From Marketing to Misrepresentation: Understanding Greenwashing Through a Legal Lens

Greenwashing, inspired by the term “whitewashing,” is the practice of engaging in “unsubstantiated, false, deceptive, misleading environmental claims about products, services, processes, brands or operations as a whole, or claims that omit or hide information, to give the impression that they are less harmful or more beneficial to the environment than they actually are.”

It would be greenwashing, for instance, if advertising products/services as “organic”, “eco-friendly” or marking them with promises of a “green” tomorrow knowing such claims to be untrue. The problem aggravates when customers, tricked by such misleading claims, are charged a premium for such alleged green products.

A more known version of greenwashing is climate washing – which is misleading claims made in the context of climate change.

 Examples of greenwashing include unclear and false claims about its CO2 emissions by prominent airlines, about selecting products can save the planet and energy by an electronics company, or about a reduction in the carbon footprint by a manufacturer of food items, etc.

Such misleading and unsubstantiated advertisement or claims have caught the attention of regulators globally in the recent past.

In India, greenwashing is a form of misleading advertising. It has come under the radar of the

• Advertising Standards Council of India (“ASCI”),
• the Central Consumer Protection Authority (“CCPA”),
• the Securities Exchange Board of India (“SEBI”), and
• the Reserve Bank of India (“RBI”) in particular.

ASCI

The ASCI is a self-regulatory body for regulating advertising and related activities in India. On February 15, 2024, the ASCI released the Guidelines for Advertisements Making Environmental/Green Claims (“ASCI Guidelines”), which provides guidance on greenwashing in advertising.

The ASCI Guidelines also lay down certain specific requirements for a claim to not be construed as greenwashing, which, among other things, include:

• A claim should not contain any forward-looking statements unless a clear and actionable plan has been prepared, detailing how such claims would be achieved.
• A claim containing colours, graphics, or design elements associated with the environment theme is not prohibited unless such usage is connected with or supported by environmental claims made in relation to such product or packaging or services or brand identity.
• A claim in relation to:
  • grant of certification/accreditation from a third-party must specify the aspects of the product/service evaluated;
  • a product being compostable, biodegradable, recyclable, etc., must (i) specify the aspects of the product that bear such attributes, and the extent of such attributes and (ii) be backed by evidence to indicate the time taken for disposal to be completed, and the absence of any hazardous elements;
  • carbon off-setting should (i) provide specific disclosure if it cannot be achieved in two years; and (ii) not be made if it is required by law.
  • the absence of environmentally damaging ingredients should not be made if (i) such ingredient is not found in any competing product or services; (ii) the removal of such ingredient is mandated by law and such law applied to competing products as well; or (iii) ingredient/component is replaced by another similar/more harmful ingredient/component. Having said that, if a claim in relation to (ii) above is still made, then the law requiring such removal must be sated.

The ASCI has been vigilant and issued notices against a variety of products and unsubstantiated claims such as

(i) hand wash liquid and vegetable cleaning liquid are eco-friendly;

(ii) the container of a strawberry shower scrub is made of 30 per cent recycled plastic, etc.

In both these cases, the ASCI has, among others things, noted that such claims were misleading and was likely to lead to widespread disappointment in the minds of the consumers.

CCPA

Released merely five (5) days after the ASCI Guidelines, the CCPA issued its draft guidelines on greenwashing (“Draft CCPA Guidelines”) for public comments on February 20, 2024, and are yet to be enforced.

While the provisions of the Draft CCPA Guidelines are very similar to the ASCI Guidelines, the Draft CCPA Guidelines, in contrast to the ASCI Guidelines, expressly restrict cherry-picking of favourable observations from research backing the environmental claims and require disclosure of the favourable and unfavourable observations from such research.

For example, a product packaging could be made of 100 per cent recyclable materials but could take up to eight (8) months to completely recycle. In such a case, it is required to mention that it could take up to eight (8) months to completely recycle the product packaging if a claim is made in relation to the recyclable nature of the product packaging.

Additionally, the Draft CCPA Guidelines also mandate all advertisements containing

(a) technical terms to use consumer friendly language and explain the meaning of such terms in such advertisements and

(b) environmental claims to be easily accessible to the consumer and not contradict the claim itself.

SEBI

The SEBI took cognisance of greenwashing before the ASCI and CCPA. In February 2023, the SEBI issued a circular providing guidance in relation to advertising green debt securities (“SEBI Guidance”).

The SEBI Guidance, among other things, requires issuers of green debt securities to:

• not use any misleading labels, hide any trade-offs, or cherry pick data from research to highlight green practices while obscuring data unfavourable to themselves (similar to the ASCI Guidelines and Guideline 7(b) of the CCPA Guidelines [discussed earlier]);
• not make untrue claims giving a false impression of certification by a third-party entity; and
• monitor and assess the measures undertaken for sustainable operations, reduction in the adverse impact on the environment, and contributing towards a sustainable economy, as envisaged in the offer document issued at the time of raising funds for transitioning to a greener pathway.

The SEBI Operational Circular pertaining to the issuance and listing of, among other things, green debt securities mandates compliance with the SEBI Guidance.

SEBI has also issued the BRR, BRSR, and the BRSR Core, which mandates public-listed companies to make ESG disclosures in accordance with the National Guidelines. The BRSR Core, among other things, also requires assurances to be made in relation to the nature and extent of the greenhouse, water, and energy footprint, and waste management supported by the measurement of total emissions by top 250 listed companies by market capitalization in FY 2024–25 and increases to up to top 1,000 listed companies by market capitalization by FY 2026–27.

RBI

Following SEBI’s footsteps, the RBI, too, issued a circular dated April 11, 2023 (“RBI Circular”), to encourage regulated entities, i.e., scheduled banks, and non-banking financial companies (including housing finance companies), to, among other things, permit customers to make green deposits (i.e., deposit for financing activities/projects that contribute to climate risk mitigation, climate adaptation, and other objectives, including biodiversity management and nature-based solutions), protect the interest of the depositors, address greenwashing concerns, and help augment the flow of credit to green activities/projects.

Greenwashing, ESG, and India

While the regulatory measures, prima facie, appear as an attempt to only regulate advertising and protect consumer/investor interests, it also attempts to cover a wider subject matter, i.e., ESG commitments and compliances. For example, the ASCI Guidelines are applicable not only in relation to the advertising of goods or services but also to the advertising of processes, brands, and operations. Accordingly, any environmental claims made in relation to the processes, brands, or operations of a body corporate could be under the lens of the ASCI, if not another regulator.

The Indian consumer market is aware about the environment and climate problem, which is linked to their consumption, and is willing to adopt greener and better alternative options.

Consequently, the commercial itch to seize on the willingness of the consumer in exchange for a profit is palpable. However, if an environmental claim can grow interest and preference, a false environmental claim can also result in the permanent loss of consumer/investor interest, goodwill, and raise regulatory concerns.

The consumer is conscious, and the regulator is vigilant. The growing awareness of the impact of businesses on the environment, climate and consumerism, and the demand for integrity and accountability has awakened regulators globally and the inclination to not tolerate any kind of greenwashing is evident. Consequently, it is essential for businesses to know about greenwashing and be cautious, correct, and well-equipped with data to back any green claims.

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