Courts are Holding More Firms Accountable as Greenwashing Incidents Increase

Greenwashing refers to the practice of making deceptive or false claims about a firm’s products or practices and whether they are safe for the environment. Recent data shows that greenwashing incidents have risen significantly over the past 4 years, with an increasing number of sustainability claims found to be false.

Figures from last year indicate that over 900 companies were linked to greenwashing incidents, particularly in the banking and financial services, food and beverage, and oil and gas sectors.

In response, legislators are imposing stricter regulations on environmental, social, and governance (ESG) criteria. Among the first regulators to set up greenwashing guidelines and investigate sustainability claims was the Netherlands Authority for Consumers and Markets. Now more bodies are stepping up to draft and implement regulations to clamp down on these incidents.

A key development is an updated consumer protection rule set to take effect next year which will require every firm operating in the European Union to take measures against greenwashing. Additionally, the Green Claims’ Directive will mandate that sustainability claims be verified by independent bodies.

Other jurisdictions have also started implementing regulations on sustainability claims. For instance, Canada recently approved a measure to strengthen greenwashing oversight under their Competition Act.

Meanwhile, courts around the world are holding more and more firms accountable for their deceptive sustainability claims and unsustainable practices. A recent report found that, by 2023, over 140 cases challenged misleading sustainability claims made by corporations or governments regarding the transition to a low-carbon future. This is quite an increase from the handful recorded a couple of years back.

Major verdicts linked to greenwashing include Fossiel Vrij NL v KLM, which was presided over by the Amsterdam District Court. The court found that some of the claims made by the airline on their use of sustainable aviation fuels and the effect of CO₂ compensation measures were false.

As a result, it directed that KLM be truthful in its future advertisements. This followed an earlier recommendation to the airline by the Dutch Advertising Code Authority to cease airing misleading ads.

The Australasian Center for Corporate Responsibility is also awaiting a verdict in its case against Santos, an oil company. The plaintiff, a shareholder in the company, alleges that the firm’s claims of being a clean energy producer and its pledge to achieve net zero emissions by 2040 are deceptive.

From the above, we can deduce that anti-greenwashing rules and ESG standards are increasingly being seen as tools to help shape company behavior. It is expected that as more greenwashing cases are tried in courts of law, more firms will endeavor to be honest and transparent about their sustainability claims.

The rising number of lawsuits on alleged greenwashing by companies is likely to provide added impetus for firms like Energy and Water Development Corp. (OTCQB: EAWD) to have verifiable records documenting their implementation of ESG principles so that they remain blemish-free.

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