Sustainability  Law 

ESG: What is the danger of social washing?

What springs to your mind when you hear “social washing”? Nowadays, we come across this term more and more often. It refers to the discrepancy between a company's perceived commitments to social issues and the actual steps implemented to meet those commitments. This strategy is used by both manufacturers and service providers to present themselves as more socially responsible than they really are in order to generate financial profit. What forms can social washing take? And why does such action not pay off?

Social washing stems from an effort to outwardly comply with the rules set out in the company’s ESG strategy but without having a real basis and without setting realistic goals. It is an attempt to trick consumers into perceiving the company as socially responsible. The ‘social’ element of ESG encompasses social responsibility and its setup, from working conditions, equality and inclusion, to corruption and health and safety. These are key issues when it comes to assessing a company’s reputation and financial performance. When companies set these goals, these must always be set in such a way that they are verifiable at any point in time, as well as measurable and enforceable. If this is not the case and the goals are set differently and unrealistically, or if the company does not enforce and meet them, it is considered social washing.

Industries that are often affected by social washing include the textile and cosmetics industry, food industry, automotive industry and consumer electronics industry.

What are the most common forms of social washing?

In practice, we encounter essentially two basic forms of social washing – tokenism and concealment of the actual place of production.

With the increasing pressure to equalise opportunities for under-represented groups of people, companies make only superficial or tokenistic efforts to implement policies to help the equalisation efforts, or eventually recruit a person who belongs to a minority group. This is to avoid public criticism and to give the appearance of sexual or racial equality and fair treatment.

Examples include the following:

  • The company makes public statements about the empowerment of women in society without taking any material step towards fulfilling its stated commitment. Moreover, publicly available data shows that women employed by this company earn on average less than men employed in the same position for the same work.
  • The company runs a campaign to promote gender equality, despite its long-standing low representation of women in management, in particular among members of the Board of Directors or other senior bodies of the company.

Consumers are increasingly looking at where the goods they buy are produced or assembled, and there is a growing demand for locally produced goods. This phenomenon is also linked to the growing consumer education on climate change – consumers no longer want their products to ‘travel halfway around the world’. As a result, producers try to disguise the actual place of production of goods.

Examples include the following:

  • The company publishes false manufacturing information and pretends that its products are made in Swedish factories in compliance with labour protection laws. In fact, the company’s products are only designed in Sweden and are actually produced in developing countries with insufficient legislation in relation to the elimination of child labour.
  • The company replaces the simple phrase “Made in PRC” with more complicated ones in an attempt to confuse the unwary consumer, e.g., “Designed in California. Assembled in China.”

Why and how should companies avoid social washing?

Social washing hinders the development of a new sustainable and ethical economy. By resorting to social washing practices, companies risk reputational damage and problems not only in attracting and retaining employees but also customers.

One of the effective ways to combat social washing while ensuring a company’s compliance with ESG standards is to have a properly set up compliance programme that meets legal requirements and is a set of functional measures and an ethical corporate culture. As it is possible that companies involved in social washing will be subject to sanctions by consumer protection authorities, as has recently happened in the case of greenwashing of consumer goods, the conscious implementation of internal measures against social washing will become increasingly important.

The United Nations’ Sustainable Development Goals can also be an ethical compass when taking steps to implement a company’s business plan. These goals stress that ending poverty must go hand in hand with strategies that build economic growth and address a range of social needs, including education, health, social protection and employment opportunities, while combating climate change and emphasising environmental protection.

How to prevent social washing? Put effective tools in place

Nowadays, the phenomenon of social washing can be found in virtually all sectors of production and services. In particular, it is a major problem in the textile industry, the production of electronic equipment, but also in the service sector. It can therefore be concluded that companies should consider adopting instruments to prevent the above practices. These include prevention tools, a system for detecting wrongdoing with means of correcting it and, last but not least, the introduction of regular updates. All of these elements can be decisive factors in the supervisory authority’s assessment of the sufficiency of the compliance programme adopted. In conclusion, we consider it necessary to stress that the programme must be a set of functional preventive, detection and response measures, and not a mere declaration ‘on paper’, in which case it does not fulfil its function and, in principle, leads to social washing.

The article was published on 23 February 2023 on the website
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