Introduction

The risk of an accusation of "greenwashing" is now an important concern for many companies. Greenwashing is an ill-defined concept but, nevertheless, is increasingly a source of litigation and regulatory scrutiny – with more of both expected. It carries with it reputational, regulatory and litigation risks for which companies should be prepared. Whilst the risks are always context specific – varying by jurisdiction, industry and product - there are common themes. Here, we take an in-depth look at those themes and make suggestions for how organisations can think about mitigating greenwashing risk.

WHAT IS GREENWASHING?

There is no harmonised definition of greenwashing. Broadly, it is about claiming or creating the perception that activities, products and services are more environmentally friendly or sustainable than they actually are. Precisely what constitutes greenwashing will vary according to the type of product and service, as well as between different sectors, regulators and jurisdictions. It may also vary depending on the person making the claim – one person's treasured sustainability claim can be another person's greenwashing trash. For some, greenwashing is seen as a purely environmental concern, whereas many also use the term to cover social and governance issues.

This lack of clarity is significant, as it makes it difficult for organisations to establish what actually amounts to greenwashing and what they should prepare for. It is especially significant given that allegations can have substantial financial and reputational impacts.

In lieu of definitional precision, we think it is helpful to look at real-world examples. We have reviewed a wide range of greenwashing claims and controversies globally and see some common sources of dispute - see ''Common themes in Greenwashing controversies'' opposite.

COMMON THEMES IN GREENWASHING CONTROVERSIES

"Is that correct?" – A statement about environmental or ESG credentials or activities is misleading or simply not correct.

"Is that the full story?" – A statement does not tell the whole story of a product or service, or relates to one part of the product or service but misleads people about the other parts or the overall impact on the environment. Sometimes, the caveats or conditions to an environmental or ESG statement are not adequately disclosed.

"Your science isn't right....." – A statement about environmental or ESG credentials is based on flawed or incomplete evidence.

....or maybe your maths" – A statement about environmental or ESG credentials is based on flawed calculations or assumptions.

"Your offsetting looks off" – Net zero targets contain a wealth of assumptions and uncertainties, particularly around the use of carbon offsets. These can be vulnerable to challenge.

"A label paints a thousand words....but not necessarily the ones you intended" – A sustainable label, name, tag or rating in relation to a product or service is misleading about environmental credentials.

"Your regulator would like to see you" – A regulatory statement or classification is incorrect or misleading in relation to environmental or ESG credentials.

Why are allegations of greenwashing on the rise?

According to the Grantham Research Institute on Climate Change and the Environment's 'Global trends in climate change litigation: 2022 snapshot', a minimum of 20 greenwashing cases have been filed before courts in the US, Australia, France and the Netherlands since 2016, whilst 27 cases have been filed before non-judicial oversight bodies over the same period.

WHY?

INCREASED PUBLIC SCRUTINY

An obvious point, but one worth making. Socio-environmental issues, particularly climate change, are at the forefront of public consciousness. Consumers, investors and civil society are, therefore, placing closer attention to the environmental and sustainability credentials of organisations, with the risk that they will react negatively if the underlying information is not being sufficiently, or accurately, disclosed.

INCREASED NUMBER OF STATEMENTS

Environmental and sustainability statements are increasingly a common feature of corporate disclosure and the marketing of services and products. Companies are now making, and will increasingly be required to make, detailed environmental and sustainability disclosures and aiming to demonstrate progress year on year. We have covered the details of many these new requirements in depth elsewhere (please read our articles on the EU Corporate Sustainability Reporting Directive here, the EU Corporate Sustainability Due Diligence Directive here, the UK Sustainability Disclosure Requirements here, and the US Securities and Exchange Commission's ESG Disclosure Proposal here, and regulatory developments in Singapore here and Hong Kong here).

A COMPLEX AND EVOLVING CHALLENGE

There is no harmonised approach to tackling sustainability challenges. Whilst general objectives may be clear, determining the correct manner and pace by which an institution should tackle the various societal and environmental problems posed is complex and subject to debate and challenge. Such disagreement has set the scene for greenwashing allegations with looming greenhouse gas related targets and pledges likely to accelerate the trend.

INCREASED AVENUES FOR REGULATORY ACTION AND LITIGATION

In recent years, there has been a rapid uptake in ESG-related legislation by legislators across the globe imposing a wide variety of obligations and duties on organisations. This has increased the number of avenues open to regulators and prospective litigants to take action and bring claims against organisations in respect of their ESG-related disclosures (please read our articles on ESG-related litigation here, here and here).

INCONSISTENT DEFINITIONS

The lack of a harmonised definition of what constitutes 'green' or 'sustainable' means that it can be difficult for organisations to establish whether or not they are 'greenwashing'. What is considered to be a 'greenwashed' claim will vary between regulators in different jurisdictions, further adding to the complexity for organisations attempting to publicly state their environmental credentials. For example, the US Federal Trade Commission ("FTC") has not updated its influential "Green Guides" since 2012, and announced in December 2022 that it was considering amending that guidance to address claims related to carbon offsets, energy-use claims, and claims that products are "recyclable," "organic," "sustainable," "compostable," "degradable," and "ozone-friendly" (please read our article on the FTC's December 2022 announcement here).

DATA NOT AVAILABLE, COMPARABLE OR CONSISTENT

ESG-related data can be difficult to measure and obtain, given that it is often comprised of a mix of quantitative and qualitative data. Combined with a lack of sophisticated benchmarks as to what 'market standards' are, it can be difficult for organisations to ensure that socio-environmental claims are properly validated, or validated in a way that is fit for purpose from all perspectives. Products and services are, therefore, open to being marketed as 'sustainable' in a way that some stakeholders may argue is inappropriate.

INCONSISTENT ESG-RELATED KNOWLEDGE AND CAPABILITIES

Organisations may have a lack of (or lack of consistent) ESG-related knowledge and capabilities. This presents difficulties for organisations when they are attempting to make, and validate, socioenvironmental claims, as expertise on ESG 'market standards' and regulatory compliance can be difficult to obtain. There is also a significant cost element of getting appropriate ESG-related advice from consultants and advisors in multiple jurisdictions.

Click here to continue reading . . .

Visit us at mayerbrown.com

Mayer Brown is a global services provider comprising associated legal practices that are separate entities, including Mayer Brown LLP (Illinois, USA), Mayer Brown International LLP (England & Wales), Mayer Brown (a Hong Kong partnership) and Tauil & Chequer Advogados (a Brazilian law partnership) and non-legal service providers, which provide consultancy services (collectively, the "Mayer Brown Practices"). The Mayer Brown Practices are established in various jurisdictions and may be a legal person or a partnership. PK Wong & Nair LLC ("PKWN") is the constituent Singapore law practice of our licensed joint law venture in Singapore, Mayer Brown PK Wong & Nair Pte. Ltd. Details of the individual Mayer Brown Practices and PKWN can be found in the Legal Notices section of our website. "Mayer Brown" and the Mayer Brown logo are the trademarks of Mayer Brown.

© Copyright 2023. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.