Unmasking Bluewashing: The Emerging Threat to ESG

by Marcelo Dantas

14 September 2023

What is Bluewashing?

Bluewashing was first used in a report* which assessed the actions of corporate members who signed up to the United Nations Global Compact (UNGC). The report revealed that 40% of the signatories did not implement the UNGC’s ten principles of the UNGC to guide policy reforms. Instead they used the UNGC as a façade to convey a commitment to socially responsible practices while having no intention of adhering to its guidance.

The term bluewashing derives from the blue colour of the United Nations flag.

Bluewashing vs Greenwashing

While greenwashing refers to misleading the public about environmental matters, bluewashing focuses more on a company’s social responsibility toward the community.

Bluewashing and greenwashing are concepts closely linked to the broader Environmental, Social and Governance (ESG) movement. ESG was coined in 2004 from the United Nations Environment Programme Initiative, alongside bluewashing which emerged in the same year. Greenwashing in contrast emerged much earlier in the mid 1980’s.

Bluewashing refers to companies promoting themselves as committed to being socially and economically responsible, or overstating their actions, without evidence to support their public commitments.
Addressing the ‘Social’ component of ESG relates to assessing and reporting the human rights impacts of a company and its related stakeholders.
Resource based companies have a particular requirement to consider social factors as their license to operate is linked to engaging, respecting and the concession of local communities and Traditional owners.
Corporate governance experts expect incoming mandatory ESG reporting frameworks to require disclosures on human rights in alignment with standards such as those of the Global Reporting Initiative similar frameworks.

Similar to greenwashing, a company may be accused of bluewashing if it allocates more resources to promoting its social responsibility policies, credentials, or endeavours than it does to actually implement these initiatives, serving as a way to exaggerate their commitments.

Who is Affected by Bluewashing?

Addressing the ‘S’ aspect of ESG is directly related to protecting human rights and improving the social conditions of all stakeholders, both internal and external. Bluewashing can harm members of local and global communities, and mislead stakeholders, including governments, regulators and investors. While recent ESG reports have primarily focused on environmental risks, addressing social impacts has the potential to create a sustainable, positive impact.

Companies have a social responsibility to operate in a way that earns them the social license to do business. Simply pursuing financial success at the expense of the environment and social factors is no longer sufficient. Companies that successfully integrate socially responsible practices will find it easier to garner support from local communities and governments. Those that opt for promotion and deception over genuine engagement and action may face investor backlash, loss of regulatory approvals, or even legal action.

The Current State of Bluewashing in Australia and Worldwide

One driving force behind bluewashing is the expectation of including reporting on human rights in incoming ESG related regulatory frameworks. Already we have seen a notable shift in the considerations and behaviours of listed companies in response to the incoming climate related financial disclosures. Broader ESG disclosures that incorporate social metrics are already legislated in certain jurisdictions, and as the bar is consistently raised on what is required by law to be reported, and the net is cast wider to include more companies and organisations, those who fail to provide evidence which supports their public commitments on social responsibility will fall foul of committing the act of bluewashing.

The Modern Slavery Act 2018 (Cth) is an example of legislation that already addresses reporting on human rights, particularly in a company’s supply chain. Stakeholder pressure is increasing, leading to greater scrutiny of bluewashing.

A domestic example of misalignment between a company’s policies and actions regarding social responsibility is the case of Rio Tinto, which caused irreparable harm to a 46,000-year-old Traditional owner cultural heritage site during an iron ore mine expansion. This incident, which also involved the destruction of a 4,000-year-old length of plaited human hair, occurred due to outdated Aboriginal heritage laws that did not consider the same level of Free, Prior, and Informed Consent (FPIC) standards as exist today.

Consequences of Bluewashing

While greenwashing has received more attention and resulted in investigations and litigation, bluewashing should not be taken lightly. The impact and parameters of greenwashing and bluewashing on consumers and communities are similar. Thus, regulatory actions taken by entities like ASIC to combat greenwashing may eventually extend to bluewashing.

When evidence contradicts a company’s socially responsible commitments, there is often significant public backlash. More importantly, institutional investors with strict ESG principles may divest from companies that do not align with their values.

Resource-based companies, in particular, should be wary of engaging in or being perceived as bluewashing. For such companies, stakeholder engagement, especially with the local community and traditional owners, is vital for success. Attempts to use bluewashing to bridge the gap between stakeholder expectations and authentic actions can lead to detrimental consequences. Genuine engagement, equity, and open dialogue are more effective tools for achieving commercial goals.

How Automic ESG Can Help

Automic ESG offers several services to assist companies in addressing bluewashing risks:

1. Facilitating a Comprehensive Materiality Assessment: Automic ESG can conduct a thorough assessment to define material social, environmental, and governance risks, taking into account the perspectives of internal and external stakeholders.

2. Regulatory Compliance Review: Automic ESG can review relevant legislation and frameworks applicable to your company, ensuring compliance while providing strategies to meet future regulatory trends.

3. Demonstrating Social Responsibility: Automic ESG helps companies go beyond mere rhetoric by delivering genuine social responsibility value. This reduces the risk of bluewashing and communicates a clear commitment to positive social outcomes to investors, peers, and the wider community, positioning your company as a leader in the field.