The desire to be considered a leader in sustainability has led some companies to exaggerate their achievements, make vague, unverifiable statements, or even make false claims.
"Greenwashing" is the term commonly used to describe such corporate actions or statements. Trying to appear more environmentally friendly than they are isn't limited to consumer-facing companies -- financial services companies, for instance, may also be subject to greenwashing accusations.
Between 2022 and 2023, the number of reported greenwashing cases worldwide surged by 21.1%, with a notable increase in the number of cases involving companies headquartered in the EU and US. This period saw heightened scrutiny and significant legal risks for companies accused of greenwashing.
However, recent studies indicate an unexpected shift in this trend. In 2024, a global decrease in greenwashing cases was registered: In the EU and the UK there has been a modest decline in the number of greenwashing cases. Notably, the EU, which saw a 26.1% rise in greenwashing cases in 2023, experienced a decline of over 20% in 2024.
In contrast, the US has experienced a different pattern. In 2024, there was a slight rise in the number of US companies associated with greenwashing, diverging from the decline seen in Europe.
Improved corporate sustainability practices and stricter regulatory oversight that has been introduced in the past year may have contributed to the shift in Europe. However, another factor worth exploring is the potential increase in "greenhushing," a strategy that consists of companies deliberately downplaying their environmental efforts to evade stakeholders' scrutiny.
It's crucial for companies to stay informed about the risks and their potential implications. We highlight five essential questions that businesses should ask themselves to proactively manage the risks and address the underlying issues effectively.
What corporate activities are most likely to give rise to greenwashing? Attorneys should work with their business colleagues to identify corporate actions that might be susceptible to greenwashing accusations. These can include advertising messages, corporate statements and product labels, and recruitment and website materials.
What should a company consider when making a claim about its green business practices? Leadership needs to identify all potential risks when the company makes green claims. The company should establish a process to substantiate and document all green claims, and business leaders must be educated on the consequences of making inaccurate or unsubstantiated claims.
What are the risks associated with greenwashing allegations? The entire organization should understand the business and legal risks. Companies may be subject to lawsuits with serious financial ramifications, as well as reputational risk that may be costly and challenging to reverse.
What is driving the rise in greenwashing accusations? Concerns about climate change are almost universal. Companies must be aware that advocacy groups may question their commitment to environmental causes. Competitors may challenge the truthfulness of another company's claims and use third-party data to demonstrate their superior commitment.
Customers and shareholders also may raise concerns about greenwashing, as they want to feel comfortable about an organization they are supporting. Ultimately, governments and regulators may become involved if a company's actions appear to violate the law.
How are different jurisdictions approaching greenwashing? Greenwashing risks are most prevalent in Europe and North America. Countries in those regions have both the most concerned consumers and the most active governments tackling green issues.
Attorneys serving clients and companies in these jurisdictions need to be particularly vigilant on any new legislation and regulations on environmental issues.
The criteria for what is green or sustainable can be subject to interpretation in the current regulatory landscape. Most jurisdictions don't have specific laws or regulations that clearly define greenwashing or denote the elements needed to prove an infraction. But consumer protection laws and anticompetitive rules can be used to prosecute these types of claims.
Without clear guidelines, many companies may believe they are acting within acceptable boundaries when they make sustainability claims. For example, some actions may be described as "sustainable" but may really be motivated by economics -- such as the common practice of hotels urging guests to reuse towels and not have their sheets changed daily. While those actions may save water and energy, they also save labor costs. It may be difficult to determine if an action with multiple justifications amounts to greenwashing.
While enforcement appetites vary across jurisdictions, research points to an increase in the powers available to regulators and their subsequent willingness to use them. For example, the European Securities Markets Authority has indicated that it is considering strategies to combat greenwashing and to strengthen its enforcement capabilities.
Reputational risks aren't just consumer-facing. Many investors look to protect their investments while facing their own sustainability reporting obligations and external pressures to make climate-related contributions.
To minimize the risk of liability, companies need to establish a robust compliance program that can detect any possibility of greenwashing in advance, understanding that greenwashing can arise from a series of legal claims and may be unintentional.
Greenwashing poses a significant threat to global companies. Companies must carefully review all public statements concerning their green initiatives to ensure those statements aren't inaccurate or unverifiable. The legal challenge is magnified by the lack of an official definition of greenwashing. Companies may find themselves defending charges that range from unfair competition to deceptive advertising.
The desire to support green initiatives isn't a defense. Companies and their legal teams need to develop robust processes and compliance programs to protect themselves from greenwashing risks as they continue to embrace their green agendas.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.Author Information
Pilar Galán Gavilá is partner, head of financial services legal with KPMG Spain, and legal lead for KPMG IMPACT.