Dr. Thomas Lyon: Corporate sustainability initiatives

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THOMAS LYON: My name is Tom Lyon. I’m a professor of business and sustainability at the University of Michigan. And I study the things that drive companies to become more sustainable—and whether those actions actually make any difference.

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THOMAS LYON: Greenwashing is any communication that leads the listener to adopt an overly favorable impression of a company’s greenness.

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THOMAS LYON: Well, the best thing is to be aware of the ways greenwashing occurs so that you can catch them and identify them in action. And I still love the old seven sins of greenwashing. It was created back in 2007 by a group called TerraChoice, which had since absorbed into Underwriters Limited [UL Solutions], but they listed seven sins of greenwashing. The first and most common is what’s called the sin of the hidden tradeoff, where an organization tells you something good they do but neglects to tell you the bad things that go along with it. And the example that always occurs to me with that is when you see an electric hand dryer in a public restroom somewhere, and it may say on it: This dryer protects the environment. It saves trees from being used for paper. But it neglects to tell you that, of course, it’s powered with electricity, and that electricity may have been generated from coal-fired power, which might actually be more damaging than using a tree, which is a renewable resource. So, that’s the most common of the seven deadly sins. And other ones are the sin of irrelevance. So, telling people that this ship has an onboard wastewater recycling plant, when all ships that go to Alaska, for example, may be required by law to have exactly that kind of equipment. So, it’s no reflection of the company’s quality. The sin of fibbing is actually the least common. Companies don’t usually actually lie about things. It’s against the law.

So, greenwashing is normally much more subtle than that. I’ll mention that one of the common forms of greenwashing now that people are becoming more and more aware of is a hidden tradeoff between the company’s market activities and its political activities. So, you may get a company that says: Look at this, we invested $5 million in renewable energy last year. They may not tell you that they spent $100 billion drilling for oil in a sensitive location. And they may not tell you that they spent $50 million lobbying against climate legislation that would have made a real difference. So, there are a lot of those kinds of things to be on the lookout for. And if consumers know to be aware of them, they have a much better chance of not falling for greenwash.

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THOMAS LYON: So, I think the easiest way to understand these may be to step back a little bit and think about cap and trade systems. So, in parts of the United States and in Europe—and in other countries—we have something called a cap and trade system. So, the government will set a cap on the aggregate amount of, say, carbon emissions. It could be other emissions. It could be sulfur dioxide, could be nitrogen oxide, but let’s take carbon. So, there’s an overall cap on carbon emissions for an industry or a country. And within that, each company gets a right to emit a certain amount of carbon. But that company can then trade permits with other companies. So, suppose the company finds it’s gonna be really expensive for them to reduce their carbon emissions. But there’s some other company next door that could do it really cheaply. The company with the expensive reductions could pay the other company to do the reductions for them, and it then buys one of the permits—or more than one permit—from the company that can do it cheaply. That kind of trading system has been recommended by economists for decades, because it lowers the overall cost of achieving a given level of emissions reduction. So, you can think about a carbon credit within that system—or a carbon offset as occurring when one company buys the permit from another company. And that’s a clean, well-enforced, reliable system. And so, from that perspective, trading is a great idea because it keeps costs down.

Now the place where things get confusing for people is that a lot of times the offsets are not coming from within a cap and trade system. But they’re coming from a voluntary offset that’s offered by some freestanding producer that’s not included in a cap. And so, now things become much more complicated, because now it’s necessary to ask a whole series of additional questions. Perhaps the foremost among them is: Is this offset actually producing a reduction that was not going to happen anyway? So, is it quote, additional? So, it may be that the company claims, oh, we’re saving this forest from being cut down. But maybe the forest was in a protected region in a country where there was no chance it was going to be cut down anyway. So, then that offset is not additional. There are other concerns about offsets, too, such as are they permanent? Can the company provide a commitment that that offset will never go away? Oftentimes, that’s very hard to do. So, once you get to offsets that are outside of a government-run cap and trade system, offsets become a much more delicate and tricky proposition.

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THOMAS LYON: I think overall, it’s better that they’re trying to do something than that they just ignore the issue. But this is where you, the consumer, have to start doing your homework. You have to be aware of the possible problems with offsets, such as that lack of additionality. And so, then that points the consumer toward looking for what we call high-quality offsets. And then you can look for a provider that has a strong reputation and that is validated by external sources. So, the company that I like the best—a lot of people like the best—is company called Native Energy. They’re a certified B Corp. So, this is getting into wonkland, but certified B Corporations are for-benefit corporations that sign a pledge—and sometimes a legally binding pledge—that says we’re going to take other considerations into our management in addition to short-term profit maximization. So, they have written into their objectives a goal, say, of protecting the environment or doing something else beneficial to the planet, in addition to just making money. So, I like that about Native Energy. Their carbon offsets are also credited by a whole host of third party verifiers, including Gold Standard verified carbon solutions and several others. So, Native Energy is very good. There are other companies that are good also. But once we get into this Wild West, where we’re outside of the cap and trade system, it becomes really important to look for the quality of the offset provider.

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THOMAS LYON: Well, there’s a cool little app that I like a lot. You can download it. It’s called EWG Healthy Living. EWG stands for Environmental Working Group. It’s a group of scientists to get together and draw on science to assess which products are environmentally friendly, and which ones aren’t. And they have something like 150,000 products in their database. You can scan the UPC code when you go to the store, and you just immediately get this information up on your phone that rates the quality of the company’s environmental claims and performance. So, that’s a really nice little way to verify things on fly.

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THOMAS LYON: There are tons of business practices that are good for the environment. Building is one big area. So, LEED building standards or ENERGY STAR building standards reduce environmental impact. They improve the quality of the indoor environment for employees. They actually produce higher rents because people are more willing to work in these kinds of buildings. So, if you get a LEED-certified or an ENERGY STAR-certified building, that’s a real thing. It really makes a difference. So, that’s a typical business practice—very common business practice—that’s good for the environment. You can look at the whole movement toward renewable energy and companies that produce solar or wind energy. They’re doing something that really is good for the environment. The move toward electric vehicles, that really will be good for the environment. It does raise tradeoffs. There are going to be issues around certain critical mineral inputs into producing batteries, and we’ve got to figure out good ways to reuse batteries and then dispose of them at end of life. So, everything comes with some environmental impact. But I feel like these are several examples where what companies are doing really are good things for the environment.