10.3 Consequences of Greenwashing
Regulatory authorities worldwide are increasingly monitoring companies that misrepresent their environmental efforts, a practice known as greenwashing. As the focus on sustainable economic transformation grows, greenwashing is coming under greater scrutiny from lawmakers globally. Such activities no longer just pose a reputational risk but are increasingly having legal consequences as well. The recent developments around the topic of greenwashing stem from the need to protect investors. For a sustainable economic transition to succeed, investors need reliable, comparable, and verifiable information to make more informed decisions.
According to the IOSCO’s Call for Action published in 2022, greenwashing is the practice of misrepresenting sustainability-related information, practices, or features throughout the investment value chain.1 Some national jurisdictions have introduced the concept of greenwashing, which generally aligns with the IOSCO description. Some national jurisdictions have expanded the IOSCO definition by considering local characteristics and clarifying the scope of application.2
Figure: Different causes of greenwashing risks3
Greenwashing risks also stem from the fact that the concept of sustainability encompasses many dimensions, which are measured in different units, and that there are goal conflicts between the various sustainability dimensions, as the following section explains.
1 | https://www.iosco.org/library/pubdocs/pdf/IOSCOPD717.pdf |
2 | OICU-IOSCO, Supervisory Practices to Address Greenwashing, Final Report, December 2023, Art. 2.3. |
3 | ESMA, Final Report on Greenwashing, Responses to the European Commission’s request for input on “greenwashing risks and the supervision of sustainable finance policies”, June 4, 2024, p. 7. |