Navigating greenwashing

Greenwashing has gained more scrutiny within organisations in recent years as recognition of an increasing requirement for environmental sustainability and corporate responsibility grows.

So what is it and how does it impact the legal landscape?

Sustainability Toolkit series: navigating greenwashing

The Sustainability Toolkit for in-house lawyers, launched in May, is the outcome of a collaborative project between a group of in-house lawyers from several sectors and organisations. The toolkit is free to all and available to help navigate the complex and growing landscape of sustainability requirements, bringing together a community of like-minded lawyers to unpack environmental issues that sit across all industries.

The first in a series of accompanying events discussed greenwashing and how it is important for lawyers who advise any business to understand the implications, reputational risk and emerging regulatory landscape.

What is greenwashing?

As defined in the toolkit’s glossary, greenwashing is:

“the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound. Greenwashing is considered an unsubstantiated claim to deceive consumers into believing that a company’s products are environmentally friendly.”

Greenwashing has gained more scrutiny within organisations in recent years as recognition of an increasing requirement for environmental sustainability and corporate responsibility grows.

The legal landscape

In-house lawyers should be aware of the legal implications of greenwashing, particularly where they may be advising on a business’s marketing or operational strategies.

Currently in the UK, companies could be caught greenwashing by an array of legislation, such as:

• The Consumer Protection from Unfair Trading Regulations (2008), which prohibit businesses misleading consumers via false environmental claims.
• The Competition and Markets Authority (CMA) Green Claims Code (2021), which helps businesses ensure compliance with their legal obligations under consumer protection law. It sets out six non-legally binding principles for businesses to follow when making environmental claims. These include ensuring that claims are truthful, clear, fair, substantiated and consider the full life cycle of a product or service.
• The Advertising Standards Authority (ASA) Committee of Advertising Practice Code, which contains general rules that apply to all adverts as well as specific rules to prevent greenwashing. The ASA has the right to order amendments to – and ultimately ban – any misleading advertisement.
• The Financial Conduct Authority (FCA) Anti-Greenwashing Rules (2024), which require FCA-regulated firms to ensure that communications with customers relating to products or services that refer to environmental and/or sustainable characteristics are clear, fair and not misleading.

If a business makes misleading environmental claims, it may suffer severe consequences. For example, a company may face penalties of 10% of its annual global turnover if it’s found to have broken the Green Claims Code. Globally, Volkswagen has paid a total of around $35bn in fines for cheating emissions tests. The loss of business and customer loyalty from associated reputational damage comes at a further price.

In the EU, the Corporate Sustainability Reporting Directive (2023) requires larger companies to provide detailed information on their environmental impact. The directive aims to reduce greenwashing by standardising reporting and ensuring environmental claims are backed up by data.

Another notable directive on the horizon is the EU proposal for a Directive on Green Claims. It was adopted by the European Commission in March 2023 and proposes to require companies to ensure minimum standards for communication and substantiation when making environmental claims to consumers. It would also extend to companies outside the EU who make claims to EU consumers.

The increase in the global regulatory response to greenwashing has likely arisen from the growth of sustainable products on the market. The impact may be that we see an increase in greenwashing cases as larger businesses struggle to manage the shifting regulatory landscape.

Reputational damage

Recent trends have indicated that greenwashing cases are on the rise, particularly in financial services, retail and travel industries. The associated publicity leads to reputational damage, which can be just as harmful to businesses as the legal repercussions of greenwashing.

The ‘fast fashion’ industry has experienced backlash for unsubstantiated sustainable advertising – for example, false claims that that certain clothes are designed to be recyclable or the use of marketing language such as ‘eco-friendly’ while encouraging consumers to buy more clothing. Airlines have also faced recent scrutiny. The European Commission has identified several misleading practices, which include airlines making unclear net zero claims and flawed CO2 emission flight comparison information.

Many consumers, particularly Gen Z and Millennials, are more likely to consider sustainability as a key factor when deciding whether a brand aligns with their values. In-house lawyers have a role to play in scoping risk and supporting businesses to stand out from the competition by highlighting their sustainability efforts.

Another notable growing trend is ‘greenhushing’, where companies downplay their sustainability efforts to avoid scrutiny. This can lead to missed opportunities to build consumer trust and promote good practices. It is important that lawyers continue to encourage clients and businesses, where appropriate, to engage in responsible environmental, social and governance (ESG) initiatives as long as they are mindful of greenwashing risks.

The role of in-house lawyers in managing the risk of greenwashing

In-house lawyers should be aware that effective due diligence, clear communication when advertising and ongoing monitoring of supply chains and environmental initiatives are all important practices for businesses to ensure their sustainability efforts are legitimate.

For example, businesses advertising their products and services should exercise caution when using buzzwords like ‘green’, ‘carbon neutral’ and ‘net zero’ and any claims should be grounded in scientific evidence.

Legal teams across all industries are increasingly expected to help safeguard their company’s reputation and compliance practices. As many in-house lawyers are integrated into decision-making processes, such as product marketing, they have a role to play in voicing greenwashing concerns.  Having an awareness of greenwashing risks, regulatory developments and a network of experts in the field to draw on will only increase a lawyer’s value to their business or clients.  

Next on the agenda…

The next Sustainability Toolkit event, taking place on 24th September, will explore the difficulty of ensuring good environmental practices are consistent across the entire supply chain.

Access the Sustainability Toolkit and get in touch with Hannah Gardner for information about future community events.

Written by Hannah Gardner, Legal Counsel, Outsourcing, Technology & IP, The Royal Bank of Scotland