KPMG Greenwashing Survey (2024): Western Countries Leading Policy Efforts
The 2024 KPMG Global greenwashing survey was just released. It summarizes greenwashing accusations and regulations across 25 countries. This included a look at Australia, Austria, Belgium, Brazil, Canada, Chile, Colombia, Finland, France, Germany, Indonesia, Ireland, Italy, Malaysia, Mexico, Netherlands, Norway, Romania, Singapore, South Africa, Spain, Taiwan, Thailand, United Kingdom. and United States.
The report states that the policy landscape remains immature but is growing. ESG risk incidents linked to misleading communication on climate change, GHG emissions, and global pollution were highest among the oil and gas (19%), banking (15%), and airline industries (10%). Across the board the intensity of greenwashing cases is increasing, especially across western regions. Fortunately these countries are also leading the way to develop anti-greenwashing policies, even is some states are pushing back.
However, the inconsistency and complexity of frameworks and standards, including the Global Reporting Initiative (GRI) standards, the ESRS, the EU Taxonomy for Sustainable Activities, and the International Sustainability Reporting Standards (ISSB) of the IFRS Foundation, may further exacerbate the challenge.
On the flip side, 40% of EU Green Claims were found to be “completely unsubstantiated” and 53% of EU Green Claims were found to be “vague, misleading or unfounded.
Finally, a 2023 study carried out by KPMG in the UK found that 50% of consumers are willing to pay more for sustainable products.
This leaves corporations, policymakers, and consumers in the dark about how these risks will be evaluated and may lead to continued greenhushing. For corporates that do engage in greenwashing, they will face the risk of reputational damage, loss of consumer confidence, the imposition of financial penalties or behavioural remedies, as well as potential private litigation.
As sustainability becomes a strategic priority to gain a competitive edge, some companies may be incentivized to engage in borderline deceptive practice.
Source: KPMG, 2024
Rise in Government Greenwashing Policies
There is no homogeneous legal definition of greenwashing. Most of the governments surveyed lack a specific legal definition or regulatory framework to address greenwashing. Instead, they rely on general consumer protection regulations or anticompetitive rules, which typically require information to be true, clear, and substantiated.
European Union
The EU has taken greenwashing seriously and continues to move policies forward. This is critical because member states will ultimately have to translate and implement these policies. For example, no specific anti-greenwashing laws in Austria, Belgium, France, Finland, Ireland, Italy, Romania, Spain, and Norway.
European Union Green Claims Directive (2023): The Directive will affect all environmental claims made by traders in business-to-consumer practices within the EU, and Member States will be responsible for ensuring compliance and enforcement. Companies must substantiate their environmental claims using life cycle assessments that evaluate the environmental impact of their products. In cases of non-compliance, penalties will be determined based on the infringement’s nature, gravity, scope, duration, the financial stability of the entity, the economic benefits gained, and past non-compliance incidents.
The EU Green Claims Directive provides a clear definition of greenwashing, describing it as the practice of creating a false impression of the environmental impact or benefits of a product, potentially misleading consumers.
Empowering Consumers for the Green Transition (2024): All EU Member States have 2 years to transpose the Directive into national law. The objective of this Directive is to protect consumers from unfair practices and provide them with better information. It enforces a prohibition on generic environmental claims, and restricts the use of ambiguous terms such as ‘environmentally friendly’ unless substantiated by credible evidence validated by an authorised body. Terms like ‘climate-neutral’ or ‘climate-positive’ related to carbon dioxide (CO2) emissions are explicitly prohibited.
Corporate Sustainability Due Diligence Directive (2024): The Directive extends beyond the environmental responsibilities of businesses and introduces a legislative framework requiring companies to substantiate their actions in protecting both the environment and human rights. The Directive targets large companies within and outside the EU, including those in the financial sector, addressing potential negative effects from their operations and those of their partners. The rules apply to EU companies with over 1,000 employees and a turnover of 450 million euros, as well as non-EU companies operating in the EU with the same turnover threshold.
Corporate Sustainability Reporting Directive (2023): Significantly expands the existing rules on non-financial reporting, requiring in-scope companies to report on the impact of their activities on the environment and society, and to audit the reported information. Requires sustainability information to be disclosed in the management report, eliminating the option to publish non-financial information separately. Requires companies to report on how sustainability aspects affect their economic situation and how their operations impact sustainability aspects.
Germany
Greenwashing is addressed by general national regulations on marketing, false/misleading advertisement, presentation advertisement of products or financial products and prospect law.
Act against Unfair Competition: This Act contains provisions that prohibit unfair business practices, including misleading advertising and marketing practices that could deceive consumers.
Environmental Information Act: This Act regulates access to environmental information and requires companies that publish environmental data to provide accurate and reliable information.
Netherlands
The Dutch Civil Code and the Dutch Consumer Protection Enforcement Act set out general prohibitions which cover deceptive conducts that can be understood as greenwashing.
The Advertising Code Commission ensures that advertising practices adhere to the Dutch Sustainability Claims Code which provides rules and guidelines for truthful, fair, and socially responsible advertising.
Guidelines on sustainability claims from the Dutch Authority for Consumers and Markets, which are based on EU legislation. Claims may be based on tort, unfair trade practices or misleading marketing which are subject to liability compensation based on the Dutch Civil Code and the Dutch Consumer Protection Enforcement Act. If a company is found to be guilty of greenwashing, penalties of up to €900,000 or 1% of the gross turnover may be imposed.
In recent years, greenwashing has become particularly prevalent across several industries, notably in consumer products (including the textile and dairy industries), airlines, the energy sector, the financial sector, and the industrial sector.
United Kingdom
Digital Markets, Competition and Consumer Act 2024: This Act updates the UK’s legal framework for consumer protection, including the prohibition of unfair commercial practices, including misleading environmental claims (and omissions) made to consumers in connection with the marketing and advertising of products and services. It grants the Competition and Markets Authority (CMA) the power to bring administrative actions against companies for breach of these rules, with the power to fine companies deemed to be greenwashing up to 10% of their global turnover (and individuals up to £300,000). Enforcement under these rules is informed by the CMA’s Green Claims Code.
Code of Non-Broadcast Advertising and Direct and Promotional Marketing and UK Code of Broadcast Advertising also provides an avenue for the Advertising Standards Authority (ASA) to make public rulings on advertising activity which is non-compliant with requirements on environmental claims.
Australia
Australian Competition and Consumer Commission (ACCC) is responsible for regulating greenwashing under the general laws relating to advertising practices. The Competition and Consumer Act 2010 prohibits misleading or deceptive conduct, or conduct likely to mislead or deceive, in trade or commerce.
If greenwashing conduct is occurring in the financial services sector, the regulator is the Australian Securities and Investments Commission (ASIC) and it is regulated by the Corporations Act 2001.
ACCC and ASIC may seek a range of orders from the court against companies accused of greenwashing (regardless of any loss or damage having been suffered), including declarations, injunctions, corrective disclosure outcomes, undertakings, financial penalties and adverse publicity orders. Directors may also be subject to accessorial liability.
Australia has increasingly utilized these policies to go after bad actors. Since 1 July 2022, ASIC achieved 23 corrective disclosure outcomes, issued 13 infringement notices, and commenced 1 civil penalty proceeding against a financial services firm for greenwashing conduct, in addition to 2 ongoing civil penalty proceedings against financial services providers.
Canada
The Canadian Competition Act, Bill C-59 (2024) prohibits deceptive or deceptive marketing practices by companies which could be characterized as greenwashing.
Social Claims (Products): prohibits product benefit claims of the “social” variety (e.g., Indigenous Reconciliation; diversity, equity and inclusion; responsible supply chain (i.e., modern slavery), unless such claims are substantiated based on an “adequate and proper test”.
Environmental Claims (Products): anti-greenwashing provisions prohibiting claims about the environmental benefits of specific products (e.g., low carbon fuels) , unless such claims are substantiated based on an “adequate and proper test.”
Environmental Claims (Business Promotion): broadens the scope of potential greenwashing offenses to include environmental claims made about a business or business activity “for the purpose of promoting, directly or indirectly, any business interest” (e.g., carbon neutral or net-zero claims) unless such claims have adequate and proper substantiation in accordance with an “internationally recognized methodology.”
When a private complaint is received from an individual, the Competition Tribunal will determine whether the action will proceed if it is determined to be “in the public interest”.
Companies found to be making false or misleading claims may face significant administrative monetary penalties that are the greater than (i) $10 million (or $15 million for repeat conduct), and (ii) three times the value of the benefit derived from the deceptive conduct, or if the amount cannot be reasonably determined, 3% of worldwide gross revenues.
Colombia
Bill No. 101 of 2023 proposes measures to ensure that businesses promoting sustainability do so transparently and truthfully. Through this bill, “greenwashing” would be included in the consumer protection laws (specifically law 1480 of 2011 – consumer protection statute). Key provisions include the obligation to provide complete, truthful, verifiable, understandable, and accurate information about their environmental practices, and this information must be available and updated on their websites. Furthermore, terms like “recyclable,” “compostable,” or “reusable” will only apply to products that effectively meet these conditions. Noteworthy within the bill is a provision barring individuals sanctioned for environmental offenses from promoting sustainability for a period of five years following the finalization and enforcement of the sanction or conviction, along with full compensation for any environmental harm caused. Violations involving greenwashing or deceptive advertising could incur fines of up to approximately USD $657,000.
Those responsible for conducting environmental impact studies or statements will not be allowed to make public claims related to the project or activity under evaluation unless required to do so.
United States
Section 5 of the Federal Trade Commission Act (FTC Act) targets “unfair methods of competition” and “unfair or deceptive acts or practices in or affecting commerce”. This grants the FTC the power to take enforcement actions against businesses found engaging in deceptive or unfair practices, including greenwashing.
The FTC uses Section 5 to oversee advertising and marketing practices, ensuring that consumers are protected from false or misleading claims.
The FTC can seek civil penalties in district court for violations that caused harm to consumers. The FTC can pursue consumer compensation for trade regulation breaches directly in district court under Section 13(b) of the FTC Act, potentially aiding harmed consumers.
US Green Guides are not legally binding but are offered by the FTC to provide companies directions based on recommendations and standards on how to correctly communicate environmental characteristics of their products and services and therefore avoid being accused of greenwashing.
SEC Rules to Enhance and Standardize Climate-Related Disclosures for Investors (2024): New rules aimed at enhancing and standardizing climate-related disclosures for investors. U.S. public companies must now provide comprehensive information in their annual reports and registration statements regarding the climate risks they face, their strategies for mitigating these risks, the financial impacts of severe weather events, and, in certain cases, the greenhouse gas emissions produced by their operations.
Six Strategies for Reducing Risk
The KPMG report provides six recommendations that companies can seek out to reduce risk of greenwashing claims. These include leeping track of the rapidly changing regulatory landscape. The second includes mapping out where in the supply chain green claims are most likely - remember the EU is looking at greenwashing from operators out of state, broadening the scope of their regulations. The thisr includes improved risk management by taking stock of current claims against the company and relevant competitors and screening for gaps in company policies. This aligns with the fourth approach which include creating internal controls and audits. Lastly, training staff in regulations and key approaches to prevent greenwashing is imoportant.
What’s missing is the aspect of community engagement. Because many greenwashing suits are brought by environmental and consumer advocacy groups, companies need to spend more time speaking with these groups and understand how to better be transparent with their communities. Many projects, especially energy companies have lost hindreds of millions of dollars when they fail to engage the public. That’s why tools such as OurTownHall can help bring the community, government, and corporations together.
