By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*
One of the conceptualizations of greenwashing pertains to the phenomenon whereby firms exhibit an appearance of transparency and disseminate substantial volumes of environmental, social, and governance (ESG) data, but demonstrate inadequate results in many dimensions of their ESG endeavours. The assessment of a firm’s engagement in greenwashing involves evaluating its standing in relation to other firms by comparing the disparity between its ESG disclosure and performance ratings. The primary motivation for organizations’ decision to participate in greenwashing of their environmental performance is the anticipation of future investment and financing need. It has been observed that companies with elevated levels of debt are more inclined to partake in greenwashing practices.
The phenomenon of greenwashing often arises from the strategic use of legal resources, such as green subsidies, by enterprises. The presence of legitimacy status ensures that corporations are open to external resources, which may lead enterprises with substandard environmental performance to use selective disclosure tactics. However, it is important to note that firms engage in greenwashing practices with the intention of conveying favourable messages. Companies may engage in the deceptive transmission of information by concealing unfavourable environmental data in order to preserve their reputation and project an environmentally responsible image, sometimes in response to pressure from investors.
Furthermore, the environmental decisions made by firms may be influenced by the interests and risk preferences of corporate leaders, who hold managerial and decision making positions inside these organisations. There is ongoing discourse on the potential influence of cultural variables on the propensity for greenwashing. The development of the current notion of corporate social responsibility (CSR) and the majority of studies on greenwashing have been focused on western cultures. However, there is an increasing interest in the social and environmental practices of corporations in transitional economies, leading to a fast expansion of relevant literature.
In recent years, there has been a growing focus on climate change and pollution emissions due to their significant impact on both human well-being and the economic and financial sectors. The involvement of firms in greenwashing practices has the potential to negatively impact several stakeholders, such as investors, the general public, and competing enterprises. Greenwashing practices may result in a situation of information asymmetry, thereby causing detrimental effects on the financial interests of investors. The disclosure of previously concealed adverse environmental data by corporate executives has the potential to result in a significant decline in the value of a company’s shares. Furthermore, engaging in greenwashing practices does not contribute to the enhancement of business environmental performance.
It is plausible for corporations to conceal instances of pollution and even breaches of environmental legislation by engaging in symbolic compliance. The absence of consequences for greenwashing corporations also ultimately hampers equitable competition within markets, particularly for companies who prioritize environmental management and proactively publish essential environmental information. Consequently, the presence of greenwashing practices may have an impact on stakeholders’ perceptions of the firm, the decision-making processes of managers, the work performance of staff, and the purchase choices of customers. It is the cultural aspect that has informed the current chapter, with a focus on developing nations like Kenya.
For instance, the Kenya Flower Council, a voluntary membership organisation run by a board, with its main office located in Nairobi, oversees the adherence of its members to a set of guidelines encompassing various aspects of horticultural practices, sustainability, social responsibility, hygiene, health and safety, capacity development, environmental preservation, and conservation. The adherence to the code of practice serves as the fundamental support for all actions undertaken. The code of practice has been evaluated by the Floricultural Sustainability Initiative to assess its compliance with recognised social and environmental sustainability criteria, making it one of the three global standards that have undergone independent benchmarking. This does not mean that human rights violations and greenwashing have not been reported in Kenya and perhaps other African countries.
Western countries have been increasingly calling on African companies and other international corporations with presence in developing countries and others to adhere to ESG requirements. For instance, on the 1st of June 2023, after a prolonged period of rigorous discussions, the European Parliament endorsed its formal stance on the Corporate Sustainability Due Diligence Directive (CSDDD). The implementation of the Corporate Sustainability Due Diligence Directive (CSDDD) proposed by the European Commission would require corporations to create due diligence protocols in order to mitigate the negative consequences of their activities on human rights and the environment. This would include addressing such effects across their global value chains. The objective is to promote the development of enduring and accountable corporate conduct, as well as to include sustainability factors into the operational and governance practices of firms.
The CSDDD is a component of the European Green Deal which encompasses a series of policy measures implemented by the European Commission. Its primary objective is to align the climate, energy, transport, and taxation policies of the European Union in order to achieve a minimum reduction of 55% in net greenhouse gas emissions by 2030, relative to the levels recorded in 1990. Furthermore, the European Green Deal aims to attain climate-neutral by 2050. Similarly, the proposal for a rule on deforestation-free supply chains was presented by the EU Commission in November 2021. Cocoa was chosen, with beef, palm oil, soy, and coffee, as one of the five global commodities that needed more control. According to the survey, cocoa is alone accountable for 7.5% of deforestation worldwide that is attributed to the European Union.
*This is an extract from the Newest Book: Achieving Climate Justice for Development, (Glenwood, Nairobi, January 2024) by Hon. Prof. Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.
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