ESG for Lawyers

If you are a GC or part of a legal team, should greenwashing be a concern for you? Yes absolutely.

Most countries handle greenwashing in a piecemeal way and this is unlikely to go away, because of the complexity and wide ranging nature of greenwashing. Sometimes, a greenwashing claim can be challenged under false advertising, sometimes it is possible to challenge an offending claim under regulations from a national Securities authority. This means that it is not a check the box approach either and must really be adapted to the industry and company you are in. In this series of posts, I will delve deeper in to some of the exciting legal developments that are happening in major jurisdictions across the world.

Get involved now, or sooner or later the dragon will bolt and something nasty will land up at your desk.

First, let us look at what is greenwashing

Greenwashing is a misrepresentation or overrepresentation of the green credentials (environmental, sustainability, or other ethical considerations) of a financial product, services, or goods. There can be greenwashing claims applied to financial products, consumer goods like clothing or food, materials like cement, services like flying. The list is endless and applicable to nearly everything we might use or need in our lifetimes.

This complexity makes managing greenwashing so difficult.

What is the problem with greenwashing?

The problem with greenwashing is no different from the usual problems with misinformation for other products. The rise of conscious consumer leads to increased demand for products that are more “sustainable” or “greener”. For some consumers, this might mean a carbon neutral shampoo , for some it can be cruelty free clothing, for some it means investment vehicles that will not invest in certain sectors like coal or weapons.

If you take a walk down a supermarket aisle or at the high street clothing retailers, you will also notice that most (if not all) of these “greener” products command a substantial higher price. So there is a major financial incentive on part of the companies to claim something is greener than other product.

Then there is the all-round confusion as to what actual impacts of things are. Is linen better than sustainable cotton? The answer is, we don’t fully know. There are too many parameters to give a clear answer.

Why is greenwashing so widespread now?

We are in the perfect storm right now which is a combination of several factors:

a. While consumers are willing to pay more, they mostly do not have the interest of delving deeper.

b. Even if they delve deeper, they sometimes end up more confused due to extremely complex supply chain logistics and by simply not having access to actual information.

c. The company is the gatekeeper of truth.

d. There is money to be made.

Changing Markets Foundation looked at high-street retailers’ sustainability claims and found that 96% of the claims of H&M in 2021 were not holding up to scrutiny! If you want some real ridiculous examples, check here and if you have some examples, I would love to know more.

Compliance Risks

What are the big risks that stem from greenwashing and why greenwashing compliance management should go through the in-house legal team.

a. Uncertainty. Greenwashing is being fought from various angles, interpreting existing legislations in a new way for litigations, evolving legislation which by their very nature and purpose are left broad and open to interpretation, and evolving case laws among others. Because of the legal uncertainty, the in-house legal team is best placed to navigate the compliance needs to avoid greenwashing.

b. Litigation Risks. A large part of the greenwashing risks is driven by litigation. An in-house legal team is in the best place to anticipate how a communication can be challenged as greenwashing and measures that can mitigate such risks before the communication is made to general public.

c. Reputational Risks. Greenwashing litigation and administrative actions carry a major reputation risk for the company. Failing to comply with the requirements of the green washing laws and legislations in a country can have severe consequences for a company’s reputation.

Stay in the know,

Samarpita