Stopping the Spin Cycle – Understanding Anti-Greenwashing Laws

The FIFA Men’s World Cup in Qatar was plagued with many controversies ranging from the advertisement and sale of alcohol, the visibility and acknowledgement of LGBTQ persons, and the concern over basic human rights violations while constructing the tournament infrastructure. Despite the tournament ending months ago, one controversy still haunts FIFA – the allegations that the tournament advertisement constituted “greenwashing.” FIFA claimed that the Qatari World Cup was the first “completely climate-neutral tournament” in history. Several nongovernmental organizations (NGOs) have since filed individual complaints with various Belgian, French, Dutch and Swiss regulatory bodies questioning the carbon neutrality of the tournament. At last check, several of the complaints have been combined and are being investigated by Swiss authorities.

What is Greenwashing?

Greenwashing is when a company, entity or organization employs false, vague, unqualified or misleading claims and statements to exaggerate their environmental impacts or benefits. This would include implying something is “carbon-neutral” when such a claim cannot be defended. FIFA is far from the only organization facing allegations of greenwashing. In fact, the concern about greenwashing is so widespread that several national and international market regulatory bodies are looking to clarify and codify guidance and taxonomies to tackle corporate greenwashing. In a recent posting, BBJ discussed some of the more comprehensive ESG disclosure laws around the world, making ESG disclosures compulsory for corporations. While it is true that ESG disclosures may be mandatory for many companies and entities, ESG disclosures are not without legal exposure. Below, we will highlight some developing global greenwashing laws and how to avoid red cards from investors and consumers.

United Kingdom

By mid-2023, the UK’s Financial Conduct Authority (FCA) is set to publish final drafts of proposed rules that require ESG disclosures yet also clamp down on greenwashing practices. A general “anti-greenwashing” rule will be applied to all FCA-regulated firms with the goal of ensuring that the “naming and marketing” is not misleading and accurately represents the sustainable profile of a product without exaggeration. This would include any and all phrasing such as: ‘climate,’ ‘impact,’ ‘sustainable,’ ‘Paris-aligned,’ ‘net-zero,’ or even ‘responsible.’ It is anticipated that this rule will be enacted and enforced by 2024.

European Union

While the European Union’s Corporate Sustainability Reporting Directive (CSDR) in and of itself will cut down on greenwashing through regulation of ESG disclosures and reporting, it is worth noting that several European rules are set by the European Securities and Markets Authority (ESMA), which prohibit greenwashing. However, given the renewed focus on sustainable marketing in light of the passage of the CSDR, there may be an uptick in the enforcement of greenwashing claims in the near future. In 2021, the European Commission released a report which outlined the results of a “sweep” of corporate websites, which found that 42% of public “green claims” were exaggerated, false or deceptive and could be considered unfair commercial practices under EU law. These unverifiable claims are expected to be targeted for enforcement using the CSDR as the backbone of future allegations and cases.

United States

The concern over “greenwashing” predates the current surge and popularity of ESG reporting, consumer consciousness, and the desire to combat climate change. In 1992, the US Federal Trade Commission (FTC) first published Green Guides, which apply legal definitions to labelling a particular product as “eco-friendly,” “compostable,” “non-toxic,” and “renewable.” The FTC is seeking public comment on potential updates to these guides, which were last updated in 2012. It is important to note that there is precedent for courts and litigants to rely on these Green Guides when bringing domestic civil greenwashing suits. Therefore, these guides should be consulted before making specific environmental or climate-friendly claims. In the past ten years, the FTC has brought nearly 50 enforcement actions against American corporations for making false or indefensible environmental claims. The FTC has recently extended the comment period of their review until April 24, 2023.

The Securities Exchange Commission (SEC) is also in the process of drafting proposed climate disclosure rules which, apart from proposing required ESG disclosures, also propose incorporating definitions set by the GHG Protocol for matters pertaining to greenhouse gas accounting. Having universal standards for calculations and metrics will streamline the process and will prevent corporations from unintentionally greenwashing their disclosures and marketing.

Navigating Greenwashing vs. Green-Bleaching

The rise of anti-greenwashing legislation has understandably brought the backlash and concern of green-bleaching, or the concern that corporations and entities opt against making any such green claims, even where true, in order to avoid legal exposure. At the end of the day, green bleaching is its own problem in that consumers and investors are looking to know which corporations are leaving a net-positive impact on their communities and the wider world. While this may all seem overwhelming and murky, there are a few key takeaways to navigating the world of mandatory ESG disclosures while avoiding claims of greenwashing.

• Verifiable Claims Only – Ensure that verifiable and auditable data by a third party back up all public claims in any marketing product.
• Understand the Words – While it may seem like just a color, the word “green” has a legal connotation in some jurisdictions. Ensure you understand the guidance, directives and taxonomies set forth by your relevant jurisdictions before any claims are made.
• Use a Specific ESG Reporting Standard – Several reporting standards and frameworks assist corporations with wrapping their heads around ESG calculations. Using a formal standard over one that is “homemade” is always advisable.
• Marketing Should Work with the Scientists and Legal. It is not unheard of for marketing departments of large corporations to prepare the lion’s share of Sustainability Reports that are published on company websites and distributed to shareholders. Ensure that ESG experts and scientists who understand your processes and supply chains prepare the calculations and that legal or in-house counsel proofreads all claims.