Question

Green Washing

a) What is “green washing” and under which circumstances do firms have an incentive to engage in “green washing”?

b) What are possible solutions to the adverse selection problem that arises if firms engage in “green washing”? Do they rely on signalling or on screening mechanisms?

c) Discuss for each possible solution potential challenges that may destroy the desired signalling or screening effect.

Answer 1

- GREEN WASHING-

1-Greenwashing is when a company or organization spends more time and money on marketing themselves as environmentally friendly than on minimizing their environmental impact. It is a deceitful advertising gimmick intended to mislead consumers who prefer to buy goods and services from environmentally conscious brands.

2- All kinds of businesses and brands are starting to use the word sustainable in their marketing. Whether it's a t- shirt made of ethical cotton, or an eco car - companies are increasingly keen to showcase their green credentials.

3- Example-

1-Companies involved in greenwashing behavior might make claims that their products are from recycled materials or have energy- saving benefits.

2-Although some of the environmental claims might be party true, companies engaged in greenwashing typically exaggerate their claims or the benefits in an attempt to mislead consumers.

A- Green Washing is an attempt to capitalize on the growing demand for environmentally sound products.

-Greenwashing can convey a false impression that a company or its products are environmentally sound.

.-Genuinely green products back up their claims with facts and details .

B- Adverse selection refers generally to a situation in which sellers have information that buyers do not have,or vice versa, about some aspect of product quality.

-Adverse selection occurs when one party in a negotiation has relevant information the other party lacks.

-Example-

-A prime example of Adverse selection in regard to life or health selection in regard to life or health insurance coverage is a smoker who successfully manages to obtain insurance coverage as a nonsmoker.

-Smoking is a key Identified risk factor for life insurance or health insurance, so a smoker must pay higher premiums to obtain the same coverage level as a nonsmoker.

-By concealing his behavioural choice to smoke, an applicant is leading the insurance company to make decisions on coverage or premium costs that are adverse to the insurance company's management of financial risk.

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C- There is sizable numerical strength of organizations which would like to turn green, as an increasing number of consumers want to associate themselves with environment- friendly products. There is wide spread confusion among the consumers regarding products.

- Greenwashing refers to fashion companies claiming that thier products are environmentally friendly, when often they are not .

Example-

-Greenwashing from companies today include the fast - fashion brands Uniqlo,H&M, and Lululemon - which are popular with college students. Mar 3, 2020.