How Is Greenwashing Being Combatting Greenwashing Through Regulations?

With sustainability advancing to the forefront of consumer and investor priorities, companies are under mounting pressure to showcase their environmental credentials. Yet, this shift has also given rise to a widespread issue—greenwashing, wherein companies present their products, services, or operations as more environmentally responsible than they truly are—often through vague or misleading claims that lack meaningful backing.

With more consumers seeking environmentally conscious brands, some companies are promoting sustainability narratives that are not supported by measurable action or impact, to exploit this momentum. This not only erodes trust but also distorts the efforts of genuinely responsible businesses.

The positive development is that regulatory bodies and policymakers are beginning to respond decisively against this practice. There has been a surge in proposed regulations, legal scrutiny, and the introduction of standardized frameworks designed to hold companies accountable for their sustainability claims globally. These steps mark an important move toward greater transparency and credibility in the Environmental, Social, and Governance (ESG) space.

While greenwashing is not a new concept, it has gained a lot of attention due to the rise in climate change concerns and ESG standards. According to a European Commission study conducted in 2021, approximately 42% of the green claims made by businesses were either grossly inflated, fabricated, or misleading—a potential breach of European Union (EU) regulations.

Greenwashing is not confined to a single industry. From oil companies promoting carbon neutrality pledges to fast fashion brands launching so-called ‘eco collections’, greenwashing undermines genuine sustainability efforts. It blurs the lines between ambition and accountability, often misleading well-intentioned consumers and investors. More importantly, greenwashing places ethical businesses at a disadvantage and delays the urgent and systemic changes needed to address environmental challenges at scale.

Read more: ‘Investors’ Guide to Spotting Greenwashing.

The EU is one of the regions at the forefront of combatting greenwashing through legislative action, with the proposed Green Claims Directive published in March 2023. This directive states that all environmental claims must be:

• Unambiguous and clear
• Evidence-based, scientifically validated, and supported by relevant documents
• Verified independently through non-biased third-party corroboration

This directive aims to prevent companies from using vague statements such as ‘climate-friendly’ without providing proof.

In the United States (U.S.), the FTC’s Green Guides introduced in 1992 and last revised in 2012, assist businesses in making environmental marketing claims that are not misleading to consumers. These guides include instructions on terms such as ‘recyclable’ and ‘biodegradable’.

Read more: U.S. Tariffs: A Boost or a Bust for Global Sustainability?

In 2021, the United Kingdom (U.K.)’s Green Claims Code instituted six principles for businesses, which are as follows:

• Claims must be truthful and accurate
• Claims must be substantiated with credible evidence
• Comparisons must be fair and meaningful

The CMA has also announced an industry-wide crackdown on fashion and other high-risk sectors. Companies that are non-compliant with regulations will now face potential legal action.

Australia, along with Canada, is joining other Asian countries in developing policies to curb greenwashing. For example, the Australian Competition and Consumer Commission (ACCC) has commenced an inquiry on spending sustainability claims in Australia.

Globally, the International Organization for Standardization (ISO) has published self-declared environmental claims standards such as ISO 14021.

Regulators are not just issuing warnings but also suing companies. For instance:

• In 2021, KLM Royal Dutch Airlines was taken to court for alleged advertisement deception around its ‘Fly Responsibly’ promotion.
• H&M and ASOS have also faced scrutiny in the U.K. over allegations of ‘greenwashing’ in the promotion of their eco-friendly clothing lines.

These steps indicate a movement toward responsibility. Companies involved in greenwashing will likely be penalized under consumer protection laws with fines, litigation costs, and compelled disclaimer advertising.

The sharpening focus on ESG disclosure frameworks is helping curb greenwashing. Governments across the world are now demanding corporations to provide standardized ESG reports. Important frameworks include:

• Corporate Sustainability Reporting Directive (CSRD) in the EU: This directive implemented in 2024 requires large corporations to provide detailed disclosure of their sustainability data.
• SEC Climate Disclosure Rules (U.S.): Requires public companies to disclose climate-related financial risks and greenhouse gas emissions.
• Global standards set by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) also help evaluate the credibility of ESG information from investors’ perspective.

Read more: EU Taxonomy Reporting: How Investors Can Bridge Data Gaps

Technology has become invaluable in verifying green claims. Artificial Intelligence (AI), blockchain, and big data have enabled regulators to:

• Monitor product origins and supply chains
• Verify carbon offset projects
• Measure real-time ESG metrics

ESG transparency and data analytics platforms such as ESG Book and Arabesque S-Ray aid in assessing disclosures’ sustainability or ESG compliance, enabling investors and regulators to validate sustainability claims.

Companies can avoid greenwashing by:

• Making transparent, specific, and measurable claims
• Using third-party certifications such as Fairtrade, FSC, or B Corp
• Backing claims with accessible evidence and data
• Not using buzzwords such as ‘eco’ or ‘natural’ without context
• Conducting regular audits on sustainability practices and marketing content

Read more: Can New Regulations Solve Greenwashing Concerns in Sustainable Finance?

Greenwashing impedes real action on climate change and sustainable consumption practices. However, with new legislation, legal pursuits, technological safeguards, and public awareness, it is becoming increasingly difficult for companies to write whatever they want. More stringent laws and international collaborations are essential to guaranteeing that genuine corporate encouragement does not remain bound to imaginary commitments.

As customers, business advocates, or simply members of society, being vigilant of wrongdoings can ensure a clear, transparent, and sustainable future.