Navigating the greenwashing maze – an overview

Published on January 24, 2025 by Shashank Patel and Somya Gupta

Companies face increasing pressure to become environmentally friendly as their customers become more eco-conscious. Due to the growth of such a customer base, some businesses are focusing more on presenting themselves as eco-friendly rather than actually being eco-friendly, resulting in an emerging trend of “greenwashing”. Greenwashing is defined as spreading or advertising false information about a company, its brand and/or its products relating to its environmental impacts or benefits. This could involve one or more confusing words, exaggerated assertions and obvious fabrications about the environmental effect of a product. Greenwashing impacts or alters the true risk and reward profiles of capital investment, presenting significant problems for both investors and asset managers. When corporates make false sustainability claims, investors find it difficult to assess ESG-related areas likely to impact their overall future performance.

This increases the magnitude of potential monetary and reputational risk since capital may be misallocated to businesses that appear viable but do not adhere to ethical standards. As capital providers such as financial institutions become more conscious of greenwashing and face regulatory scrutiny, the pressure increases to make their portfolios reflect truly green investment. Increased regulatory requirements, including greenwashing regulations, and scrutiny of conscious consumers and activist organisations add to the pressure on businesses to support their environmental claims with evidence and to be more transparent through increased disclosures.

All stakeholders including customers and investors must be cautious and use corporate disclosures when evaluating these environmental promises. This article covers the specifics of greenwashing, its repercussions, examples of deceptive techniques and a few key rules and regulations that aim to encourage honest advertising and claims. By being aware of the numerous perspectives of greenwashing, key players will be able to make informed decisions about which companies are truly protecting the environment or working towards doing so.

Greenwashing has a significant impact on customers, overall markets and the environment, as outlined below:

• Deception: Customers who want to invest in an eco-friendly company or fund are attracted by false advertising that leads them to make bad choices that do not result in genuine sustainability in the long run.

• Breach of trust: As customers become aware of greenwashing, their trust in false sustainability commitments is broken, resulting in a loss of confidence in the company make them.

• Market manipulation: Markets are manipulated by dishonest advertising, enabling those who resort to such means to outperform the market versus those dedicated to sustainability.

• Environmental impacts: This deception may distract from the real environmental issues and impact the collective effort to tackle global warming and pollution.

• Regulations: As customers become aware of such fraudulent practices, the authorities are pressured to take strict measures against those engaged in them.

• The way ahead: Encouraging businesses to adopt environmentally friendly practices would promote a sustainable marketplace without misrepresentation and false claims; this helps educate customers and requires transparency from businesses.

The following are recent examples of fines on companies charged with greenwashing or making baseless claims:

Coca-Cola (2024):

Coca-Cola faced a USD5m penalty for representing itself as “sustainable and environmentally friendly”, as it was found that a substantial amount of its packaging material was not recyclable. Inquiries revealed that the company is one of the largest contributors to plastic pollution.

H&M (2024)

H&M was fined USD3m for using the term “conscious”. The fast-fashion industry is well known for its environmental impact, resulting in some degree of greenwashing, but H&M falsely claimed that some of its products were “eco-friendly”, when it was not the case: 90% of its marketing claims were false. The company has agreed to improve its supply-chain processes and to be transparent in its disclosures, especially those relating to the use of sustainable materials.

Volkswagen (2024)

Volkswagen faced a USD10m penalty for making false claims that its diesel vehicles were low-emission and eco-friendly. This “clean diesel” scandal has tarnished its brand image, with it facing legal and financial ramifications.

BP (2024)

BP was fined USD15m for misleading comments about its green energy funding. Despite the company's strong green energy pledges, a sizeable amount of its funding went to fossil fuel initiatives. In addition to calling for more transparency on how it allocated its investments between fossil fuels and green energy, the penalty sought to hold it responsible for deceiving stakeholders.

Nestlé (2024)

Nestlé faced a USD7m penalty for making false representations about the ethical source of palm oil, a crucial component of several products. Even though the business claimed to acquire palm oil ethically, audits found serious flaws in its supply-chain procedures. In an effort to correct this misunderstanding, Nestlé was fined and forced to enhance its sustainability procedures and pledge to report on its sourcing processes in a more open manner.

Governments and organisations around the world are establishing new guidelines and/or regulations to address greenwashing, as the following examples show:

EU – Green Claims Directive (2023): The EU requires that green claims in the European market be verified by an independent third party. The directive is part of the EU’s Green Deal and aims to make environmental claims made by companies reliable, comparable and verifiable across the EU and protect consumers from greenwashing.

UK – Competition and Markets Authority (CMA): In 2021, the CMA published a Green Claims Code that applies to all businesses that make environmental claims, including those involved in operational supply chains, as a step towards ensuring that companies understand how they can comply with consumer protection law when making such claims. The requirements under the code are stringent: claims must be fully backed with data, be clear, be complete and consider a product’s entire lifecycle. Any shortcoming could constitute greenwashing and lead to action by the regulator for misleading consumers.

Australia – Australian Competition and Consumer Commission (ACCC): In 2023, the ACCC published draft guidance on environmental claims, identifying eight key principles for “trustworthy environmental and sustainability claims” to provide clarity to companies on determining which “environmental claims” constitute greenwashing. The principles include ‘make accurate and truthful claims’, ‘have evidence to back up your claims’ and ‘do not hide important information’.

Canada – Bill C-59 (2024): This bill amends the Competition Act, introducing new requirements for companies making environmental claims about activities, products or the entity itself. When making an environmental claim, companies must ensure that the claim is substantiated in accordance with “internationally recognised methodology”.

India – The Central Consumer Protection Authority (CCPA) issued guidelines for the “Prevention and Regulation of Greenwashing and Misleading Environmental Claims” in 2024. These guidelines are designed to promote honest practices and help companies make meaningful and accurate environmental claims. They aim to enhance consumer trust and encourage sustainable business practices. Companies should focus on transparently highlighting their environmental initiatives, ensuring that all claims are backed by complete disclosures and credible evidence.

The primary objective of these initiatives is to build a marketplace where consumers can trust a company’s claims and to encourage businesses to adopt sustainable practices.

Conclusion

Greenwashing aims to mislead, and customers and stakeholders need to educate themselves by understanding the concept so they could avoid falling prey to such claims. Stakeholders can urge companies to implement sustainable policies that will benefit the environment and the community as a whole and to use their green positioning as a reputational asset.

There has been a radical shift in the marketspace in recent years. Organisations are trying to improve their authenticity, validate their claims and be more transparent by being specific. Recent examples include Hindustan Unilever adding an independent auditor (PwC) to provide assurance of its environmental performance and source of products, and to provide a fair representation to consumers. IKEA is also working towards making its products more recyclable, targeting 2030 for using recycled wood in one-third of all its products and using renewables or recycled materials in production. Nike is also working towards net-zero targets and decarbonising its value chain.

Organisations are trying to be more transparent by providing detailed information about their initiatives and targets in an effort to regain customer trust. To ensure that sustainability is embedded in every aspect of its business, an organisation could obtain the services of a third-party auditor to conduct thorough checks. This would help it prioritise long-term environmental gains over short-term marketing gains, not only reducing the risk of fines and harm to its brand name, but also helping the communities it serves and the planet.

How Acuity Knowledge Partners can help

Acuity Knowledge Partners provide day-to-day support to help companies stay compliant with regulations relating to carbon neutrality and misleading lawsuits. This could involve providing ongoing monitoring and analysis of the regulatory environment, identifying potential areas of risk and helping companies implement policies and procedures designed to minimise the risk of non-compliance. We also help investors and asset managers evaluate their existing or potential investments for compliance on greenwashing and other ESG practices to provide better disclosures to their clients.

We are a trusted partner in the global market, offering ESG research and other services. We enable our clients to manage increasing demands on their teams by providing customised managed services solutions; these include climate transition maturity assessment, ESG maturity assessment and peer benchmarking, ESG fund-level reporting and SFDR reporting. This has resulted in operational efficiency, resilience and significant cost savings.

References:

• Wall Street Journal – IKEA

• Reuters – Nike

• Independent Assurance – Hindustan Unilever

• 10 Companies Called Out For Greenwashing

• Greenwashing: 17 recent stand-out examples

• Examples Of Greenwashing Claims

• Greenwashing crackdown in UK could leave big business with hefty fines | Euronews

• Green claims – European Commission

• Green Claims Code: making environmental claims – gov.uk

• Forging a United Front: UK Regulators Take Steps to Combat Greenwashing – Publications

• Greenwashing crackdown in UK could leave big business with hefty fines | Euronews

• CMA Green Claims Code now in effect: substantiating green claims to prevent greenwashing – PwC UK

• ACCC issues guidance on greenwashing | Global law firm | Norton Rose Fulbright

• Australia Greenwashing: Half-Yearly Review of ASIC and ACCC Prosecutions–and ACCC Position on Environmental Collaborations | HUB | K&L Gates

• Press Release: Press Information Bureau

• Anti-Greenwashing Regulations Emerge in Canada and the EU

• Public consultation on Competition Act’s new greenwashing provisions

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