A Crackdown on Greenwashing May Be Coming

Some companies may not be as environmentally-friendly as they appear. It’s a practice known as greenwashing. Companies accused of greenwashing may draw backlash and even face lawsuits and regulatory action. Since new rules are paving the way for a crackdown on greenwashing, brokers and their clients need to be ready.

Going Green Is Big Business

PDI Technologies found that 68% of Americans are willing to pay more for environmentally-sustainable products. Adults between the ages of 18 and 42 and those who are parents are even more willing to shell out extra cash in exchange for knowing they’re helping to protect the environment.

This means going green is big business. If companies convince customers they’re more environmentally friendly than their competitors, they may be able to charge more while winning a larger share of the market.

It should, therefore, come as no surprise that many companies are investing in advertising with messages about sustainability. According to The Conversation, many social media ads include “green” claims, particularly in the energy, household products, fashion, health and personal care, and travel industries. In addition to using words such as “clean,” “green,” “sustainable,” and “recycled,” ads frequently include earthy tones, nature imagery, and related emojis.

Many Green Claims May Be Misleading

Although many companies are making green claims, few back up these claims with evidence and specifics. This has led to accusations of greenwashing.

The United Nations says greenwashing can occur in different ways, such as when a company claims to be on track to reduce emissions to net zero without providing proof, when it is vague about its operations and materials, or when it uses undefined labels like “green” or “eco-friendly.” Companies may also be guilty of greenwashing if they imply a minor event has a major impact while ignoring other impacts.

How Green Claims Can Backfire

The Advertising Standards Authority (ASA) received 45 complaints over two ads from HSBC that boasted a transition to net zero and a project to plant 2 million trees. These claims were criticized as misleading because they omitted significant information about the company’s contribution to carbon dioxide and greenhouse gas emissions. The ASA determined that the ads could not appear again and that future claims would need to be properly qualified.

Other green claims have led to regulatory action or even class-action lawsuits. Truth in Advertising maintains a list of companies accused of greenwashing. The list includes lawsuits against Glad Recycling Bags, United Airlines, H&M, Royal Dutch Airlines, and many more.

Companies accused of greenwashing may also lose the customers they were trying to gain. According to KPMG, 54% of UK consumers say they would stop buying from companies with misleading sustainability claims.

New Regulations Aim to Curb Greenwashing

Amid concerns over greenwashing from consumers and advocacy groups, regulators have been working on new ways to curb greenwashing. In January, Members of the European Parliament announced new rules to ban greenwashing and misleading information. Notably, the new rules outlaw generic environmental claims and misleading product information, restrict sustainability labels to those based on approved certification schemes or established by public authorities, and require information to be more visible.

These new rules should help with the unclear labelling that has been at the heart of many greenwashing claims. Currently, a company may claim to be “natural” or “environmentally friendly.” However, with no clearly-defined criteria for these terms, it is unclear exactly what the company means by its claims.

At the time of the announcement, the EP directive still needed final approval from the Council. Then, the member states would have 24 months to establish corresponding national law.

Meanwhile, the UK is working on new rules. The FCA is introducing a new anti-greenwashing rule that is expected to take effect at the end of May, to help ensure that sustainability-related claims are fair, clear, and not misleading. The FCA is also introducing naming and marketing requirements to prevent products from being described as having a positive impact on sustainability when they don’t. It is also introducing product labels to help investors understand how companies are using their money.

Preventing Greenwashing Litigation and Regulatory Trouble

Manufacturers, transportation companies, and energy companies may be tempted to paint themselves as the environmentally-friendly choice. However, if they cannot support these claims with clear evidence, they may fail to attract customers and expose themselves to lawsuits and regulatory action. Brokers can help by raising awareness of the current greenwashing backlash and by discussing insurance coverage options for lawsuits alleging misleading statements.

Do you need assistance securing coverage for your clients? Costero provides creative solutions for your coverage problems. Contact us.