Consumers have become more aware of the impact and risks goods and services bring to the environment. This concern has led to more environmentally conscious decisions, with consumers beginning to seek for more sustainable alternatives. With this new behavior in the market, businesses take the opportunity to break into this segment by marketing certain products as “green” or “eco-friendly.”
However, there are businesses that take advantage of this new environment and the demand for sustainable goods. While there are businesses that put in the effort to research, develop, and improve their products to make them more sustainable, whether it be through their packaging or the raw materials used to produce them, others would simply mark and label their products as sustainable without having proof.
This is just one example of greenwashing. A company would fabricate claims or design their packaging to make their products seem more eco-friendly to consumers. This practice can lead to harmful results, creating a negative impact towards the environment and slowing down progress towards sustainable development through bad practices that lead to distrust between the business and its key stakeholders. Greenwashing can also take place in sustainability reports as businesses would falsify information about their performance and make them seem more sustainable.
This has been a rising issue, frustrating both consumers and investors. As businesses increasingly prioritize sustainability, the risk of greenwashing has led to stricter regulations globally. Non-compliant companies face legal consequences, reputational damage, and consumer distrust.
Navigating compliance, however, can be confusing. Here are some greenwashing regulations you need to know.
The European Union has taken action against green claims that can be misleading. Through the Green Claims Directive, companies are required to provide clear, evidence-based sustainability claims. This law, which was proposed in March 2023, provides a set of rules to verify environmental claims. Companies are to avoid vague or misleading terms such as "eco-friendly" or "climate neutral" without proper proof. Thus, this directive also requires companies to conduct audits from an accredited third-party verifier to ensure their green claims are compliant before being used for marketing purposes.
By substantiating claims with scientific evidence and getting third-party verification, companies affected by the EU Green Claims Directive could accurately communicate their sustainability impact.
Developed by the Competition and Markets Authority (CMA) and published in 2021, the UK Green Claims Code enforces businesses to ensure claims are truthful, clear, and based on verifiable evidence. In the Green Claims Code. The CMA provides six rules that define what a green claim should be. This means that claims should be accurate, clear in their messaging, should only include fair and meaningful comparisons, have substantial evidence to back their claims, and should not hide or omit any information. In addition, the green claim should also consider the full lifecycle impact of a product and reflect its total impact. Failure to comply may result in fines or legal action under consumer protection laws.
The UK's Financial Conduct Authority (FCA) is enforcing an anti-greenwashing rule, effective May 31, 2024, requiring FCA-authorized firms to ensure that all sustainability-related claims are fair, clear, and not misleading. This applies to any communication referencing the environmental characteristics of financial products and services, including policies, strategies, and marketing materials.
The anti-greenwashing rule is rooted in four key principles: accuracy, clear communication, complete views, and fairness. Claims must be factually accurate and supported by credible evidence. They must also be clearly communicated in an understandable way, providing a complete and balanced view without omitting negative impacts, and allow for fair comparisons with similar products or past versions.
To prevent greenwashing, the Australian Competition and Consumer Commission (ACCC) has increased enforcement against misleading environmental claims. Companies must ensure transparency in carbon-neutral and net-zero commitments, avoid misleading environmental certifications, and comply with consumer law to prevent fines and legal repercussions.
Aligned with the ACCC, the the Australian Association of National Advertisers (AANA) developed the Environmental Claims Code, which takes into effect in March 2025. This code emphasizes transparency and verifiability in all advertising elements, including text, visuals, and sound, mandating that sustainability claims be realistic, achievable, and evidence-based to prevent vague or exaggerated claims and reduce greenwashing.
The Federal Trade Commission (FTC) provides guidelines to prevent deceptive environmental marketing. The Green Guides, which were first issued in 1992 with recent revisions in 2012, emphasize clear and specific environmental claims, such as avoiding ambiguous terms like "green" or "sustainable." Companies must provide proof of recyclability for products advertised as "recyclable" and avoid misleading carbon offset claims.
Besides including general principles for environmental marketing claims, the guides also explain how consumers may perceive certain claims and how marketers, in response, should provide substantial evidence to avoid deception. With new changes in the sustainability landscape, the guides also detail proper communication regarding certifications and claims related to renewable energy or carbon offsets.
With increasing regulatory scrutiny, businesses must prioritize honest and verifiable sustainability claims. By understanding and complying with global greenwashing regulations, companies can build trust and contribute genuinely to environmental sustainability.
At Keslio, we are deeply passionate about sustainability reporting and communications, having the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios.
To learn more about how Keslio can assist your organization in its sustainability journey, reach out to us here or through hello@keslio.com
