The art of a good unicorn | Startups and the temptation of greenwashing

Startups must learn how to wield the power of sustainability, instead of simply showing off green credentials as Environmental, Social, and Governance (ESG) criteria become more critical due to the climate crisis

In Mark Twain’s The Adventure of Tom Sawyer, the titular character has been tasked with painting a fence by his Aunt Polly because of his mischievous antics. This is not something he wishes to do. He wants to go play. Instead, he has to whitewash a fence as punishment for prior mischief. While starting with his punishment, another kid, Ben, sees him and facetiously asks him about the work he’s doing.

In just the fourth quarter of 2021, $143 billion in new capital flowed into ESG funds. That shows there's a lot of ESG capital floating around, so the temptation to greenwash is high. (Representative Image)

Sawyer retorts, “What work?” and proceeds to scrupulously paint the fence and tries to be as precise as possible with his brushstrokes. Ben is puzzled as to why Tom is not grumbling about his predicament, but he retorts that this is not something that gets to be done every day and makes it seem like it’s a big deal. Ben is hooked. Intrigued, he asks Tom if he can paint the fence a little. Tom refuses, remarking that only *he* is worthy to do this task. But Ben insists and can’t resist the idea of doing something so supposedly remarkable and that’s how he ends up painting the entire fence. Ben even traded an apple in exchange for painting the fence.

Now, some people may extol positive philosophies from this story: One can gain opportunities from something negative or just plain dull.

But there’s also something macabre about the whole thing: To deceive certain people or exaggerate to entice individuals to get them to do or believe something. And just like the washing of the fence with new paint, the phenomenon of greenwashing is, unfortunately, adopted by various enterprises, where certain activities or marketing ploys are employed to make them seem more environmentally sound than they actually are. It’s even worse when the business is actually harming the environment, instead of conserving it and then hiding the fact.

Think about oil conglomerates promoting low-carbon initiatives and then drilling and mining fossil fuels. Or fast-food chains introducing cardboard straws and then using plastic for other purposes and wasting environmental resources in different ways. You recently had Kim Kardashian's SKIMS send out packaging, on which it's written in big bold letters "I AM NOT PLASTIC" and mentioning that it's compostable and biodegradable. Yet, the small print states that it is plastic type-4. Or Volkswagen is a prominent example of greenwashing with its emissions-cheating scandal in 2015, where it allegedly rigged “clean diesel” vehicles with devices to cheat emissions tests. They ended up having to recall 8.5 million cars in Europe and the scandal cost it about €31 billion in fines and settlements. Or more recently, the controversy of Deutsche Bank's funds arm DWS reportedly misleading investors about its green investments.

After all, consumers love the word “sustainable” with conscious consumerism gaining traction and that’s why funding’s flowing into such initiatives. But it ended up meaning that enterprises were slapping on a label to entice and appease consumers and investors.

But usually, we like to associate greenwashing with corporations. Not startups. For some reason, the fledglings have been spared the magnifying glass. With startups on the scene, the money is pouring in. And sure, it may be easy for startups to tell the world how noble they are. Maybe it’s by using photogenic and picturesque scenes of nature for their products and advertisements. They may use supposedly eco-friendly icons on their products that are not legally certified. They have dozens of other creative ways to jump on the bandwagon. And why wouldn’t they? Getting with the programme of net-zero means that Venture Capitals suddenly have their ears perking up, since Environmental, Social, and Governance (ESG) criteria are suddenly more critical.

Sure, there’s a lot of upside to showing off your green credentials, but the halo only floats over your head if you can handle the scrutiny of actually doing what your startup says it does.

There has to be solid context to the green claims that a startup makes. The more audacious and bold the claim, the more airtight the internal scrutiny ought to be. Underpinning sustainability with compelling storytelling can’t be just that: Pure fiction. So, what does that mean for startups now? Does it mean they stop speaking out about their environmental and social measures, worrying about being put on trial? Well, as long as they can back their claims, they’re probably good.

When startups try to have the moral high ground, it can be harder to authenticate and verify. Why? Because it may be much harder to inspect, so they may be taken at their word. And if they do greenwash, they think there's more upside than downside: if you're perceived to be green, you'll get bigger, but the risk of scrutiny is much smaller.

In just the fourth quarter of 2021, $143 billion in new capital flowed into ESG funds. That shows there's a lot of ESG capital floating around, so the temptation to greenwash is high.

According to Agate Freimane, general partner at Norrsken, “There has to be a concrete way to measure it. If you achieve X amount of revenue, then you also need to achieve Y amount of impact. And that's where a lot of the startups fail, since they do not have a mathematical formula to calculate it."

There’s still a certain love for startups that people have. Maybe it’s because people look at them as the underdog and who doesn’t love supporting underdogs? So, when startups belie people’s trust with greenwashing measures, it may hurt even more. And that’s why it is twice as important for these new ventures to weave their sustainability goals into their business strategies. And if your startup is one that’s poised to grow real fast real soon, social measures ought to be integrated at the start into the very fabric of your organisation. Peter Drucker once said, “Culture eats strategy for breakfast” and the culture of sustainability can be pivotal to a startup’s long-term success by fusing profitability and sustainability.

Startups may participate in a results-right-now culture that dominates the decisions they may make. But sustainability is a slow process. It requires a t-minus process, where you reverse-engineer how to get to certain goals and how to reach holistic outcomes. Because it’s not about appearances. You can’t just burn your omelette, put oodles of ketchup on it and present it as a nutritious meal. It has to be beyond superficial rhetoric. Because you can’t get to the pot of gold at the end of the rainbow if you’re just rainbow-washing. A one-time donation or a cute social media post just doesn’t cut it anymore. Consumers and investors are a bit smarter than that.

So, what can you do? Or rather, what should you not do? As a startup, when it comes to talking to consumers or investors, you have to have realistic goals, based on what’s happening. Think of Michael Scott from The Office telling an audience, “It’s a 45-day and 45-point plan. And we’re going completely carbon neutral!” without having any idea of how to do that. For most startups, adhering to the net-zero economy may not be realistic and putting out those promises may only coerce and pressure them to greenwash, when they can’t accomplish those goals. You may not be able to go waste-free, for instance, but you can promise to cut waste by 20%. That seems doable. Feasibility and tangibility for the win.

Or sometimes, there isn’t a mea culpa at play. You might just be using marketing jargon that seems like “biodegradable” and “gluten-free” without having any idea what they really mean. An in-house sustainability person can help you figure it all out. Misleading can also happen when you talk about outcomes that weren’t actually due to the actions of a startup or organization, but were the result of other factors. For example, if you claim the startup’s carbon footprint was reduced by 25% and it actually happened due to the shutdown stemming from the Covid-19 pandemic, that may spell trouble for you later when someone figures it out.

There’s a thin green line between actual impact and reinforcing a narrative purely for marketing. Exaggerating how genuine you are can cost you, be it the money of investors and the trust of consumers. So, if you’re striving for impact, know what your goals are and what metrics you can use to get there. Your sustainability north star will be your compass.

The world is on fire. There are natural disasters, global warming, geopolitical crises, a pandemic, a looming recession, inflation and more. Startup founders need to understand how they can wield the power of sustainability in such a way that it is mutually beneficial to them and the world around them. Lofty commitments need to be followed through with, because the eyes are on you, once you make those projections and claims.

And at a time when people love calling out people or entities on social media, maybe it’s time for truly regenerative businesses to get the spotlight, not just extractive. We don’t need anyone to pull the eco-friendly, recyclable and biodegradable wool over people’s eyes.

Shrija Agrawal is a business journalist who has covered startups and private capital markets before it was considered cool in India

The views expressed are personal