In Amy Westervelt's recent Sustainable Industries interview with L. Hunter Lovins, Lovins makes the case that greenwashing is good. "Hypocrisy is the first step to real change." I'm inclined to agree.
Greenwashing is a symptom of the business community's recognition that the public is demanding that they do better, and prepared to reward those that do. The quickest response is simply to re-brand / spin your company to make it look greener (greenwash). Lovins cites General Electric's "ecomagination" ad campaign as an example of profound greenwashing, with GE basically taking their existing products and slapping an 'eco' label on them (remember the dancing elephant?).
This is rampant in the building products market as well. A roofing product manufacturer recently asked me how they could make their product "look more green." Their marketing materials touted the environmental attributes of their product (greenwash), and he wanted input on whether they got the spin right for architects. I resisted the urge to choke him, and instead encouraged him to deliberately asses the environmental impacts of their current operations and identify strategies for reducing/improving that impact. Identify some areas for improvement (less toxic materials, reduce waste, etc.), make improvements, and then tout those improvements once there is a story to tell.
The greenwashing is free, but once you hold yourself up as 'green(er)', increased scrutiny follows. Plus, no one likes to be a hypocrite. Once you say you're doing it, there's a tendency to start doing it. In GE's case, Lovins points out that once GE saw their 'eco' products had twice the sales volume of the regular products, "all of a sudden a company without a green bone in its body has one--attached to its wallet."