Summary Report: Greenwashing – Legal Risks and Opportunities 

01 Jul 2024

This consideration of greenwashing draws on a roundtable held by the Centre for Climate Engagement in partnership with Clyde & Co, the second in a series of three discussions on legal aspects of sustainable finance. The event brought together academics and legal practitioners to discuss some key legal issues associated with greenwashing, and potential implications for businesses.

As organisations aim to capitalise on business opportunities associated with the net zero transition, ‘greenwashing’ has become a climate buzzword. In a private sector context,[1] greenwashing is a tactic in which businesses make untrue or misleading statements about the environmental impact of a product, service, or their business, generally to gain a commercial advantage. Growing public awareness of greenwashing has spurred efforts, including by regulators and litigants, to identify misleading environmental statements and hold the organisations which make them to account. This briefing outlines some key legal issues associated with greenwashing, and potential implications for businesses.

Greenwashing has become widespread and sophisticated. As the demand for sustainable products and services continues to grow, some organisations continue to develop more creative, and often more subtle, methods to shape public perception about their environmental credentials.

Planet Tracker, a sustainable finance think tank, has catalogued the various manifestations of greenwashing into six categories:

There is some debate about the extent to which intention matters in greenwashing. Misleading claims may not always be deliberate – for instance, a financial institution may, inadvertently, falsely advertise a fund as ‘green’ because it lacks sufficient information about the investments that compose that fund. Many companies are concerned about unintentional greenwashing, and some European asset managers have argued that anti-greenwashing rules should not apply to such claims.[2] However, legal regimes tend not to distinguish between intentional and unintentional greenwashing. Further, businesses are now subject to various reporting requirements that make a lack of basic climate awareness less likely, and arguably less excusable. Businesses may avoid the risk of unintentional greenwashing by ensuring that environmental claims are verifiable, clear, and complete. Regulatory guidance often provides businesses with examples of how to avoid these claims, mitigating concerns that may lead to ‘greenhushing’.

In most jurisdictions, including the UK, there is no universal legal definition of greenwashing, and no single government body tasked with addressing it. Instead, greenwashing may be relevant to many different areas of law, including advertising standards, contractual terms, or even torts. In general, however, two types of legal regime have been most active in addressing greenwashing: consumer protection rules and financial regulation.

Misleading environmental claims may breach longstanding consumer protection laws. This was the basis for Fossielfrij’s successful claim against KLM under the EU’s Unfair Commercial Practices Directive,[3] which centred on the airline’s inaccurate claims relating to carbon offsetting and bioenergy. Similar challenges have emerged in other jurisdictions, including the Australian Competition and Consumer Commission’s claim that, by misrepresenting the volume of recycled plastic in waste bags, Clorox Australia had “deprived consumers of the opportunity to make informed purchasing decisions, and may have put other businesses making genuine environmental claims at an unfair disadvantage”.[4] Some regulators have issued guidance to clarify the steps that business can take to comply with these regimes, including the UK’s Competition and Markets Authority (CMA), which published its Green Claims Code in 2021.[5]  

Financial regulation intersects with greenwashing in two main ways. First, it can provide investors and shareholders legal paths to action against companies that misrepresent green credentials in certain contexts. For example, in the UK shareholders may seek compensation under the Financial Services and Markets Act (FSMA) if a company has made untrue or misleading statements in a prospectus or listing particular. [6] Second, financial institutions themselves may engage in greenwashing when offering ‘sustainable’ financial products or services. The UK’s Financial Conduct Authority (FCA) has introduced a specific anti-greenwashing rule in its Sustainability Disclosure Requirements to prevent this type of misrepresentation. Similar regulators abroad are also paying attention to this issue –the Australian Securities and Investments Commission has pursued a number of greenwashing actions against companies, issuing over $140,000 in infringement notices to companies including Vanguard Investment Australia and Tlou Energy Limited,[7] and has commenced proceedings against a major pension funds.[8] In each case, information-based climate regulations may be relevant to greenwashing claims. Increasingly broad and stringent disclosure requirements may increase scrutiny around corporate climate commitments, and green taxonomies are creating clearer criteria for environmental labelling.

The breadth of activities that may fall under the definition of greenwashing means that at present a patchwork of laws and regulators, rather than one single legal mechanism, are required to address this problem. There have been efforts to ensure alignment between different regulators, evidenced by the European Supervisory Authorities’ ‘common understanding’ of greenwashing, [9] and the FCA’s reference to CMA guidance when shaping anti-greenwashing measures. Nonetheless, to avoid greenwashing, businesses should consider how their environmental representations might be interpreted under multiple areas of law, and these different legal routes may have important implications for potential greenwashing litigation.

A growing number of litigations targeting alleged greenwashing are being brought across the world, many of which address climate-related claims. The LSE Grantham institute identified 120 ‘climate-washing’ cases between 2016 to 2023, a significant increase over previous years that continue to trend upwards.[10] Significantly, these claims see a higher rate of success than climate litigation in general. Most claims centre on environmental claims in advertising but may also target representations including corporate climate commitments and broader deception about climate risks. [11] Many environmental claims which face litigation are specific, but others may be fairly general conclusory statements. One example of such a challenge is Earth Island Institute v Coca Cola Co, in which claimants argued that Coca Cola could not call itself a “sustainable and environmentally friendly company” given its contribution to plastic pollution. Of course, claimants must also be able to support their assertions with evidence – as evidenced by the court’s dismissal of a greenwashing lawsuit in Ellis v Nike USA.

Under certain legal frameworks, including some consumer protection laws, simply showing that an organisation has made a misleading environmental claim may be sufficient to take legal action. Other causes of action require the claimant to show not only that there has been a misrepresentation, but also that they have relied on that misrepresentation and suffered harm because of that reliance. This is the case for claims under section 90 and 90a of the FSMA. Many misleading claims may not cause immediate financial loss, and losses may also be too small for claimants to dedicate the time and resources to bring litigation or attract third party funding. It is therefore likely that laws which do not require that claimants prove reliance or loss, and where regulators themselves bring legal challenges, will continue to see more greenwashing litigation.

Greenwashing, as outlined above, may have legal implications outside of consumer protection or financial regulation. One example of this is rights-based claims which, although human rights obligations tend to apply to governments, may be brought against private organisations under certain legislative frameworks.[12] Environmental misrepresentations were central to allegations made in a Brazilian case against a carbon crediting company,[13] and a French claim against BNP Paribas based on the company’s dealing with a Brazilian beef producer.[14] Other claims falling outside of consumer and financial law may be brought for breach of contract, deceit, or breach of statutory duty.[15] Ideally, this growth in greenwashing litigation will increase transparency and integrity in corporate climate commitments, though the LSE Grantham Institute notes that “it is unclear to what extent positive courtroom outcomes directly contribute to reducing carbon emissions or achieving substantive climate action goals.”[16]

Greenwashing is a multifaceted problem which can describe many different behaviours. Litigation and regulatory action are useful tools for addressing many misleading claims, but it is important to note that existing legal frameworks may not easily address the full range of misleading environmental representations. Looking to the categories of greenwashing outlined above, for example, legal frameworks appear broadly well-suited to addressing ‘greenlabelling’ but bringing a claim for ‘greenrinsing’ may be more difficult.[17] Challenging this type of conduct may therefore happen outside of the courtroom, including through public scrutiny and engagement from investors.

Legal issues stemming from greenwashing are one of many interrelated risks that businesses must navigate to thrive during the climate transition. Avoiding misleading environmental statements may be simple in some cases but greenwashing may not always be intentional, and businesses can take proactive steps to reduce these risks across their operations. Businesses will need to consult multiple pieces of regulatory guidance to ensure compliance with all relevant legal regimes in addition to considering other legal obligations, including in contracts. Being able to back environmental representations with evidence is vital – many organisations now collect a large volume of climate-related data, often to comply with other regulations, which may be important to demonstrating the veracity of an environmental statement. Large businesses with a wide range of products and services may make a large number of statements about their environmental impact, so internal processes may be established to ensure their accuracy. Boards and leadership teams can ensure that this change is instilled at the highest level.

Litigation or regulatory enforcement can lead to the most acute consequences for businesses, but there is also an increasing amount of nonlegal pressure to reduce greenwashing. Misleading environmental claims often draw media attention, which can create a significant reputational risk for businesses. Potential reputational damage impacts consumers, who are increasingly considering sustainability credentials when purchasing. Investors may elect not to invest in businesses which engage in greenwashing or bring these issues to shareholder meetings. All of these methods may address misrepresentations which do not breach the legal standards outline above, or where litigation would be infeasible. There is opportunity in addressing these risks. Businesses with transparency and integrity in their environmental claims may gain an advantage compared to peers who suffer financial loss from litigation, regulatory enforcement, or reputational damage.

 Addressing this issue does not only have implications for specific businesses – greenwashing is a systemic risk[18] that threatens consumers’ and investors’ ability to make informed environmental choices, hampering market alignment with sustainability. Widespread greenwashing may also reduce public trust in environmental statements as a whole, which may impact businesses looking to leverage legitimate environmental credentials. Some jurisdictions, including the UK and EU, have made specific reforms in consumer and financial laws to clarify greenwashing rules. Legal frameworks that are not reformed may still be strengthened through regulatory guidance and more vigilant enforcement, and litigants are likely to continue to target greenwashing through multiple causes for action.

Finally, multiple organisations are often involved in making a misleading environmental claim – corporate marketing and PR firms can play a significant role in shaping companies’ environmental claims. Advertising, which naturally involves some level of boasting, can lead to exaggerated claims of environmental benefit or oversimplified eco-friendliness, which may ‘counteract the purpose and message of the initial green advertisement’.[19] In 2023, the UK’s Chartered Institute of Marketing found that nearly half of marketers (49%) are wary of working on sustainability projects due to fear of greenwashing. This comes as 63% of adults agree that brands should increase communications around product and service sustainability.[20] Third parties involved in the marketing of products and services may therefore become targets for greenwashing litigation, and have already faced regulatory complaints,[21] but can also play an important role in creating systemic change towards transparent and evidence-based sustainability communications. Advertising regulators will likely help drive this change, evidenced by action such as the UK Advertising Standards Authority’s banning of HSBC advertisements which promoted the bank’s emissions reduction plans. [22]

The law cannot provide a single solution to greenwashing, instead it offers multiple potential avenues through which regulators and litigants can tackle deceptive environmental practices. Legal challenges are emerging in a wide range of jurisdictions and invoke multiple areas of law, reflecting greenwashing’s complexity and ubiquity. It may not be possible or convenient to address all instances of greenwashing through legal means, so nonlegal routes remain vital to holding organisations to account for misleading environmental statements. Addressing this issue at scale, which is necessary to avoid systemic risks from widespread greenwashing, will likely require action on multiple fronts. This is already evident in regulators’ increased vigilance in addressing greenwashing, litigants bringing an increasing number of greenwashing claims on both established and novel grounds, and the scrutiny that corporate environmental claims face from both investors and consumers. All of these factors suggest that businesses should proactively address greenwashing risks to remain competitive throughout the climate transition.

With thanks to our roundtable attendees for their valuable contributions: Nigel Brook, Tiffanie Chan, Margherita Cornaglia, Laurence Doering, Emily Farnworth, Nick Scott, Thomas So, Sofie Surraco and John Willis.

[1] Public actors or bodies may also participate in greenwashing.

[2] ‘Investors push EU regulators to focus on intentional greenwashing’ in Responsible Investor, Paul Verney (2023). Link.

[3] FossielVrij NL v. KLM (2022).

[4] GLAD bags manufacturer in court for ‘50% ocean plastic’ claims’, Australian Competition and Consumer Commission (2024). Link.

[5] Green claims code: making environmental claims’, Competition and Markets Authority (2021). Link.

[6] Financial Services and Markets Act sections 90 and 90a.

[7] ‘ASIC launches first court proceedings alleging greenwashing’, Australian Securities & Investments Commission (2023). Link.

[8] ASIC has made these allegations about the conduct of Mercer and Active Super.

[9] ‘ESAs put forward common understanding of greenwashing and warn on risks’, European Securities and Markets Authority (2023). Link.

[10] ‘Climate-washing litigation: towards greater corporate accountability?’, Grantham Research Institute on Climate Change and the Environment (2024). Link.

[11] ‘Greenwashing Exposed: A Close Look at the Existing Case Law’, Oxford Law Blogs, Ekaterina Aristova (2023). Link.  

[12] Grantham Research Institute at n 8.

[13] Amorema and Amoretgrap v. Sustainable Carbon and others (2021).

[14] Comissão Pastoral da Terra and Notre Affaire à Tous v. BNP Paribas (2023).

[15] ‘Greenwashing: some thoughts on future claims under English law’, Essex Court Chambers, Richard Hoyle and Jackie McArthur (2023). Link.  

[16] Grantham Research Institute at n 8.

[17] Mandatory transition planning, however, may help address ‘greenrinsing’ by requiring clear timelines.

[18] ‘More than just a business ploy? Greenwashing as a barrier to circular economy and sustainable development: a case study-based critical review’ in Circular Economy and Sustainability, Raya Rafia Choudhury, Arfaa Feezanul Islam and Mohammad Sujauddin (2023). Link.

[19] ‘ESG for consumer products and brands – identifying and reducing greenwashing risk’, Debevoise and Plimpton (2021). Link.

[20] ‘Consumer focus on sustainability outstrips marketers current skill set with half still fearful of ‘greenwashing’, Chartered Institute of Marketing (2023). Link.

[21] ‘Financial Times, Reuters Pull Saudi Aramco-sponsored Climate Content’ in DeSmog, Joey Grostern, (2024). Link.

[22] ‘HSBC ads to be ruled greenwashing by the ASA; a warning to other banks?’, Mishcon de Reya, Paul Clements-Hunt and Stuart Lester (2021). Link.