How start-ups also fall into the greenwashing trap

Not only the very big companies, but also start-ups lure customers with false promises of sustainability, as some prominent cases show. But it pays to have the courage to be honest.

Fintech Tomorrow promises its 124,000 customers a climate-neutral account. Unlike commercial banks - which have attracted attention in the past with investments in coal-fired power companies, for example - Tomorrow would commit itself to "sustainability and social justice." For example, by investing customer deposits sustainably.

But a look at the app shows that of the approximately 369 million euros in deposits, only about 30 percent have been invested so far. So around 70 percent of the money is sitting "impact-free" at the Bundesbank.

Not just founding, but improving the world. More than three quarters of all founders in Germany want their startups to have a positive social or environmental impact, figures from the Green Startup Monitor show. But sometimes startups run behind their own good intentions, just like Tomorrow. It's difficult to find suitable financial investments, Tomorrow founder Jakob Berndt told the Finance Forward podcast in 2021.

The fact that here is a fintech advertising impact investments on the one hand, but 70 percent of its deposits are lying around "impact-free" on the other, is a form of over-communication that is not an isolated case. "Sustainability is a reason for purchase for more and more consumers and thus an important advertising argument for companies," explains green marketing expert Reinhard Herok, who conducts research at the Institute for Sustainability at the University of Applied Sciences Wiener Neustadt. In their zeal, companies often tend to overdo it when it comes to green marketing. A classic example is the communication of self-evident facts, such as "CFC-free", although these greenhouse gases have long been banned anyway. This form of marketing is greenwashing.

Consumers usually associate the word "greenwashing" with advertising campaigns by large companies whose business has a proven negative impact on the environment: large clothing companies that suddenly advertise with eco-cotton and do not stop launching new fashion collections every two weeks, thus promoting overconsumption. Airlines are also among them, offering their customers to pay a little more to offset the CO2 emitted on their flight.

Start-ups also tend to greenwash

But startups also tend to fall into the greenwashing trap - often not with bad intentions, as Nathan Bonnisseau explains. He founded Plan A, which develops carbon accounting software to help companies measure and reduce their emissions. "There are a lot of companies that want to do everything right, but don't have expertise in the field." One common result: they advertise vague sustainability promises that have yet to be substantiated anywhere.

This also happened to the green fintech Tomorrow: In the past, the banking app provider advertised its premium account with the promise that the account holder could use it to offset his own carbon footprint. The consumer center Baden-Württemberg therefore warned Tomorrow for misleading advertising. The argumentation: The company is not even in a position to know the personal footprint of a customer. Tomorrow has since corrected the advertising statement.

"Companies should not advertise sustainability promises that they cannot fulfill or can only fulfill in the future"

Plan A - Founder Nathan Bonniseau

"Companies should not advertise with sustainability promises they cannot fulfill or can only fulfill in the future," Bonnisseau advises. He says it's better for founders to clearly communicate "what part of their sustainability journey they're on." That's because once customers realize they've been made false promises, it will take a long time for them to regain trust in the company. "When customers find out that a company is doing less for sustainability than it claims, they feel cheated - and that's a powerful emotion."

The waves that can be created when a company makes false promises are illustrated by the example of Air-up. Together with Der Spiegel, the sustainability portal Flip found out at the beginning of April that the start-up, which offers drinking bottles with scented rings, advertises that it uses decisively less plastic and CO2 emissions. But according to Flip and Spiegel, there is no life cycle assessment of whether and how much is saved. Around five months after the article appeared, ZDF satirist Jan Böhmermann took up the topic again.

This shows: Once a company has been caught exaggerating sustainability in its advertising, it takes time for its reputation to recover. And even worse: Often, such individual cases also affect the entire industry. "The more greenwashing cases that are exposed, the more trust in the private sector decreases," Bonnisseau says. That, in turn, hurts the environment, he adds, because consumer decisions would definitely influence how sustainably companies operate.

"It's not just customers who are placing more and more value on sustainability, but also investors," says green marketing expert Herok. The temptation to advertise with false sustainability promises is high, he says. One popular method: "Companies invent their own seals to fool consumers into thinking they are particularly green."

Seals are sometimes awarded without verification

It is becoming increasingly difficult for consumers to see through this - especially since there are also suppliers who award labels without requesting proof of the CO2 emissions. This was shown by research conducted by Die Zeit, which succeeded in obtaining "climate-neutral" labels from three providers for an invented start-up. Evidence of electricity and heating bills to calculate the CO2 footprint had not been requested. Also to the saving of CO2-Emissionen the fictitious start UP was not requested.

So advertising with seals is not necessarily consumer-friendly. But what steps should start-ups take that are serious about sustainability? Bonnisseau advises having experts measure emissions and then addressing the exact causes of pollution. "A start, for example, is to replace flights with train travel for business trips." Only when a goal has been demonstrably achieved should the start-up advertise it.