Greenwashing: Exploring the risks of misleading environmental … – Lexology

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Across several jurisdictions, eco-advertising and green marketing campaigns have become commonplace among businesses of all sizes and in all sectors. Understandably, advertising the environmentally-friendly attributes of a product or service – through slogans, trademarks, performance claims or various other marketing practices – appeals to consumers' growing concerns for the environment and calls for companies to 'go green'.
However, positioning products and services as having environmental benefits that don't actually exist can raise myriad legal and reputational concerns. False, misleading, overstated or unsubstantiated environmental advertising (often referred to as 'greenwashing') is largely prohibited under laws and standards that regulate areas of consumer protection and advertising. Marketing a product as 'eco-friendly', 'safe for the environment', or using other descriptors that highlight environmental attributes or benefits that are vague, exaggerated, deceiving, result in misinterpretations or cannot be substantiated can lead to legal consequences. As such, regulators are taking a much tougher stance on greenwashing than ever before.
The following article explores the regulation of greenwashing in China, Canada, France, Singapore and the UK as well as regulators' approach to greenwashing within these jurisdictions. It also offers a number of practical tips on what to avoid when looking to attract environmentally conscious consumers.
Regulation of greenwashing
In terms of legislation, China has not enacted a specialised law to regulate the marketing activities of greenwashing, but has regulated the above mentioned acts through its advertising law, consumer protection law, trademark law and anti-unfair competition law.
Advertising law
For example, China's advertising law stipulates that advertisements shall not contain false content, and shall not deceive and mislead consumers; alongside this, 'anti-unfair competition law' stipulates that operators shall not use advertisement or other means to position a product/service in a way that is misleading or false when it comes to depicting the quality, production ingredients, performance, use, type of producer, expiration date, place of origin, etc..
An advertisement is considered 'false' if it falls within any of the following circumstances:
Therefore, even though there are not explicit articles on the prohibition of greenwashing, there is still great emphasis put on the honest and truthful advertising of products and/or services, which encompasses the environmental aspect of false advertising.
Trademark law
There is no clear definition of green trademarks in China's current trademark law. The 'green trademarks' that are widely recognised by the market and consumers mainly refer to certification trademarks and collective trademarks, which primarily focus on environmental protection marks and geographical indications; such as the green food mark, the green food production materials certification mark and the organic food mark, etc.
Although the relevant provisions on geographical indications in the Measures for the Registration and Administration of Collective Trademarks and Certification Marks do not directly mention words such as green and environmental protection, the possible acts of greenwashing marketing by the operators are dealt with by this regulation. The regulation, for example, sets out the categories of geographical indications when registered as trademarks, and also specifies the particular matters to be indicated at the time of registration. These matters are mainly some factors closely related to geographical indications; such as regional scope, reputation, quality, natural and human factors and other characteristics, etc.
Greenwashing in the financial sector
In the financial sector, 'greenwashing' refers to companies that obtain green financing under the guise of developing green projects, but are actually engaged in 'non-green' or even high-carbon, high-polluting projects.
In response to this situation, the financial supervision authorities at the national level have not yet issued specific guidance, but the local China Banking and Insurance Regulatory Commission of Jiang Su office put forward guidance on vigorously developing green finance in 2021. The guidance clearly indicates that the local government actively promotes banking and insurance institutions to improve the assessment system of green financial organisations, and supports banking financial institutions to establish green finance. The guidance also requires financial institutions to strictly manage risk control before investing and lending, in accordance with national and local green standards to prevent the risk of 'greenwashing' projects.
In February 2022, the People's Bank of China and other departments jointly issued the '14th Five-Year Plan for the Development of Financial Standardisation', which focuses on the need to improve the green financial standard system.
The unification of green financial standards will go a long way towards avoiding the emergence of green projects that are artificially designed and packaged to meet green standards but are not fully green in nature. It will also facilitate financial institutions, green funds and other investment institutions in providing financing for truly green enterprises or green products.
In addition, the establishment of a green project bank will reduce the cost and risk of matching green projects with green funds from banks, in turn helping social capital to flow more to truly green sectors.
The green financial standards also impose disclosure requirements on companies and ensure that the principle of responsibility and ESG information is incorporated within the scope of environmental information disclosure.
In September 2021, the Competition and Markets Authority (CMA) published its Green Claims Code (Code) and accompanying guidance. The purpose of this Code and guidance is to help businesses understand and comply with their responsibilities under existing consumer protection law when making environmental claims.
Publication of the Code and guidance followed a review of hundreds of websites and the 'green' claims made on those websites. The results of the audit were startling, with the CMA finding that four out of 10 'green' claims made online could be misleading consumers. The CMA found vague claims and unclear language such as 'eco' and 'sustainable'; it found that businesses were hiding or omitting information and saw that, in some cases, brands were making up their own logos, which looked like some kind of third-party verification of their ecological credentials. The CMA's concerns with these practices led to the introduction of the Code.
The Code sets out six principles specifying that environmental claims must:
These are practical principles that should help businesses make more compliant environmental claims across all media formats.
The new Code does not prevent businesses from making truthful environmental claims, but is aimed at letting brands who can tell substantiated green stories do so without being drowned out by others who make claims without a basis.
The Code and guidance is not new law. Rather, it flows from the underlying UK consumer protection laws under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and Business Protection from Misleading Marketing Regulations 2008 (BPRs). The contents of the Code and guidance is also in keeping with the Advertising Standards Authority (ASA)'s rules[1] around green claims.
In Canada, the federal Competition Act, Textile Labelling Act, and Consumer Packaging and Labelling Act contain prohibitions against making false or misleading representations. The Competition Act also prohibits representations of the performance, efficacy or length of life of a product that are not based on adequate and proper testing. Similarly, Canada's Trademarks Act carries a prohibition against making materially false and misleading statements about the character, quality, quantity, composition, geographical origin or mode of manufacture, production or performance of goods or services.
The Canadian Code of Advertising Standards, which is published and regulated by Canada's main advertising industry self-regulating body, Ad Standards, also contains relevant prohibitions. Under the Ad Standards Code, advertisements must not contain inaccurate, deceptive or otherwise misleading claims, statements, illustrations or representations, and all representations must be supported by competent and reliable evidence.
The Competition Bureau, which enforces the Competition Act, Textile Labelling Act, and Consumer Packaging and Labelling Act, has published guidelines regarding the direct application of these laws to greenwashing and the risks of making false, misleading and unsubstantiated environmental claims in Canada. Generally, claims highlighting environmental attributes or benefits that are vague, exaggerated, deceiving, result in misinterpretations or that cannot be substantiated, risk violating Canadian law. Of note, the Competition Bureau recently archived a comprehensive environmental claims guideline on its website, stating that it does not reflect the latest standards and evolving environmental concerns. As such, not only is it important that 'green' marketers in Canada ensure that all environmental claims are true and appropriately supported, but also that they are aligned with up to date standards and guidance.
Increasingly, countries around the world, including Singapore, are introducing safeguards to combat greenwashing. General laws in Singapore which have relevance to the issue include the following:
However, laws and regulations in Singapore do not explicitly cover greenwashing. Thus, the burden is often on consumers to determine what constitutes greenwashing. That said, it is often difficult to prove that certain acts constitute unfair business practices, or to prove that damage has occurred from misrepresentation due to greenwashing. There may be a need to update and clarify the existing laws and regulations in Singapore to protect consumers and help businesses to avoid greenwashing.
In the finance realm, the greenwashing of environmental, social, and governance (ESG) investment products to attract investments is becoming an issue of concern. Various organizations are working on regulations and standards to curb it, as detailed below:
In France, different legal mechanisms regulate greenwashing marketing.
The Consumer Code provides for a general provision prohibiting misleading commercial practices, including misleading advertising. This is most commonly based on false allegations and misleading information as to the essential characteristics of a good or a service, including those comprising greenwashing marketing.
The Climate and Resilience Law was also recently enacted, adding a specific provision according to which the misrepresentation of "the scope of the advertiser's commitments, in particular with respect to the environment, the nature, the process or the reason for the sale or the provision of services" can qualify as a misleading practice.
Violation of such provisions is punishable by imprisonment of up to two years and a fine of €300,000.
The law also provides for a name and shame mechanism through which a Court may order that its decision be communicated to the public by any means.
The Climate and Resilience Law also requires the Audiovisual and Digital Communication Regulatory Authority (Autorité de Régulation de la Communication Audiovisuelle et Numérique) to promote codes of conduct called 'climate contracts' to forbid commercial communications that favourably present the environmental impact of goods or services that actually have a negative effect on the environment.
These climate contracts are entered into with different advertising actors and contain five clauses relating to:
Moreover, under the French Environmental Code, the affirmation, in an advertisement, that a good or a service is carbon neutral or the use of any formulation of equivalent signification or scope is prohibited, unless the advertiser makes information on greenhouse gas emissions easily available.
The violation of such provision is punishable by a fine of €20,000 for natural persons and €100,000 for legal persons.
Regulators' approach to greenwashing
The AMRs
The administrative agency responsible for supervising the acts of unfair competition and false advertising is the local AMR (Administration for Market Regulation). The AMR has jurisdiction to take action against parties violating the country's advertising law and anti-unfair competition law, to eliminate the impact within the corresponding scope, grant quasi-injunctions and impose fines. There have been a considerable number of enforcement cases of misrepresentation of 'environmental protection', 'green', etc. by the local AMR in various regions.
The Courts
In judicial practice, we generally see Chinese courts rule on the relevant 'greenwashing' acts on the basis of the anti-unfair competition law and consumer protection law. For example, there are published judgments showing that companies – in order to cater to consumers' demand for green building materials and environmentally-friendly furniture – illegally posted the certification mark of China Environmental Labelling Products on products that had not been certified by authoritative environmental protection institutions.
There have also been cases where companies have used 'green' or environmental concepts on their goods or services that are determined as not clearly defined or too broad, leading the general public and consumers to misunderstand the true meaning of the term or ignore its essential attributes. For example, food products or cosmetics claimed to be 'all natural', where in fact 'all natural' is not necessarily equivalent to 'green', as there are many natural substances that may be harmful to the human body or the environment. Over-advertising the 'all-natural' attributes of a product might, in such circumstances, mislead consumers into ignoring the product's other attributes.
In these cases, we see the defendants' greenwashing acts being negatively evaluated by the courts – leading to an order to stop the infringing acts and pay damages.
On 17 February 2023, China's Supreme People's Court (the SPC) issued a guiding document (judicial interpretation) on the hearing of cases concerning carbon emissions. This document is named 'Opinions of the Supreme People's Court on the Complete and Accurate Comprehensive Implementation of the New Development Concept and the Provision of Judicial Services for the Active and Steady Promotion of Peak Carbon Dioxide Emissions and Carbon Neutrality (the Opinion)', and is said to provide specific guidance on 17 categories of cases involving carbon emissions.
Among the provisions, the ones below set out strict carbon emission information disclosure and reporting obligations for enterprises, with the ultimate aim of promoting green development, effectively protecting the legitimate rights and interests of investors, and encouraging more capital and institutions to participate in climate investment and financing.
Article 5: "Dispute cases concerning the disclosure of environmental information by enterprises shall be handled in accordance with the law. Enterprises are encouraged to take the initiative to adapt to the requirements of green and low-carbon development, strengthen environmental responsibility awareness, and disclose environmental information in a timely, truthful, accurate and complete manner in accordance with law. If an investor files a lawsuit claiming damages on the grounds that he has suffered losses due to the failure of listed companies and debt-issuing enterprises to disclose, in accordance with the management requirements for corporate environmental information disclosure, carbon emission information on corporate carbon emissions, emission facilities, etc., information on the forms, amounts, investment, etc. of annual financing as well as information on financing investment projects in response to climate change, ecological environmental protection, etc., and if this is in accordance with the provisions of the law, the court shall determine that listed companies and bond-issuing companies shall bear the corresponding infringement liability, so as to ensure that funds are invested in climate-friendly green low-carbon projects, the legitimate rights and interests of investors are effectively protected, and a fair and just climate investment and financing market order is maintained."
Article 17: "Cases involving disputes over greenhouse gas emission reports shall be handled in accordance with the law. Where a major greenhouse gas emitting unit refuses to fulfil its obligation to report greenhouse gas emissions or falsifies, fabricates, conceals or omits greenhouse gas emission data, the administrative organ's administrative penalties on such unit shall be supported in accordance with law. Where a technical service organisation maliciously conspires with a major greenhouse gas emitting unit to falsify, fabricate, conceal or omit greenhouse gas emission data, thereby causing damage to others, and the victim's claim for infringement damages shall be supported in accordance with the law; and where a crime is committed, it shall be investigated for criminal liability in accordance with the law."
In addition, the SPC published the Opinions together with 11 typical cases, including a case involving the offence of damaging computer information systems. In this case, the defendants interfered with the sampling of the computer system, which was installed in the company, for monitoring the quality of the environment. The defendants destroyed and tampered with/ falsified environmental monitoring data and altered parameters, with the aim of affecting the effective monitoring of exceeding gaseous pollutants by the environmental supervision authorities.
Undoubtedly, the Code and the CMA's approach to environmental claims will influence other UK regulators as to when and where they choose to take enforcement action. If a business does not follow the Code principles, then it is more likely to be the subject of action from the CMA, as well as Trading Standards, sector-specific regulators and/or the ASA.
The CMA and Trading Standards have broad enforcement powers in relation to the underlying consumer law and, on top of that, the UK government is also consulting on potential additional powers for the CMA, which may include the power to levy fines without pursuing a business through the courts.
The ASA can take action against misleading advertisements and businesses could face legal action from consumers themselves for breaches of consumer protection law.
We have not yet seen regulatory action from the CMA since the introduction of the Code, but the ASA in particular has been active in this area over the past couple of years, and notably since the beginning of 2022 (when the Code took effect). Recently, the ASA has considered the following complaints about environmental claims:
The ASA has also published specific guidance on misleading environmental claims and social responsibility in December 2021[5] and are enquiring into the use of green claims in different sectors (including aviation, heating/energy, automotive, waste and animal-based food). In particular, the ASA has made it know it will be conducting research into consumer understanding of 'carbon neutral' and 'net zero' claims – claims made that touch on heating/energy and transport, waste claims (e.g. recyclable/recycling, biodegradable/compostable and 'plastic alternative' claims) as well as meat-based, dairy and other forms of food sustainability issues.
Canada's Competition Bureau actively investigates environmental claims and enforces the rules against making representations that are false, misleading or not based on adequate and proper testing. In a recent news release, the Competition Bureau noted that, along with an increase in 'green' products, there has been an increase false, misleading or unsupported environmental claims that are illegal in Canada. The release encourages consumers who believe that a business may have made a false, misleading or unsupported environmental claim to report it to the Competition Bureau.
Notable examples of the Competition Bureau's enforcement of greenwashing in Canada include a recent $3 million penalty imposed as part of a settlement agreement reached with a company found to have made false or misleading recycling claims in respect of consumer goods, as well as a $15 million penalty imposed as part of a settlement agreement regarding (among other practices at issue) misleading marketing and advertising of vehicles as green and environmentally friendly.
Ad Standards also administers complaint procedures for inaccurate, deceptive or otherwise misleading environmental representations. Consumers and competitors can submit complaints to Ad Standards, which, if accepted, are managed in accordance with the Ad Standards Consumer Complaint Procedure or Advertising Dispute Procedure, respectively. Ad Standards' decisions regarding prohibited greenwashing may result in a request to amend or withdraw the offending advertising, as well as a published summary of the decision (which under certain circumstances may identify advertiser).
Greenwashing is an evolving area of regulation in Canada, with potential risks involving substantial penalties and reputational harm. Businesses must be careful to ensure their practices are not offside the applicable legislation and guidelines when marketing their products or services in Canadian jurisdictions.
Greenwashing, the act of making false or misleading claims about the environmental benefits of products or services, is not a new phenomenon in Singapore.
One recent, high-profile example involves the Alliance to End Plastic Waste (AEPW), a Singapore-based not-for-profit organization. In 2019, AEPW claimed to be spending $1.5B USD on cleaning up plastic waste in developing countries. However, a Reuters investigation in 2021 discovered that one of its flagship initiatives, Renew Oceans, failed to dredge the Ganges river in India of substantial plastic waste, despite publishing targets on its website to collect 45 tonnes of plastic trash from the river in 2019 and 450 tonnes in 2020. In addition, AEPW and the large oil and chemical companies backing it were allegedly planning to ramp-up plastic production. According to a report from Belgian-Dutch NGO Recycling Netwerk (CRCT) in 2019, many of the 28 members forming the alliance, including major companies had scheduled future billion-dollar investments in the expansion of plastic production.
Greenpeace has called AEPW an industry scam designed to allow for endless plastic production. AEPW responded to the criticism by explaining that Renew Oceans' termination occurred due to complications caused by COVID-19. It also published an article, 'Why proper waste management is more important than going plastic-free', to argue against means of reducing plastic production. These claims themselves received further criticism for being unfounded, for example an ocean clean-up organisation commented that "(the article) made AEPW seem like a plastic industry lobby group'.
Although laws to combat greenwashing in Singapore may not be perfect at this stage, the country is working towards various measures to curb the practice and help consumers to rebuild trust. Sellers should aim to follow widely-accepted best practices to ensure their company is not greenwashing, such as making clear, easy to understand claims, backing up those claim with data, using honest statements about practices and plans, and avoiding misleading images on ads and packages. It is also advisable to follow Singapore-specific regulations, such as the disclosure requirements by MAS.
In France, there is very little case law with respect to greenwashing marketing. Nonetheless, some advertisers have been sued and condemned for greenwashing before French Courts:
Beyond legal sanctions, the Advertising Ethics Board (Jury Déontologique de la Publicité) is also equipped to issue opinions on the compliance of an advertisement. The Board reviews complaints from natural or legal persons, and issues an opinion which can be used as evidence in a litigation:
Practical tips
When looking to produce and use ads, slogans, logos or packaging that highlights the environmental attributes of a product or service, the following tips should be kept in mind to help avoid accusations of greenwashing and associated legal and reputational risks:
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