissions, it can alter the products it offers, choose less polluting providers or collaborate with suppliers to reduce their emissions. For some companies (e.g. coal, oil and gas companies), Scope 3 emissions are predominantly from the use of their product and are relatively straightforward to measure. However, while pressure to report scope 3 emissions has increased, companies have not always responded in good faith.

A company will usually specify which scope 3 categories are included in its sustainability report. This is an opportunity to see if any categories are excluded. The 15 categories are:

Purchased goods and services
Capital goods
Fuel- and energy-related activities not included in scope 1 or scope 2
Upstream transportation and distribution
Waste generated in operations
Business travel
Employee commuting
Upstream leased assets
Downstream transportation and distribution
Processing of sold products
Use of sold products
End-of-life treatment of sold products
Downstream leased assets
Franchises
Investments

As scope 3 emissions are diverse and harder to measure, the UN Integrity Matters report states: “Where data is missing for scope 3 emissions, businesses should explain how they are working on getting the data or what estimates they are using.” Figure 1 shows the sectors with a large share of scope 3 emissions among their overall emissions.

Fig. 1: Share of scope 3 emissions by sector

Source: WRI, CDP and Concordia University, Trends Show Companies Are Ready for Scope 3 Reporting with US Climate Disclosure Rule, 2022.

Does the company leave out several categories of scope 3 emissions without further explanation?

When scope 3 emissions are incomplete, does the company fail to explain how it will measure scope 3 emissions in the future?

3. Net-zero and interim targets

Corporate net-zero commitments continue to gain momentum. More than 4,000 companies, representing over a third of the global economy’s market capitalisation, had set net-zero targets by the end of 2022. The significance of a net-zero target for a company lies in its potential to reduce emissions and address climate change. Setting a net-zero target also offers a company the opportunity for transformational change. However, not every company will publish information on its environmental or climate performance, and many companies are reluctant to make their commitments public out of fear of being criticised by civil society. This omission of information on climate efforts is also a form of greenwashing, known as greenhushing.

The UN Integrity Matters report states: “Targets must account for all greenhouse gas emissions (based on internationally approved measures of warming effects) and include separate targets for material non-CO2 greenhouse gas emissions (e.g. fossil methane and biogenic methane).” For instance, if a company operates in one of the sectors listed below (Figure 2), it should have a methane target, as it most likely has high methane emissions.

Fig. 2: Methane emissions by sector in 2021, in million tonnes

Source: IEA, Sources of methane emissions, 2021.

Companies must achieve net-zero before 2050 to reach the Paris Agreement goal of limiting warming to 1.5°C. Interim targets are crucial as they serve as tangible commitments for early action and they can ensure companies stay on track by providing a transparent roadmap with checkpoints. By setting interim targets, companies can also measure their progress and improve or adjust their behaviour to achieve long-term goals.

The three types of interim targets to look out for are:

Short-term targets: Rapid and significant reductions in value chain direct and indirect emissions are essential to limit global temperature rise to 1.5°C. Companies must prioritise halving emissions by 2030.
Medium-term targets: Company emissions reductions are set between 2026 and 2035 for a clearly defined scope of emissions. This target should cover at least 95% of scope 1 and 2 emissions and, where applicable, the most relevant scope 3 emissions.
Long-term targets: Companies set a target to achieve net-zero emissions by 2050 or earlier. This target should include at least 95% of scope 1 and 2 emissions as well as scope 3 emissions.

Does the company publish its commitments and targets?

Does the company have interim targets and detailed information on achieving them, including a regular review process?

If the company tends to emit greenhouse gases other than CO2, does it have a separate target, e.g. for methane?

4. Baseline year

When a company promises to reduce its emissions, it needs to decide on a baseline for the reduction. For instance, when a beverage company pledges to reduce its emissions by 10% – lower than what level? If a company chooses to reduce its emissions compared to 2019, when emissions were already very low due to COVID lockdowns, this will have a very different (and more ambitious) outcome than if it chooses 2023 as its baseline, when emissions were high due to the post-pandemic recovery.

The fictional example in Figure 3 shows a company aiming to reduce its emissions by 10% by 2025 using two years of reference. Using 2018 as a baseline, a 10% reduction would mean emitting 18,000 metric tons of CO2e in 2025. Using 2022, it would emit 54,000 metric tons of CO2e. In other words, the fewer emissions in a baseline year, the more is required to reduce emissions, and the more ambitious the target. In this example, using the 2018 baseline is much more ambitious than choosing 2022.

Fig. 3: 10% emissions reduction using two different baseline years, in metric tonnes

Other companies do not pledge to reduce emissions compared to their past emissions but to their future ones. Often, they use a business-as-usual scenario, promising to reduce emissions – e.g. by 10% in 2027 compared to the emissions they would have emitted in 2027 without any climate mitigation measures. These accounting methods are a way of allowing the company to continue emitting more than in previous years.

Does the baseline year have particularly high emissions?

Does the baseline year come from a business-as-usual scenario?

5. Intensity target

The intensity of emissions is the amount of greenhouse gases released every time a company manufactures and sells a product. In short, it is emissions by product. Intensity of emissions is seen as a problematic accounting metric. The UN Integrity Matters report states: “Non-state actors cannot focus on reducing the intensity of their emissions rather than their absolute emissions.”

Imagine a car company pledges to reduce its emissions intensity by 2% each year (green line in Figure 4). However, over the years, the car business has performed well and car production has increased (grey line). The company’s absolute emissions would increase as a result (yellow line). In other words, when a company sells more cars compared to the previous year, its overall emissions increase no matter how low the emissions intensity of car production is.

Fig. 4: Emissions intensity vs absolute emissions

In sustainability reports, intensity targets can be recognised when the company has, for example, a target of “-55% CO2 emissions per product sold”. However, if a company uses an intensity target in addition to an absolute emissions target, overall emissions should be reduced.

Does the company have an intensity target without an absolute emissions target?

6. Renewable energy targets

Energy plays a vital role in a company’s operations, contributing to costs and emissions. Renewable energy targets are becoming increasingly common. A company’s renewable energy target is set in order to achieve a specific amount of renewable energy production or consumption. Typically integrated into a company’s sustainability initiatives, the target actively contributes to reducing its carbon footprint and overall environmental impact.

In practice, companies’ renewable energy targets vary. Some set ambitious goals, aiming for 100% reliance on renewable energy or specific percentage targets, while others opt for partial commitments. Many companies are engaged in renewable energy transition initiatives such as RE100. This global corporate renewable energy initiative brings together numerous large businesses committed to sourcing 100% of their electricity from renewables.

However, there is uncertainty around what exactly is included in the definition of renewable energy. This question is highly contested and debated, including by governments and the EU. Companies must explain what is covered in their renewable energy targets; for instance, is gas, biomass or hydrogen included? Or only wind and solar? The latter are universally accepted as renewable energy, whereas gas, biomass and hydrogen are far more controversial and have not been proven to reduce emissions effectively in their current forms.

Another key issue is whether the renewable energy a company purchases justifies the reporting of lower electricity emissions. A company can only claim zero emissions for its power consumption if it has been the primary cause for that renewable energy to be generated. “Renewable energy certificates” (RECs) are “very unlikely to contribute to additional renewable electricity supply capacity”, according to the New Climate Institute. Comparatively, power purchase agreements (PPAs) are more likely to do so but are still problematic, as the electricity still comes from the grid, where fossil fuels might still dominate. Ideally, a company will always prominently report its location-based ‘unfiltered’ power consumption emissions (see Box 1).

Does the company set clear-cut definitions for “renewable energy” in its targets?

Are the chosen renewable energy sources scientifically proven to reduce emissions effectively, such as wind and solar (vs. gas, biomass and non-green hydrogen)?

Does the company engage independent entities to verify or certify its energy production and consumption?

Does the company offer updates on its progress towards achieving its target?

Does the company provide detailed information on the additionality of its renewables purchases?

7. Carbon offsets

Carbon offsetting refers to the practice of a company compensating for its emissions by investing in projects that aim to reduce or remove an equivalent amount of emissions from the atmosphere. Companies seek to use carbon offsetting to demonstrate their commitment to sustainability and may highlight them in public relations and marketing materials to create a positive image and attract eco-conscious consumers.

However, carbon offsetting has been criticised for creating opportunities for greenwashing. Companies may rely on this short-term tactic instead of sustainably mitigating emissions, for example, by switching to renewable energy. Offsets can result in accounting issues, environmentally damaging activities and social inequities. For instance, carbon offsets in the form of reforestation or afforestation require a lot of land, which is limited. Reforestation and afforestation are also not necessarily a permanent form of removal, as trees can burn or get diseases. A fashion company should not compensate for fossil fuels used in manufacturing with carbon offsets, as electrification of the manufacturing process is already a sustainable alternative.

In addition, the quality and transparency of carbon offsetting programmes vary greatly, leading to concerns about greenwashing and deceptive practices. One investigation found that 90% of offsets sold by the world’s leading certifier do not lead to genuine emissions reductions. The investigation also found human rights issues to be a “serious concern” in at least one of the offsetting projects. In the EU, carbon neutrality claims based on offsets will be banned from 2026 if the Green Claims Directive is approved ahead of EU elections in April.

Companies might refer to carbon offsetting with synonyms, such as:

Compensate: A direct synonym for ‘offset’.
Neutrality/neutralise: Carbon neutrality means that the amount of CO2 produced during a process equals zero, which companies might seek to achieve using carbon offsets. As a term, “carbon neutral” has been increasingly regulated worldwide.
Removal: This refers to offsetting that aims to remove CO2 from the atmosphere permanently.
Balancing: A term often used to describe the process of offsetting emissions. A company or organisation is said to be “carbon neutral” when it offsets, or balances, all of its emissions.
Insetting: A term used by companies such as Nestlé and Pepsi that usually refers to emissions offsetting in the value chain. This can be a highly untransparent practice and can lead to the double counting of emissions reductions.

Does the company use carbon offsets to compensate a large chunk of its emissions?

Does the company use carbon offsets to compensate emissions for which low-carbon alternatives exist?

Does the company claim to be “carbon neutral”?

After buying offsets, has the company implemented additional changes to sustainably reduce emissions (such as installing solar panels, making processes more energy efficient or electrifying machines)?

Has the company achieved a decrease in emissions due to these long-term, sustainable measures and not only the carbon offsets it purchased?

Does the company explain where by how much and through which method it is offsetting?

8. Hydrogen

Many auto companies are promoting hydrogen as the solution to replace fossil fuels. However, hydrogen production needs a large amount of electricity, and storing it is not easy. In most cases, it is easier to use already available electrification solutions, such as electric vehicles. In addition, for hydrogen to be green, the electricity used to produce it needs to be green too, but the majority of grid-distributed electricity globally is generated from fossil fuels. There are very few sectors in which the use of green hydrogen makes sense today due to the lack of electrified options. Areas of potential application are the production of fertilisers and steel, or powering ships and planes.

Does the company claim to use hydrogen as a mitigation solution in a sector or process where electrification is a better solution (such as automobiles or heating)?

9. CDR and geoengineering

Carbon dioxide removal (CDR) technology is designed to tackle excess CO2 in the atmosphere by capturing and sequestering carbon in various environments, such as the ocean, terrestrial biosphere or geological reservoirs. Geoengineering seeks to restore the balance in the climate system by either removing excess CO2 or reflecting solar radiation away from Earth.

Greenwashing in the fields of CDR and geoengineering can occur in the form of promoting these technologies as quick fixes or sustainable climate change measures to tackle a company’s emissions or environmental impacts. However, they have not been proven to be effective climate change solutions due to high scientific uncertainty and side effects.

Greenwashing could occur when a company commits to implementing these initiatives while actively expanding its carbon-intensive operations. This could include continued reliance on fossil fuels in the supply chain, or continued operations in the fossil fuel sector, while counting on these unproven technologies to deal with the outcomes afterwards.

Does the company rely on underdeveloped CDR to reduce its emissions?

Does the company use CDR to compensate for emissions for which low-carbon alternatives exist?

10. Gas

Some companies claim to be environmentally friendly by switching high-emitting energy operations to ‘green’ sources of power that ultimately turn out to be gas, also known as natural gas or fossil gas. Gas is currently being heavily promoted as a ‘transition fuel’ that can replace coal in the energy transition or help companies meet emissions reduction targets.

However, gas is still a fossil fuel and burning gas produces emissions, primarily CO2 and methane, making it a significant contributor to climate change. Therefore, promoting gas as a clean alternative is a form of greenwashing. It diverts the focus of companies or other entities away from more sustainable and renewable energy sources that are proven to reduce emissions. It is also misleading to the public, who can be led to believe gas is a clean and sustainable energy source when, in fact, it is not as environmentally friendly as renewable energy sources like solar or wind.

Does the company include gas in its emissions reduction strategy and present it as a “cleaner alternative” or “’transition fuel”?

Does the company invest in gas production and related infrastructure?

11. CCS

Carbon capture and storage (CCS) is a technology used to capture CO2 from power plants and various industrial processes, preventing its release into the atmosphere. For example, CO2 is captured at large stationary sources, such as fossil fuel-fired power plants, and injected into the deep subsurface for long-time storage. Only 30 CCS plants are currently operating worldwide. UN secretary-general António Guterres has criticised CCS as greenwashing, since it does not address the root cause of emissions, but allows industries to continue emitting CO2 by burning fossil fuels while claiming to be engaging in climate measures.

Additionally, CCS requires significant energy resources to operate, meaning that using fossil fuels to power it can eliminate the environmental benefits it claims to provide. The effectiveness and safety of CCS has also been questioned, with the leakage of stored emissions potentially having harmful effects on the environment.

Does the company use CCS to compensate for emissions when low-carbon alternatives exist?

Does the company report specific and quantifiable carbon capture and storage metrics, such as the amount of CO2 captured and stored annually, and are these metrics independently verified or audited?

Is the company using CCS in addition to using other measures to substantially and sustainably reduce emissions (such as installing solar panels, making processes more energy efficient or electrifying machines)?

Summary of questions