According to Ademe (the French environmental agency), greenwashing consists of an organisation orienting its marketing and communication towards an ecological positioning.  

Whether it is the regulator, the consumer or companies worrying about its reputational and financial impact, all the actors in economic life are concerned about greenwashing.  

The International Festival of Creativity, or Cannes Lions, which took place last June and brought together advertisers from all over the world, gave Greenpeace activists the ideal platform to publicly denounce the responsibility of advertising and communication agencies in promoting companies that are harmful to the planet through greenwashing mechanisms. 

This high-profile intervention highlights a practice that is now the focus of much attention, namely “greenwashing”. 

This article describes the many forms of greenwashing, the consequences if caught and the regulatory pressures on companies and the financial sector. To help you make your decision, we also provide an overview of initiatives to keep you on track.  

The so-called “Sweep” is an operation aiming to detect breaches of EU consumer protection laws in online markets.  

As a result of this assessment, the European Commission indicated that it had reason to believe that in 42% of the cases the claim could be false or misleading and therefore constitute an unfair commercial practice under the applicable legislation. 

The European Commission published on 30 March 2022 a proposal for a directive aimed at regulating the formulation of environmental claims.

From misleading messages to omissions: the European Commission‘s big clean up. 

European and French regulations: tackling the threat of greenwashing. 

European Sustainability Reporting Standards

The Green Deal for Europe is accompanied by the need to reduce the risk of greenwashing 

Launched annually by the European Commission and the relevant national authorities, the so-called “Sweep” is an operation aiming to detect breaches of EU consumer protection laws in online markets 

In 2020, the process focused for the first time on greenwashing practices.  Of the 344 questionable environmental claims found on the websites analysed [1][2] : 

  • In 57% of cases, the information provided was insufficient to allow consumers to assess the accuracy of the claim. 
  • In 37% of cases, the claim included vague statements such as “environmentally friendly” or “sustainable” to give consumers the unsubstantiated impression that a product did not have a negative impact on the environment. 
  • In 59% of cases, the operator had not provided readily available evidence to support the claim. 
  • 7 claims stated that the good or service had been approved or authorised by a public or private body when this was not the case. This practice is blocklisted under the Unfair Commercial Practices Directive (UCPD) [3]. 

As a result of this assessment, the European Commission indicated that it had reason to believe that in 42% of the cases, the claim could be false or misleading and therefore constitute an unfair commercial practice under the applicable legislation.

Construction of an uncompromising legal framework against greenwashing practices. 

Given the extent of more or less voluntary greenwashing practices, the European Commission published on 30 March 2022 a proposal for a directive aimed at regulating the formulation of environmental claims, as the European legal framework was previously nonexistent [4].  

By amending the Unfair Commercial Practices Directive (UCPD), the European Commission wants to add a product’s environmental and social impact, sustainability and reparability to the list of characteristics that a trader may not mislead consumers. The proposal also intends to add certain greenwashing practices to the blocklist of prohibited unfair commercial practices [5]: 

  •  The use of sustainability labels that are not based on a certification scheme or established by public authorities.
  •  Any environmental claim concerning a product as a whole when it actually concerns only one aspect of the product. 
  • Making generic and vague environmental claims where the excellent environmental performance of a product or professional cannot be demonstrated. 

The European Commission is therefore working on the creation of a single tool to measure the environmental footprint of a product or service through life cycle assessment. 

From 1st January 2023, companies incorporating carbon neutrality claims into their advertising on television, on the internet, in print media or on any packaging will be obliged to prove it.

Harmonising environmental footprint measurement tools 

Another European regulation is also expected to limit greenwashing by obliging companies to substantiate their claims about the environmental footprint of their products/services using standardised quantification methods. The aim is to make these claims reliable, comparable and verifiable throughout the European Union. The European Commission is therefore working on the creation of a single tool to measure the environmental footprint of a product or service through life cycle assessment. 

In France, the government published an implementing decree in April 2022 to regulate communication around “carbon offsetting and carbon neutrality claims in advertising” as part of the Climate and Resilience Act of 22 August 2021. From 1er January 2023, companies incorporating carbon neutrality claims into their advertising by claiming that a product or service is “carbon neutral”, “zero carbon”, “with a zero-carbon footprint”, or “fully offset” on television, on the internet, in print media or on any packaging will be obliged to prove it [6] 

The advertiser will be required to publish “a summary report describing the advertised product’s carbon footprint and the process by which these greenhouse gas emissions are first avoided, then reduced and finally offset”. This report must be updated annually, and “the web link or quick response code to access this publication [must] be provided on the advertisement or packaging bearing the carbon neutrality claim”. 

Greenwashing in the financial sector can take various forms.

The French financial markets authority (AMF) published a doctrine on investor information in March 2020, aiming to combat greenwashing and ESGwashing.

The financial sector makes the fight against greenwashing a priority. 

Greenwashing in the financial sector can take various forms, such as the overuse of sustainability language, the use of responsible investment labels with lax criteria, the communication of exclusionary policies that do not really narrow the investment universe or the lack of transparency on the non-binding nature of a non-financial analysis methodology [7]. 

Aware of this risk, the French financial markets authority (AMF) published a doctrine on investor information in March 2020, aiming to combat greenwashing and ESG-washing. Since its application in March 2021, any manager planning to integrate ESG into the marketing documentation, regulatory documentation or the name of a fund must meet specific criteria and present measurable and significant objectives [8]. 

ESMA unveiled in February 2022 its Sustainable Finance Roadmap 2022-2024: one of the three priorities is the fight against greenwashing and the promotion of transparency.

Increased pressure in an increasingly restrictive regulatory framework. 

The SFDR regulation also imposes high transparency requirements since 2021 but leaves it up to asset managers to define the methodology to measure the sustainability of their portfolio. The European Securities and Markets Authority (ESMA) identifies a risk of increased greenwashing and wants to address this. ESMA unveiled in February 2022 its Sustainable Finance Roadmap 2022-2024: one of the three priorities is the fight against greenwashing and the promotion of transparency [9]. The regulator wants to precisely define the phenomenon of greenwashing and ensure clarity and harmonisation of SFDR, Taxonomy and CSRD regulations [10]. 

On 15 November 2022, the three European financial supervisory agencies also launched a call for evidence on greenwashing: the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and ESMA want to gather information on the main characteristics associated with greenwashing and collect examples of potential practices [11]. The complete questionnaire is available on the ESMA website.  

The scandal at German asset manager DWS, a subsidiary of Deutsche Bank, has put this risk and its reputational consequences at the top of the asset managers’ agenda.

The consequences, if caught, are severe. 

The asset management company was raided in June 2022 as part of a fraud investigation into investments sold as more sustainable than they actually were. The CEO of DWS was forced to resign, and the subsidiary retrospectively reduced the value of its ESG portfolio from €459 billion to €70 billion [12]. 

In March 2022, the US Securities and Exchange Commission (SEC) announced that it prioritised uncovering exaggerated investor claims of ESG performance and advertising [13]. In May, the SEC fined BNY Mellon Investment $1.5 million for misrepresenting that all investments in certain funds had been ESG assessed [14]. On 22 November, Goldman Sachs was also fined $4 million for marketing ESG-labelled products despite significant failings in the ESG research policies and procedures of its investment selection and monitoring process [15] 

To separate the wheat from the chaff, regulators call on investors to read carefully the regulatory and marketing documentation provided by fund managers. 

What are the most reliable tools to guide investors in this maze? 

To separate the wheat from the chaff, regulators call on investors to read carefully the regulatory and marketing documentation provided by fund managers.  They can also turn to recognised initiatives to ensure that sustainability claims are accurate:  

  • The ClimateAction100+ initiative assesses the transition plans of the highest emitting companies and helps detect greenwashing. 
  • The Transition Pathway Initiative examines companies’ readiness to transition to a low-carbon economy. 
  • The Science Based Targets initiative recognises companies that set clear, science-based targets for reducing their carbon footprint. 
  • The Carbon Disclosure Project assesses companies’ and public actors’ transparency and environmental performance based on the TCFD recommendations. 
  • The UN Global Compact website provides access to annual reporting by signatory companies on their progress towards the 10 Global Compact principles. 
  • The Principles for Responsible Investment website provides access to the annual reports of the signatory asset management companies on their responsible investment activities.  
  • The gradual entry into force of the EU SFDR, Taxonomy and CSRD regulations should also provide investors with more precise, transparent, comparable and verifiable information on sustainability claims.  

Weapons against the greenwashing trap: education, coaching and critical thinking. 

To train internally, companies can call on associations such as the Climate Fresk (https://climatefresk.org), which offers workshops and training on the subject.  

The French ADEME also provides an anti-greenwashing guide that is freely available on the ecological qualities of a product or service or the sustainable development approach of an organisation. 

Are you looking for personalised support to anticipate the new regulatory requirements on greenwashing and integrate them into the management of your company? We are here for you. 

Book an individual meeting here!

Notes and references: 

[1] “Screening of websites to combat ‘greenwashing’: half of environmental claims are not supported by evidence”, European Commission  

[2] 2020 – sweep on misleading sustainability claims, European Commission 

[3] Annex I “Commercial practices deemed unfair in all circumstances”, Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005, European Commission 

[4] “Greenwashing: the European Commission proposes a European legal framework for environmental claims”, Gossement Avocats 

[5] Proposal for a Directive of the European Parliament and of the Council amending Directives 2005/29/EC and 2011/83/EU, European Commission 

[6] Public consultation: “Environmental performance of products and companies – obligation to substantiate claims”, European Commission 

[7] Decree No. 2022-539 of 13 April 2022 on carbon offsetting and carbon neutrality claims in advertising, Journal Officiel 

[8] Position – Recommendation DOC-2020-03, AMF 

[9] “ESMA prioritises es the fight against greenwashing in its new sustainable finance roadmap”, ESMA 

[10] Sustainable Finance Roadmap 2022-2024, ESMA 

[11] “ESAS call for evidence on greenwashing, ESMA 

[12] “Deutsche Bank’s DWS and allegations of ‘greenwashing'”, Reuters 

[13] ESG’s legal showdown: ‘There’s nothing to suggest DWS is a one off’, Financial Times

[14] SEC Charges BNY Mellon Investment Adviser for Misstatements and Omissions Concerning ESG Considerations, SEC 

[15] SEC Charges Goldman Sachs Asset Management for Failing to Follow its Policies and Procedures Involving ESG Investments, SEC 

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