OEMs Can Avoid Greenwashing With Supply-Chain Scrutiny

Driven by growing demands from investors and consumers, automakers increasingly are expected to take steps to establish environmental, social, and governance (ESG) programs and deliver responsible products to the market.

However, businesses run the risk of broadcasting unsubstantiated claims about products to gain a market advantage or sharing only select sustainability metrics to obscure other negative impacts. This practice is commonly known as greenwashing. 

Manufacturers often think greenwashing is a deliberate attempt to mislead the public and does not apply to their company. However, the opposite is true: Greenwashing can happen accidentally any time they don’t have deep visibility into the sustainability of their product and cannot provide credible proof to back up marketing claims. Even responsible automakers are at risk of greenwashing without sufficient data to support their statements.

In most industries, the majority of a manufacturer’s environmental footprint is located within its supply chain, according to research cited in the UN Principles for Responsible Investment (see chart).

Greenwashing chart_0

With some of the most complex supply chains in the world, automotive companies must commit significant resources to tracking parts, contacting suppliers and managing supply chain data. Globally, automotive original equipment manufacturers (OEMs) are leaders in sustainability, and push ESG requirements down to their suppliers to drive continuous improvement. Failure to meet ESG reporting standards could result in brand and reputation damage, loss of faith by investors and consumers and increased scrutiny from regulators, insurance agencies and industry watchdogs.

How to Use Supply Chain Data to Avoid Greenwashing

Here are four important supply chain considerations that automakers can tap into to help avoid accidental greenwashing:

1. Look to Your Supply Chain Data

Product compliance data gives manufacturers deeper insight into what goes into their product and where their materials come from. That’s a vital first step in understanding the total ESG impact of their product. With product compliance data, OEMs can make reliable marketing statements about their sustainability. The more data they can collect about their product compliance, the more the sustainability program can mature. 

Supply chain sustainability requires seeing deeper into your supply chain and engaging with suppliers to collect compliance data and ESG data. Product compliance is also the basis for environmental performance tracking. For example, the EU Waste Framework Directive mandates the submission of complex dossiers to a publicly available database to support the European Union’s circular economy goals, which also help OEMs track the end-of-life waste impacts of their products. 

2. Survey Suppliers for Applicable Product Regulations And Sustainability Risks

As automakers source thousands of parts and materials from across the globe, evolving international sustainability and compliance regulations present challenges for supply chain sustainability programs and green marketing. For teams to understand how their suppliers comply with applicable product regulations, they must conduct routine surveys with their suppliers. Start by verifying compliance with these regulations: I

Once they have a solid understanding of their supplier market and their product/regulatory compliance obligations, automakers can begin using standard templates to add layers of due diligence to see deeper into their supply chains. Using these industry standard templates, teams can start to understand the sustainability risks in their supply chains and gather supporting data to substantiate sustainability claims:

3. ESG Risk Evaluation and Reduction

Engaging suppliers in sustainability goals and initiatives early is important. If suppliers understand the reason why sustainability programs are in place, they will be more likely to send actionable data about their practices. Assessing supplier ESG disclosures and collecting their data can provide automakers with a market advantage through data that mitigates greenwashing risks.

While there is no singular industry standard for ESG disclosures, the best practice is to align data reporting with an established ESG framework such as the Global Reporting Initiative (GRI) or Sustainability Accounting Standards Board (SASB).

4. Safely Sell Sustainability

Talking about sustainability can be difficult for automakers: It is a complicated subject, and supply chains were not built with sustainability in mind.

It is helpful to understand the best practices and standards of advertising, so you can understand how to support your communications teams. In 2022, the World Federation of Advertisers released global guidance in the form of six principles on environmental claims to help marketers avoid greenwashing and present accurate environmental statements. Of these six principles, four of them focused on data transparency. They state that marketers must:

Jared Connors

For automakers to avoid greenwashing, they must start with their supply chains. They must ensure their organization has the best possible data to justify any environmental performance claims that it makes. This goes far beyond the impacts of a single marketing campaign. Building programs to eliminate greenwashing risk from sustainability claims will allow automakers to build trust, enhance their brand reputation and lead the industry to a more sustainable future.

Jared Connors (pictured, left) is senior subject matter expert-Corporate Social Responsibility for Assent Compliance and focuses on helping companies achieve their corporate social responsibility (CSR) goals. He is co-creator of the Conflict Minerals Reporting Template (CMRT).