In an era where environmental awareness is at its zenith, consumers and investors are increasingly scrutinizing the sustainability claims made by businesses. With the rise in “greenwashing” – the deceptive practice of presenting a misleadingly positive image of a product’s or company’s environmental impact – governments worldwide are stepping up to protect consumers and ensure transparent practices in the marketplace. In this article, we’ll explore the existing greenwashing laws and regulations, as well as upcoming legislation set to redefine the corporate sustainability landscape.
Greenwashing Laws in Effect
European Union:
The European Union has been at the forefront of combating greenwashing. One of its foundational regulations is the Unfair Commercial Practices Directive (UCPD). This directive, in force since 2007, explicitly prohibits misleading or deceptive commercial practices, including those that involve false environmental claims. It sets a clear standard for businesses operating within the EU, emphasizing the importance of truthfulness and accuracy in environmental marketing.
Additionally, the EU has enacted the Taxonomy Regulation. Effective since July 2021, this regulation establishes a robust classification system for sustainable economic activities. It aims to create a common language for identifying environmentally sustainable investments, further discouraging deceptive practices.
Another significant piece of EU legislation is the Sustainable Finance Disclosure Regulation (SFDR). This regulation obliges financial institutions to disclose how they incorporate sustainability risks and factors into their investment decisions. It bolsters transparency in the financial sector and encourages responsible investments.
Finally the European Union has just approved a ban on greenwashing under the Empowering Consumers for the Green Transition Directive which will come into effect in 2026.
United Kingdom:
In the United Kingdom, the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) serves as a vital legal instrument against greenwashing. Similar to the UCPD, the CPRs prohibit misleading or deceptive commercial practices, encompassing environmental claims. They provide a solid framework for businesses to ensure their marketing practices align with ethical standards.
The UK has also introduced the Green Claims Code, which offers guidance on making environmental claims that are clear, accurate, and not misleading. This code reinforces the importance of transparency and ethical communication in sustainability marketing. Meanwhile the FCA has recently announced it’s new anti-greenwashing rule.
APAC:
Greenwashing regulations in Asia Pacific are still in their early stages of development, but a number of countries and jurisdictions have taken steps to address the issue.
Australia: The Australian Competition and Consumer Commission (ACCC) has taken a strong stance on greenwashing, making it a top enforcement priority for 2022-23. The ACCC has the power to issue fines and take other enforcement action against companies that make false or misleading environmental claims.
Hong Kong: The Securities and Futures Commission (SFC) of Hong Kong has issued guidance on environmental, social, and governance (ESG) reporting for listed companies. The guidance includes specific requirements for companies that make environmental claims.
Singapore: The Monetary Authority of Singapore (MAS) has issued guidelines on environmental risk management for banks and finance companies. The MAS is also planning to require asset managers to make climate-related financial disclosures align with the International Sustainability Standards Board (ISSB).
Greenwashing Laws on the Horizon
United States:
SEC Climate Risk and Emissions Disclosure Rules (Expected in 2024)
The United States is taking substantial steps towards addressing greenwashing. The U.S. Securities and Exchange Commission (SEC) is currently finalizing new rules that will require public companies to disclose comprehensive information about their climate risks and greenhouse gas emissions. These rules are anticipated to come into effect in 2024, marking a significant shift towards transparency in corporate sustainability reporting.
One of the new rules to be adopted requires that 80% of a fund’s portfolio matches the asset advertised by its name, aiming to promote truth in advertising and fund integrity. The rule aims to prevent fund names from misrepresenting their investments and risks, particularly in the context of ESG funds. Meanwhile, the US Treasury has also released “Principles for Net-Zero Financing & Investment“, aimed at establishing a set of best practices and promoting consistency and credibility for private sector financial institutions in making and pursuing net zero commitments.
Canada:
CSA Climate-Related Disclosure Rules (Expected in 2024)
Canada is following a similar trajectory to the United States. The Canadian Securities Administrators (CSA) is in the process of developing new rules on climate-related disclosure for public companies. These regulations, projected to be enacted in 2024, will mandate companies to disclose their climate-related risks and strategies. This move underscores the global trend towards increased transparency in sustainability reporting.
APAC:
China: China is currently developing a national greenwashing regulation. The draft regulation is expected to be published for public consultation in late 2023.
South Korea: South Korea has passed a law that would fine firms for false or exaggerated green claims. The law is expected to come into effect in 2024.
Malaysia: The Securities Commission of Malaysia has proposed a set of ESG disclosure requirements for listed companies. The proposed requirements include specific requirements for environmental claims.
In addition to these country-specific regulations, a number of regional and international bodies are also developing greenwashing standards and guidelines. For example, the Asia Securities Industry & Financial Markets Association (ASIFMA) has published a set of ESG reporting guidelines for its members.
International Initiatives and Standardization
Beyond national regulations, international initiatives are shaping the landscape of greenwashing laws. The International Organization of Securities Commissions (IOSCO) has released a set of recommendations for regulating products and services related to ESG factors. These recommendations aim to establish global standards for ESG-related disclosures, promoting consistency and reliability in sustainability reporting.
The Evolution of Greenwashing Laws
The proliferation of greenwashing laws and regulations reflects the growing awareness of the need for transparency and accuracy in sustainability marketing. Businesses across the globe must stay informed about these evolving legal frameworks to ensure compliance. Moreover, they should view these regulations not just as legal obligations but as opportunities to foster trust with consumers and investors by demonstrating genuine commitment to environmental responsibility.
In this dynamic regulatory landscape, businesses should consult with legal counsel and invest in robust sustainability reporting and verification mechanisms. By embracing ethical and transparent practices, companies can not only avoid legal pitfalls but also contribute to a more sustainable and trustworthy marketplace, ultimately benefiting both the environment and their own reputations. As greenwashing laws continue to evolve, the path forward is clear: truthfulness, transparency, and accountability in sustainability claims are no longer optional but imperative.
