Greenwashing: A fraud on all stakeholders

Without stricter regulations, straightforward guidelines, sizeable penalties, and auditing responsibilities, companies will continue to pass frauds as an illusion of consciousness

- K YATISH RAJAWAT

IF A COMPANY were to underreport its losses or inflate its profits and it was detected, action would be taken against its auditors and key management personnel. Heads would roll, and institutional investors would demand a change in management. Unfortunately, when a company misreports data on its sustainability report, which is also part of the annual report, it is ignored by shareholders and regulators. It is assumed sustainability is just an irrelevant addendum. Independent directors also don't take it seriously. Regulators treat it as a must-have, but best not to waste time on. It is mislabelled as greenwashing.

Greenwashing seems like a minor misdemeanour, but it is a fraud as it involves deliberate misreporting of data and should be labelled and treated as such. This fraud has become rampant in India, where corporations cleverly manipulate sustainability reports and balance sheets. These manipulations obscure environmental impacts, creating false perceptions of corporate responsibility. The tactics to misrepresent have become common among companies and the regulators are turning a blind eye to it.

One prominent tactic involves omitting suppliers' environmental impacts from balance sheets. Energy companies, for instance, frequently fail to account for suppliers' coal emissions, thus underreporting their operations' carbon footprint. Similarly, real estate developers rarely include emissions associated with cement and steel production, which form a significant proportion of their total emissions.