Greenwashing is a marketing tactic used by companies to deceive consumers into believing that their products and services are environmentally friendly. This tactic is used by companies to tap into the growing concern for the environment and the desire of consumers to make more sustainable choices. In India, greenwashing is becoming increasingly prevalent, with companies making false and misleading claims about the environmental benefits of their products.
The phrase first appeared in the 1960s, when one of the most overt instances of “greenwashing” was created by the hotel business. In order to conserve the environment, they posted signs in hotel rooms requesting that guests reuse their towels. The hotels benefited from cheaper laundry expenses.
The problem with greenwashing is that it undermines consumer trust in the products that are truly environmentally friendly. When companies make false claims about the environmental benefits of their products, consumers may become disillusioned and begin to question the validity of all environmental claims made by companies. This can result in consumers becoming less likely to make sustainable choices, as they are unable to differentiate between genuine and false claims.
Green Investment Regulation in India
One of the reasons why greenwashing is so prevalent in India is the lack of regulation. There are no specific laws in India that regulate environmental claims made by companies, and as a result, companies are free to make false or misleading claims without any consequences. This lack of regulation makes it difficult for consumers to differentiate between genuine and false environmental claims, and increases the risk of greenwashing.
The Securities and Exchange Board of India(SEBI) regulates green bond securities in the country. Regulation 2(1)(q) of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (‘NCS Regulations’), defines “green debt security” as debt securities issued for the purpose of raising funds which are utilized specifically for renewable energy, clean transportation, sustainable water management,climate change adaptation, energy efficiency, sustainable waste management, sustainable waste management and biodiversity conservation projects.The guideline has missed commenting upon the issue of ‘greenwashing’ which might have an impact on investor confidence and which falls out of line with the green economy agenda of the current government.
However, SEBI has recently released a circular dated 3rd Feb,2023 easing out investor doubts regarding greenwashing and have laid down some general guidelines for bond issuers to keep in mind while issuing green securities so as to avoid greenwashing. They include among other directions that the issuer of green debt securities shall not use misleading labels, hide trade-offs or cherry pick data from research, make untrue claims giving false impression of certification by a third-party entity and the issuer would at all times maintain the highest standard associated with issue of green debt security while adhering to the rating assigned to it. The circular also provides for continuous disclosure and monitoring of the green operations being undertaken by the issuer and whether they pragmatically result in the reduction of the adverse environmental impact and contribute towards a sustainable economy. Sebi has even instructed issuers to notify investors and permit early redemptions if the majority of investors request it in the event they discover that the money earned from green bonds is being invested outside of the aforementioned asset classes.
Kapila Hingorani vs State Of Bihar, a Supreme Court judgment also mentions the perils of sustainable development and how Sustainable development becomes an instrument of policy for the promotion and protection of corporate governance practices of ‘greenwashing’.
The Advertising Standards Council of India (ASCI) deals with advertising in India and ensures that moral and ethical practices are followed and can also be said to be having some jurisdiction over greenwashing claims. It has also developed an ASCI code. The organization works to ensure that the advertising is respectable, accurate, and safe while upholding fairness and equity in competition; however, as of yet, it has not adjudicated upon any greenwashing cases.
Greenwashing in various jurisdictions
Australia is a pioneer in defending the interests of consumers in this area and has for the past ten years published a green marketing guide through its Competition and Consumer Commission, which states that companies making environmental or “green” claims should make sure that their claims are legitimately supported by scientific evidence. The U.S. has the Federal Trade Commission (FTC) which helps protect consumers by enforcing laws designed to ensure a competitive, fair marketplace. The FTC also offers guidelines on how to differentiate real green products from the greenwashed; in addition to that the Securities Exchange Commission(SEC) also has a Climate and ESG Enforcement Task Force to tackle ESG-related misconduct. The difference between Indian and US regulations would be that the latter provides for very specific guidelines covering not just investments but even consumer products along with a dedicated task force while the Indian regulations have just forayed with general oversight guidelines on green investments. While in the UK there is currently no specific anti-greenwashing legislation. However, businesses falsely advertising products as ‘green’ or sustainable may be caught by existing laws including for misrepresentation or consumer protection laws which prevent false advertising. The Advertising Standards Agency (ASA) can also penalize businesses for misleading adverts and the Competition and Markets Authority (CMA) has issued a Green Claims Code. The European Union has in the works a draft legal proposal to require companies to back up green claims about their products with evidence and EU countries would have to ensure environmental claims are proven against a science-based methodology.
From a global perspective, it is evident that India has a legitimate chance at being one of the leaders in Greenwashing regulation and becoming a stalwart of ESG Compliance. What impact will the SEBI circular have on curbing such dubious practices is yet to be seen but is definitely being considered a positive step towards green investment regulation.
Way Ahead
To combat greenwashing in India, there is a need for greater and definite regulation and oversight of environmental claims made by companies. Governments and non-profit organizations should work together to develop and enforce strict standards for environmental claims, and to ensure that companies are held accountable for their actions.
There have been instances of ESG litigation wherein in March 2022, Shell shareholder ClientEarth announced a landmark claim against the energy company’s directors, accusing them of failing to prepare the company properly for the transition to net zero and manage climate risk. The SEC last year charged Goldman Sachs Asset Management with a penalty of $4 million for failing to follow its policies and procedures involving ESG investments.The New Zealand ASA Complaints Board looked into a complaint regarding a Firstgas Group advertising that claimed that their gas “is going zero carbon” while no information was provided on the timetable or methods that will be used to accomplish this. The board ruled that this amounted to an unsupported environmental claim and demanded that the advertising be taken down. More such litigation can be expected and India needs to be prepared with a solid framework for this and plug all regulatory gaps.
The funds and assets associated with ESG have witnessed immense growth in value in the past few years and are predicted to be valued at over $53 trillion by the year 2025 thereby signifying the need for a greater effort towards its regulation and concrete legislation. Consumers also have a role to play in combating greenwashing. By becoming more informed about the environmental impact of products, consumers can make more informed choices and support companies that are genuinely committed to sustainability. Consumers can also look for certifications, such as the Forest Stewardship Council (FSC) or the Rainforest Alliance, which provide assurance that a product has been produced in an environmentally responsible manner.
Conclusion
Greenwashing is a serious problem in India, as it undermines consumer trust in genuine environmentally friendly products and services. To combat this issue, there is a need for greater regulation, oversight, and consumer education which would otherwise make litigation against companies that practice ‘greenwashing’ difficult. By working together, governments, non-profit organizations, and consumers can help to ensure that the environment is protected with clean investments, and that companies are held accountable for their actions.
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