Government enforcement actions and civil suits related to greenwashing are on the rise, based on laws like securities regulations and consumer protection legislation. This increasing awareness is stemmed from consumers and investors actively seeking eco-friendly products and services, leading to a rise in greenwashing as companies overstate sustainability credentials to attract business.
Greenwashing as defined by the International Organisation of Securities Commissions refers to the practice of misleading consumers or the public about the environmental benefits of a product, service or company practices as it involves making false or exaggerated claims about sustainability or ecological friendliness to improve public perception and gain a competitive advantage.
Greenwashing ranges from exaggerated or misleading claims to those intentionally crafted to deceive. Initially focused on environmental statements, greenwashing now encompasses broader sustainability concepts.
We’ve seen various brand mispresent their product or service’s environmental, sustainable, or ethical attributes, often through advertising – using vague or unsubstantiated claims like “green” or “sustainable” without providing data or evidence to support these claims.
One notable instance is the highly publicised “diesel dupe” controversy involving Volkswagen AG, who initially claimed their cars were equipped with innovative clean diesel engines compliant with US emission standards. Evidently, Volkswagen had manipulated the engine software to deceive emissions tests, which led to the global recall of millions of vehicles, immense financial repercussions, and reputational damage that the brand continues to grapple with.
Whether through broad and undefined terms, overstating environmental benefits, or making outright false claims about adherence to green standards, greenwashing affects the complete value chain – from consumers who are tricked into paying a premium for products that don’t meet sustainability expectations, to investors who partner with brands based on misleading eco-credentials.
As marketers, it’s crucial to understand the implications of greenwashing legislation. This article will explain greenwashing, and the legal frameworks designed to prevent it.
Regulations across APAC
Greenwashing claims in advertising have been challenged before regulatory boards in different jurisdictions. Since 2022, the Singapore Exchange (SGX) mandates climate-related reporting in sustainability reports on a “comply or explain” basis, transitioning to mandatory reporting by 2023-2024 for high-risk industries like finance, agriculture, and energy.
Since January 2023, fund managers must disclose ESG investment criteria to prevent greenwashing. ESG funds must ensure two-thirds of net assets align with their stated strategy.
Greenwashing regulations also include protections Singapore’s Consumer Protection Act and Advertising Standards Code, which scrutinises greenwashing claims. Furthermore, Singapore has its Green Labelling Scheme and climate reporting standards that will begin in 2025.
Meanwhile, Malaysia has guidelines on Sustainable and Responsible Investment Funds. The Securities Commission Malaysia (SC) unveiled in December 2022 the principles-based sustainable and responsible investment taxonomy for the Malaysian Capital Market (SRI Taxonomy), which provides universal guiding principles for the classification of economic activities that qualify for sustainable investment.
In 2022, the Financial Services Agency of Japan (FSA) issued documents to supervise ESG fund greenwashing. To help investors more effectively identify whether there is green drift in funds, the FSA will supervise fund products and fund companies separately. The FSA believes that ESG funds do not meet the relevant ESG standards, it is not allowed to use words such as “ESG, SDG (Sustainable Development Goals), green, carbon reduction, impact and sustainability” in its name to prevent misleading investors.
The Australian Competition and Consumer Commission (ACCC) has pursued deceptive practices under the Competition and Consumer Act 2010. According to ACCC Chair, Catrina Lowe, the regulator reviewed 247 businesses across a range of targeted sectors and found that 57% of businesses made potentially misleading environmental or sustainability claims.
Both ACCC and the Australian Securities and Investments Commission (ASIC) use legal provisions to enforce transparency and honesty in sustainability claims, particularly businesses’ compliance with guidelines like ASIC’s INFO 271 on sustainability communications.
For example, ACCC obtained an undertaking from MOO in November 2023 regarding misleading claims about “100% ocean plastic” packaging, which was actually made from ocean-bound plastic near shorelines. Consequently, MOO committed to publishing corrective notices, updating packaging, conducting audits, and implementing a compliance program.
Meanwhile, in New Zealand, the campaign group Lawyers for Climate Action NZ filed a complaint against Energy company Firstgas over an ad campaign concerning “zero carbon gas.” The Complaints Board said the advertisement was misleading because the claims that Firstgas would soon produce zero carbon gas were unsubstantiated environmental statements.
Greenwashing in the EU, UK, and US
On January 17, 2024, the European Parliament endorsed the Greenwashing Directive, aimed at protecting consumers against unfair practices and improving sustainability information. The introduced rules on sustainability and environmental claims in B2B communications, targeting both environmental (greenwashing) and social (bluewashing) claims, creating a harmonised set of rules across the EU/EEA.
The scope covers claims related to a product, brand, company, or service, including working conditions, human rights, diversity, animal welfare, and ethical commitments. Prohibited practices include the use of non-independent sustainability labels, generic environmental claims (e.g., “green”), and carbon neutrality claims based on carbon credits.
The Greenwashing Directive is supported by the EU’s Green Claims Directive as the former bans broad green claims like “climate neutral” or “eco-friendly” without evidence, while the latter creates a framework for substantiating and certifying these claims.
The EU also introduced its Corporate Sustainability Directive (CSRD) came into effect this year, strengthening ESG reporting while mandating third-party verification.
In January 2022, the UK’s Competition & Markets Authority (CMA) began reviewing misleading environmental claims, starting with the fashion sector and expanding to household essentials. The CMA’s Green Claims Code provides guidance on making environmental claims in the UK but is not legally enforceable. However, the CMA uses it to enforce existing consumer protection laws. The CMA also published a Green Claims Code to guide businesses on accurate and substantiated environmental claims.
Another key regulator, the UK’s Advertising Standards Authority (ASA) ruled against Ryanair’s claim of being the “lowest emissions airline” due to outdated supporting data.
In December 2022, the US Federal Trade Commission (FTC) launched a review of the “Guides for the Use of Environmental Claims” (“Green Guides”), which was last updated in 2012, and applies to B2C and B2B transactions but is not directly enforceable. However, the FTC can take action under the FTC Act and impose penalties on marketers that make environmental claims that are inconsistent with the Green Guides.
Meanwhile, the US Securities and Exchange Commission (SEC) scrutinises ESG-focused investment strategies and formed the Climate and ESG Enforcement Task Force to identify ESG-related misconduct and prevent misleading fund names. Both state governments and investors have brought lawsuits alleging deceptive practices and false sustainability claims under securities laws.
Genuinely Green Brands
A survey by IBM found that 84% of consumers who are seeking sustainable products believe that brand trust, established through verifiable, transparent sustainability practices, is important. Another survey by Futerra found that 88% of consumers want brands to help them be more environmentally friendly in their everyday lives.
The onus to operate more sustainably extends beyond the brand – ad agencies are being forced to acknowledge their role in perpetuating climate harm. For example, the UN-backed Race to Zero now invites agencies to reveal their clients and take responsibility for ‘advertised carbon’ impacts. And expectations on transparency are growing, as initiatives like France’s Publicité Responsable invites companies to sign a public “responsible marketing contract.”
As eco-conscious generations grow, marketers need to be cautious, as consequences for false claims are severe. Prevention of greenwashing isn’t just about rules but about changing the mindset – focusing on consumer impact rather than the brand’s. Effective sustainability marketing should make sustainable choices accessible and exciting for consumers.
Greenwashing claims are expected to rise as climate change becomes more central in consumer and investor decision-making. Regulatory actions will increase, new sanctions will emerge, and more corporate sectors will be targeted.
AI tools like ClimateBert may drive new claims by identifying greenwashing in corporate language. However, companies must ensure that sustainability claims are clear, accurate, backed by evidence, and supported by concrete action on decarbonisation commitments.
