Part 2. GREENWASH Vs BROWNWASH

Greenwashing activities practised by many companies and organization, has accelerated in recent decade. This causes a growing skepticism about companies’ claims. The definition greenwash can be read here.

Environmental regulations are costly for companies. This makes the notion that ‘it pays to be green’ sounds true which companies hesitate to comply environmental regulations. In additon, companies find that being truly green is not always beneficial based on financial perspective. This can stipulate them to exaggerate the environmental achievement through their environmental disclosure, such as greenwashing activities.

Shareholders may respond negatively to a company’s environmentally friendly practices, since this tends to be expensive. Whilst exposure to reputational threats discourages greenwashing, and possibly even restrains honest CSR communication, ‘strategic silence’ and brownwashing becomes more enticing by virtue of hypocrisy avoidance. Brownwashing defined as downplaying the disclosure of environmental achievements, as well as for social and governance related outcomes (Kim and Lyon, 2015).

Nevertheless, neither greenwashing nor brownwashing practice improves company’s financial performance. When stakeholders find big discrepancy between prior year’s and current external CSR actions (i.e. CSR gap), may indicate dishonest CSR communication. As a consequence is that greenwashing or brownwashing tends to induce damaged consumer attitudes, perceptions and beliefs of the firm via the presence of hypocrisy. On top of that, the risk of “being identified as a green-washing company” may deteriorate the market value of a company.

In fact, deliberate disclosure of false information is rare, due to shareholders, governments, non-governmental organizations (NGO’s) and social activists being able to provide close monitoring, that green- or brownwashing practice might be recognized. Accordingly, various stakeholders could reasonably punish these companies by boycott of the services or products, unwillingness to be involved in business operations, or reluctance to purchase the company’s stock, demonstrations, strikes, etc.

References:

• Kim, E.-H., & Lyon, T. P. (2015). Greenwash vs. Brownwash: Exaggeration and Undue Modesty in Corporate Sustainability Disclosure. Organization Science, 26(3), 705-723. doi:http://dx.doi.org/10/1287/orsc.2014.0949
• Smit, Mark. 2019. The Effects of Green- and Brownwashing Strategies on the Continuity of a Company: Predicting Bankruptcy. Thesis. University of Groningen.

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