Growing environmental concerns have led to a rise in the demand for sustainable practices and green products. However, this demand has also increased the number of "greenwashing" claims.

The practice of making false or deceptive statements regarding the environmental benefits of a business's products or services is known as "greenwashing".

This may occur when a business emphasizes the favourable environmental effects of its products or when it adopts terminology like "eco-friendly" or "green" without offering any concrete details and supporting data.

Some businesses might not have a thorough awareness of environmental issues and might unintentionally engage in greenwashing. For instance, a business might advertise that its product is "eco-friendly" because it is made of recycled materials, but if the manufacturing process is energy-intensive and generates significant amounts of greenhouse gas emissions, the product might not actually be as sustainable as the business endorses.

Unfortunately, customers may find it challenging to distinguish between products that are sustainable and those that are only utilizing green marketing strategies to appear to be ecologically friendly. When making a purchase, consumers should be well-informed and do their analysis. Businesses should also be open and accountable for their environmental claims.

The European Commission proposed new regulations on March 2023 about 85% in western Europe and 72% in eastern Europe to combat false environmental claims by enforcing penalties against "greenwashing" and stricter guidelines for the licensing of new ecolabels.

The following are a list of commercial practices that are considered unfair in all circumstances by EU green claims directive:

  • Displaying a sustainability label that is not based on a certification scheme or not developed by government authorities.
  • Making a broad environmental claim for which the trader cannot provide evidence of environmental performance relevant to the claim.
  • Making an environmental claim on the entire product when only one aspect of the product is concerned.
  • Presenting legal requirements imposed on all products in the relevant product category on the Union market as a distinguishing element of the trader's offer.

By guaranteeing that consumers obtain trustworthy, comparable, and verifiable information to help them make more sustainable decisions and lower the risk of "green washing," the European Green Deal outlines a commitment to combat misleading environmental claims. Following this, the New Circular Economy Action Plan, and the New Consumer Agenda both designated the need to address greenwashing as a highest concern.

The Sustainable Finance Disclosure Regulation (SFDR) ,which was implemented by the EU, also mandates that advisors and players in the financial sector publish information regarding the sustainability of their investment products. By guaranteeing that investors have access to accurate and comparable information regarding the sustainability of investment products, this regulation seeks to prevent greenwashing in the financial sector.

Businesses who fail to adhere to EU sustainability standards or give false information about their sustainability policies suffer fines and reputational harm.

Transparency is a vital tool in overcoming greenwashing

  • Transparency in environmental practices and supply chain practices is an important strategy for preventing greenwashing because it helps consumers understand the environmental impact of a product or service and validates the legitimacy of any sustainability claims. This will aid in the fight against greenwashing and the creation of a more sustainable economy.
  • Companies should look for credible third-party certifications that are accepted by both consumers, legislative authorities, and industry experts. These certifications can help to validate a company's environmental claims and give consumers confidence in its sustainability practices.

ESG reporting promotes credibility

ESG reporting can help companies address greenwashing accusation by providing accountability as well as transparency in their environmental and social practices. ESG reporting is a method for businesses to disclose their sustainability efforts and impacts to stakeholders such as investors, customers, and the public. Companies that disclose their ESG metrics can prove their dedication to sustainable development and provide proof that they are attempting to make actual progress in decreasing their ecological footprint. ESG reporting can also assist businesses in identifying areas for improvement and setting goals for future sustainability initiatives.