Introduction to Greenwashing

Whether it is a reusable water bottle claiming to save the oceans or a chocolate bar promising to support farmers in developing countries, corporates strategically market products as solutions to global issues or as contributors to a better world. Labels are creatively designed to create narrative that appeals to the consumer’s desire to make a positive difference; This is called ‘Greenwashing’.

To simplify further, Greenwashing is the act of misrepresentation about a service or a product by putting on an eco-friendly cape to camouflage into the sustainable economy.

The Hero’s Syndrome

Greenwashing can also be seen as an exaggeration of a consumer’s or potential consumer’s aspirations and even making false claims primarily to capitalize on the ‘Hero’s Syndrome’.

Having a closer look at this interesting psychological fact, the scientists and anthropologists claim that humans secretly garner the need to do good deeds and perceive the positive impact that also gives rise to the ‘Feel Good Factor’ further giving rise to the urge to repetitively feel the same way.

Hero’s Syndrome, a powerful tool in the hands of marketers, can be a double-edged sword for the companies, used against consumers. While it may also look like greenwashing, Corporates might also be making an honest mistake in the absence of clear guidelines, and expert guidance on the subject matter as well, therefore, developing a clear understanding of the landscape seems most pertinent at this hour.

Legal Framework & Regulatory Landscape in India

Greenwashing gained more attention in India after SEBI released a circular¹ addressing green-debt securities. SEBI defined Greenwashing as “making false, misleading, unsubstantiated, or otherwise incomplete claims about the sustainability of a product, service, or business operation”. Though there is still an absence of strict provisions against Greenwashing practices, there are provisions to curb the menace through indirect channels discussed further. Section 2(9)(ii) of the Consumer Protection Act, 2019 (CPA), empowers the consumers with the right to be informed about the quality, quantity, potency, purity, standard and price of goods, products, or services, as the case may be, to protect them from Unfair Trade Practices as defined under Section 2(47) of the Act.

Further, the Central Consumer Protection Authority (CCPA) in furtherance of its powers conferred by section 18 of the CPA issued “Guidelines for Misleading Advertisements and Endorsements for Misleading Advertisements,” in 2022, barring all misleading and false advertisements regardless of form, format or medium by manufacturers, service providers or traders whose goods, products or services are the subject of such advertisements, or by advertising agencies or endorsers whose services are availed for the advertisement of such goods, products or services. The guidelines primarily lay down conditions for non-misleading & valid advertisements, duties of manufacturers, service providers, advertisers and agencies and set out conditions for disclaimers in advertisements. Advertisements that falsely claim environmental benefits or sustainability features could be considered misleading under these guidelines.

In another attempt to directly address Greenwashing, CCPA recently concluded its third meeting on preparing guidelines for “Prevention of Greenwashing by Companies²” with a view to protect Consumer Interest. These Guidelines require all advertisements or service provider, product seller, advertiser, or an advertising agency or endorser whose service is availed for the advertisement of such goods or services, to make various disclosures. As per the guidelines, Companies will be required to disclose accurate claims backed by verifiable evidence and will be bound to provide relevant material information related to such claims. The guidelines shall serve as clarifications for stakeholders, and any violations of the provisions of the Consumer Protection Act, 2019, shall be subject to the existing regulations under the same Act. Apart from CPA, the Companies Act, 2013 also indirectly addresses Greenwashing practices through Section 34 wherein criminal liability under Section 447 is imposed on persons who authorize inclusion of false or misleading statements in the offer document for raising funds.

To strengthen the anti-greenwashing framework, the Advertising Standards Council of India (ASCI) has also proposed draft guidelines³ on Environmental/Green Claims earlier in November 2023. These guidelines state that terms such as “environmentally friendly,” “eco-friendly,” “sustainable,” and “planet-friendly,” suggesting that the promoted product has minimal or positive environmental effects, should be backed by substantial evidence.

These draft guidelines stand as a stick against Greenwashing practices, ASCI has been a watchdog for monitoring and regulating the advertisement content in the country before the introduction of these guidelines. It had imposed a hefty penalty of Rs.5 lakh on Godrej Industries for making false and misleading claims about its Good Knight Fast Card mosquito repellent. Contrary to the facts, the company had claimed that the product was “100% natural” and “chemical-free”. In another case in 2015, ASCI accused Godrej Consumer Products Limited for making false claims that its Godrej No.1 soap was “100% natural”, “biodegradable”, and “eco-friendly”, though it contained synthetic ingredients. Godrej was fined Rs. 15 lakhs by the ASCI.

Reputational & Financial Repercussions

In the global corporate ecosystem, there is a growing concern for environmental issues and sustainability which has resulted in many companies incorporating green initiatives into their regime.

Brands with a stellar brand reputation, also got entrapped in the garb of greenwashing and repercussions that followed thereon. One of the most outrageous cases of Greenwashing “Diesel gate” involved the German automotive giant Volkswagen following which it was labelled as an ‘Emissions Cheater’ & ‘Diesel Dupe’. To push its sales, Volkswagen ran a marketing campaign highting its cars’ low emission. Upon inspection, US Environmental Protection Agency (EPA) found out that the company has installed software in their diesel-powered cars which made it possible for vehicles to cheat on EPA emissions tests. The vehicles’ real-world Nitrogen Oxide (NOX) emissions were 40 times higher than U.S. standards permitted. This Greenwashing attempt had deep repercussions as it tainted the brand’s image, lead to recall of approximately 8.5m cars in Europe, 1.2m cars in UK and 5,00,000 cars in the US, the company had to pay $14.7B as fine and thereon saw a sharp sink in its sales across the world.

In some of the other such cases, HSBC had pledged to reach net-zero emissions by 2023, however, it was reported by The Guardian that it had approved almost 58 transactions of fossil fuel developers worth 12 billion, leading to declaring exaggerated claims. Similarly, E-com giant Amazon was found to be Greenwashing its operations through its “Aware” range which made huge ecofriendly claims being wrapped in single-use plastics.

In a study⁴ published in the “Australasian Accounting, Business and Finance Journal” (AABFJ), 54% companies out of the 48 companies in NIFTY 50, index of National Stock Exchange of India Ltd, were identified as “Greenwashers”. This study not only brought out the Greenwashing culture going on in the country but also highlighted the dire need to have Anti-Greenwashing laws across corporates.

Global developments to curb Greenwashing

As per a report⁵ released by RepRisk in 2022, one in every four climate-related ESG risk incidents was tied to greenwashing and there was a 70% increase in the number of climate-related greenwashing incidents.

Though the United States does not have a specific federal law dedicated to Greenwashing, the Federal Trade Commission (FTC) had issued “Green Guides”⁶ in 2012 which provides guidelines and recommendations to companies on truthful and non-deceptive environmental claims. These guidelines prohibit companies from using claims like “eco-friendly” or “green” without any supportive evidence.

Similarly, the Australian Competition and Consumer Commission (ACCC) issued a guide in December 2023 for businesses on “Making Environmental Claims”⁷. This guidance is based on 8 principles for trustworthy environmental claims which are based on the obligation of Companies to not make false or misleading representations or engage in deceptive conduct as per the Schedule 2 of the Competition and Consumer Act 2010.

The UK Advertising Standards Authority (ASA) has reprimanded various Corporates for their misleading advertisements. Shell’s “green” campaign was banned in the UK after the ASA condemned the misleading claims and expressed its zero-tolerance for Greenwashing in the UK. Airline moguls Air France, Lufthansa & Etihad also came under ASA’s radar for misleading and greenwashed campaigns.