Sustainability or Misrepresentation: The Legal Risks of Greenwashing in Indian Boardrooms
With the evolution of the global corporate landscape, certain themes revolving around sustainability and climate change have gained significant traction. Think of ESG (Environmental, Social, and Governance) considerations, which are gradually becoming an integral part of board meetings, investor discussions, and public communications. Naturally, India is no stranger to this phenomenon. However, while companies are devising strategies to strengthen their environmental credentials, many of them are treading on a dangerously thin line between aspiration and misrepresentation. This brings us to the phenomenon of Greenwashing, which is inspired by the term “whitewashing”, and is the practice of making unverified, misleading, and often exaggerated claims pertaining to their processes, offerings, and operations. These claims, which arise from the concealment or outright omission of harmful attributes, are made to create a false impression that the company is engaging in practices which are more sustainable and less harmful.
It is important to highlight at the outset that engaging in greenwashing is no longer a reputational or marketing risk; and in fact may have legal repercussions as India’s stance on greenwashing laws is rapidly evolving. This article outlines the shift in the Indian landscape, and how boardrooms should be acting on it.
Greenwashing in the Indian Context
While India doesn’t have a standalone legal definition of greenwashing (yet), the concept operates on similar principles. This practice is prevalent in sectors like fashion (more particularly fast fashion), food, and packaging. With the tides turning in favour of eco-friendliness, sustainability, and ethical practices, people are becoming increasingly conscious of everything they consume, and the environment they live in. While several companies have adopted ethical processes to keep up with consumer demands, a large chunk of companies, to this date, use deceptive and misleading tactics to present themselves as modern, sustainable, and environment-friendly. Since India is one of the largest and fastest growing markets in the world, it faces a host of challenges and loopholes in the domain of greenwashing. Speaking of loopholes, it becomes pertinent to mention how Indian companies use Corporate Social Responsibility (CSR) as a tool to greenwash their image. Outlined below are some examples to demonstrate how greenwashing happens in India:
– Fast fashion brands claiming to produce ‘sustainable’ fashion by using eco-friendly material, when in reality they indulge in extreme waste generation, overproduction, and exploitation of labour.
– Several food brands claim that their products are ‘organic’, ‘chemical-free’, ‘ayurvedic’, or ‘100% natural’ to give an impression of safety, cleanliness, and health consciousness; without there being any actual certification for the same.
– More often than not, companies claim to reduce plastic usage by using terms like ‘biodegradable packaging.’ However, most of these products end up in landfills for years, and may even be incinerated by using methods which have devastating effects on air, land, and water quality.
There was once a time when these claims were not given much thought. However, we are now at a juncture where they sit at the intersection of corporate governance, security regulations, and corporate & consumer laws.
The Shift from ‘Optional’ to ‘Obligatory’: How Authorities are Shaping the Shift
Until recently, compliance with ESG considerations was pretty much voluntary. Companies could get away with fancy, carefully orchestrated sustainability reports with little to no accountability. However, greenwashing has now come under the radar of regulatory authorities, including the Reserve Bank of India (“RBI”), the Securities and Exchange Board of India (“SEBI”), the Central Consumer Protection Authority (“CCPA”), and the Advertising Standards Council of India (“ASCI”). It all started in 2023 when SEBI released its Greenwashing Circular, followed by RBI’s circular dated 11.04.2023, ASCI guidelines of February 2024, and last but not the least: the Draft CCPA Guidelines of 2024.
SEBI
One of the first regulatory bodies to act on this phenomenon, SEBI released the ‘Dos and Don’ts relating to Green Debt Securities to Avoid Greenwashing’ Circular (“Greenwashing Circular”) in February 2023; stipulating certain requirements for entities issuing green debt securities. These include, avoiding misleading/ false claims about third party certifications; avoiding the selective presentation of information, and ensuring contribution towards a sustainable economy.
Moreover, SEBI, through its BRSR Code, now makes it mandatory for the top 1000 listed companies to report their ESG policies and investments. The aim is to enhance transparency, and encourage sustainable business practices. It truly is a global approach, considering its alignment with global frameworks like the GRI and TCFD.
RBI
Titled ‘Framework for Acceptance of Green Deposits’, the RBI, vide this notification, has identified certain environment friendly projects and sectors which would be eligible for financing from funds raised through ‘green deposits.’ To receive benefits, companies must fulfil certain requirements pertaining to the same, such as proper reporting and disclosures, compliance with impact assessments; and annual and independent third party assurances. The aim of this framework is to foster a Green Finance Ecosystem (GFS), which encourages investment into environmentally friendly and sustainable projects.
ASCI
Being the regulator of advertising activities in India, ASCI issued its Green Claims Guidelines, advising advertisers to ensure that their sustainability claims are substantiated, verifiable, and not misleading. Moreover, advertisers should not make claims about benefits which are the result of a legal obligation applicable to all competing products and services. There are certain requirements which must be met to ensure that a claim doesn’t count as greenwashing. The ASCI has taken action against several prominent market players; including a household name who made false claims about its soaps being “100% natural”, when they in fact contained synthetic ingredients.
CCPA
In October 2024, CCPA issued the Draft Guidelines for Prevention and Regulation of Greenwashing or Misleading Environmental Claims. Aimed at promoting transparency, these guidelines stipulate that:
– Claims made by businesses should be backed by verifiable evidence; and
– Vague terms, symbols and imagery which may mislead consumers, should not be used.
These guidelines define greenwashing as “any deceptive or misleading practice where relevant information is concealed, exaggerated, or vague claims are made regarding the environmental benefits of a product or service”; and propose penalties for non-compliance.
The Global Context
As stated earlier, governments across the world are working on holding businesses accountable for actions which have an impact on the environment. Adopting a decisive approach, the EU is working on implementing certain practices in the coming years, which will crack down on greenwashing. Implications include, but aren’t limited to restriction on the use of vague and generic terms like “100% natural” and “eco-friendly”, if not backed by solid evidence. Though the Green Claims Directive has been put on hold for now due to legislative challenges, it will certainly be interesting to see how the European Parliament and European Commission navigate the finalization and implementation of these directives; and subsequently, the impact they’ll have on businesses.
The US, on the other hand, addresses concerns pertaining to greenwashing through the Federal Trade Commission’s (FTC) Green Guides, and the FTC Act; which curb misleading marketing practices. Further, the US has seen a rise in class action claims regarding sustainability; particularly in the aviation industry. The US Securities and Exchange Commission (SEC), too, has been at the forefront of combatting greenwashing. With that being said, companies making false and/ or exaggerated claims are now at a greater risk of being subjected to litigation.
Coming back to India, while litigation is not an imminent concern for businesses engaging in greenwashing, it is surely something which needs to be taken into consideration at a time like this when the legal and regulatory framework is actively evolving.
Navigating the Situation in Boardrooms
In the end, all reporting (whether greenwashing or not) boils down to decisions being made, and resolutions being passed in the boardroom. Keeping in mind recent regulatory changes, and the ever-increasing inclination (of investors, consumers, and regulatory bodies) towards sustainability, below are some suggestions which can be considered by executives and their counsels:
– Align internal policies with public communications
– Ensure that every claim is substantiated. This helps your company gain consumer confidence, and avoid getting into a regulatory soup
– Generate ESG awareness by hosting training sessions/ workshops for board members and PR teams
– Ensure the proper and complete involvement of legal counsels while framing the ESG policy.
Conclusion
Undoubtedly, ESG is here to stay. It is being regulated, investors are demanding for it to be considered, and most importantly, sustainability is not a marketing gimmick. Exaggerated, unsubstantiated claims won’t come without consequences, including loss of consumers, reputation; and possibly, getting sued. Simultaneously, ensuring compliance with the regulations might lead to additional costs being incurred by companies. This may be particularly challenging for smaller businesses, including MSMEs, as well as businesses with a cross-border presence. With accountability being higher now more than ever, it ultimately comes down to how businesses decide to act upon these changes: Will they adapt? Will they find and exploit loopholes? Or will they face the implications of their actions? Only time will tell.
While Greenwashing might be seen as a buzzword today, it can most definitely lead to legal implications tomorrow. So, now is the time to strategize and play safe.
Authored by: Priyamvada Lonial, Advocate, SUO Law Offices
