Greenwashing and the Legal Landscape
In today’s business environment greenwashing is a primary pitfall in sustainability-related marketing and communication. The ongoing climate crisis, rising awareness, growing interest of stakeholders in companies, and current and forthcoming legislation to enable greater corporate sustainability have ensured that any green claims are met with a certain amount of scrutiny. If companies do go overboard in their claims, be it inaccuracy, oversight, or outright falsification, the risks are high. Greenwashing can not only damage a company’s reputation but it can adversely affect relationships with multiple stakeholder groups such as customers, employees, investors, and suppliers. And in the worst cases, it can lead to legal action being taken against the company by regulatory authorities. In this post, we will explain what greenwashing is and the regulators, and some key legal frameworks in place across the world to keep it in check.
What is Greenwashing?
Greenwashing refers to the practice of companies making false or misleading sustainability claims about their products or services. These include deceptive advertising, using vague or meaningless terminology, or merely bolstering up on certifications without making any real effort to incorporate sustainability in their workings. Greenwashing causes harm to the company practicing it, the consumers, as well as the business environment at large by undermining other businesses that are making real efforts and investing time and money to truly incorporate sustainability.
Source: Canva
Greenwashing is the act of misleading consumers into believing that a company’s products, policies, or services are environmentally friendly or sustainable when, in reality, they are not. This practice can be harmful as it deceives customers into making purchasing decisions based on false or exaggerated claims, ultimately undermining legitimate efforts towards environmental responsibility.Source: Canva
U.S. Federal Trade Commission (FTC)
Greenwashing and the Legal Landscape
Today, more than ever, greenwashing alongside its reputational and financial repercussions can also result in legal action being taken against companies. Several countries have established laws and regulations to combat greenwashing and hold companies accountable for misleading sustainability claims. Companies that are found guilty of greenwashing may face civil penalties and be required to pay restitution to affected consumers. Some of the key legislations in place to counter greenwashing are:
Federal Trade Commission (FTC) Green Guides – United States
The Federal Trade Commission (FTC) Green Guides are a set of guidelines that provide direction to businesses and help them avoid making environmental marketing claims that might be construed as misleading. The Green Guides were first introduced in 1992 and have been revised several times, most recently in 2012. The Green Guides provide guidance on a range of environmental claims, including claims related to biodegradability, compostability, recyclability, renewable energy, carbon offsetting, and more. According to the Green Guides, “the guidance they provide includes: 1) general principles that apply to all environmental marketing claims; 2) how consumers are likely to interpret particular claims and how marketers can substantiate these claims; and 3) how marketers can qualify their claims to avoid deceiving consumers”. The Green Guides are not legally binding. However, if a company makes a claim that is inconsistent with the Green Guides, it can serve as evidence, and the FTC can take action against that company.
Competition and Consumer Act 2010 – Australia
The Competition and Consumer Act 2010 (CCA) is a federal law in Australia that governs consumer protection and fair competition. Part of the CCA deals with false and misleading claims made by businesses in their advertising and marketing practices. Under the CCA, businesses are prohibited from making false or misleading representations about the environmental performance or benefits of their products or services. This includes claims about the carbon footprint, energy efficiency, biodegradability, or any other environmental attribute of a product or service. The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing the CCA and investigating complaints of false or misleading sustainability claims. The ACCC has published guidelines on green marketing, which provide businesses with guidance on how to make accurate and truthful sustainability claims in their advertising and marketing materials.
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“Each year, the ACCC announces a list of Compliance and Enforcement priorities. These priorities outline the areas of focus for the ACCC’s compliance and enforcement activities for the following year. As part of the 2022-23 Compliance and Enforcement Priorities, the ACCC is prioritising both consumer and fair-trading issues in relation to environmental and sustainability claims as well as issues relating to manipulative or deceptive advertising and marketing practices in the digital economy.”
The Australian Competition and Consumer Commission (ACCC)
French Energy Transition Law – France
The French Energy Transition Law, passed in 2015, primarily aims to shift France’s energy mix towards more renewable and low-carbon sources, reduce greenhouse gas emissions, and promote energy efficiency. However, additionally, the law also includes provisions to address greenwashing. To combat greenwashing, the French Energy Transition Law includes provisions that require companies to provide more transparent and accurate information about their environmental claims related to products and services. In addition, the law creates a new offense of “misleading environmental communication,” which can be punishable by fines of up to 300,000 euros. This offense applies to any communication, including advertising, that is likely to mislead consumers about the environmental characteristics of a product or service. Additionally, the 2021 Climate and Resilience Act, also known as the Loi Climat et Résilience in French, includes several provisions aimed at combating this issue including the creation of a new offense of “ecological deception” (déception écologique) that can be punished by fines of up to 10% of a company’s annual turnover. The law also requires companies to provide transparent and accurate information about their environmental impact, including the use of carbon footprint labeling on products.
Sustainable Finance Disclosure Regulation (SFDR) – European Union
SFDR stands for the Sustainable Finance Disclosure Regulation, which is a regulation that was adopted by the European Union in 2019 in order to promote transparency and comparability of environmental, social, and governance (ESG) factors for financial products. With regard to greenwashing, the SFDR includes several provisions such as the requirement for financial market participants to disclose information about the ESG (environmental, social, governance) factors that they consider in their investment decision-making process, as well as how they integrate these factors into their investment strategies. This can help investors make more informed choices about the environmental impact of the products they invest in. More preventive in nature, the SFDR also establishes a framework for classifying and labeling financial products based on their ESG characteristics. Products that promote environmental or social objectives will be labeled as “Article 9” products, while products that have a lesser focus on ESG factors will be labeled as “Article 8” products. Products that do not consider ESG factors at all will be labeled as “Article 6” products. By establishing clear labeling requirements and promoting greater transparency around ESG factors, the SFDR aims to help investors make more informed choices and avoid being misled by greenwashing practices. It also sets a high bar for financial market participants to ensure that they are providing accurate and truthful information about the ESG characteristics of their products.
Source: Canva
Green Claims Code – UK
The Green Claims Code is a voluntary code of conduct for businesses in the UK, developed by the Advertising Standards Authority (ASA) and the Committee of Advertising Practice (CAP), to ensure that environmental claims made in advertising and marketing are accurate and not misleading. With regard to greenwashing, the Green Claims Code sets out several key principles to help businesses avoid making false or exaggerated claims about the environmental benefits of their products or services. These principles are:
- “Claims must be truthful and accurate
- Claims must be clear and unambiguous
- Claims must not omit or hide important information
- Comparisons must be fair and meaningful
- In making the claim you must consider the full life cycle of the product or service.
- Claims must be substantiated”
The Green Claims Code is designed to help businesses comply with consumer protection laws when they are making environmental claims.
“In sum, the record here amply supports the Commission’s conclusion that [the defendant] made false and misleading claims about the environmental benefits of its [product], in violation of [the law].”
Quotation from a ruling by the US Court of Appeals for the Ninth Circuit in 2016, in a case involving a company accused of greenwashing. The court upheld the Federal Trade Commission’s decision that the company had engaged in deceptive advertising by making false and misleading claims about the environmental benefits of its product.
Conclusion
In conclusion, corporate greenwashing is a serious issue that has far-reaching consequences for both the environment and society at large. Despite increased public awareness and regulatory efforts, many companies still engage in deceptive sustainability-related marketing and advertising practices to boost their image and attract consumers. This not only undermines consumer trust but also detracts from legitimate environmental efforts and hinders progress toward a more sustainable future. Regulators and enforcement agencies need to remain vigilant in holding companies accountable for deceptive marketing claims and promoting transparency in environmental reporting. However, ultimately, preventing greenwashing requires increased awareness among businesses and participation, by means of calling it out, by all stakeholders, including companies, consumers, regulators, and non-governmental organizations.
