"The Reality of Greenwashing – and How to Avoid It

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1. What is Greenwashing?

Many companies have made efforts to improve their environmental performance in order to meet customer and stakeholder expectations. However, the lack of clear verification rules and established standards has created ambiguity, making it possible for companies to exploit these gaps—or even be accused of greenwashing.

Greenwashing refers to practices, actions, or sustainability claims that do not accurately or fairly reflect the true sustainability profile of an entity, product, or financial service. Such misleading practices can deceive consumers, investors, or other market participants.

(ESMA, 2023).

2. Types of Greenwashing

According to TerraChoice, a Canadian environmental consultancy, greenwashing can be categorized into seven “sins” in its report

 “Sins of Greenwashing”, bao gồm:

  • Hidden Trade‑Offs: Sustainability claims based on a narrow set of attributes without considering other significant environmental issues. E.g., labeling paper as environmentally friendly because it is sourced from certified forests, while ignoring greenhouse gas emissions or chlorine bleaching processes.

  • No Proof: Claims that lack accessible data or credible third‑party verification—e.g., tissue or toilet paper labeled ‘post‑consumer recycled’ without clear evidence.

  • Vagueness: Using ambiguous terms like “all natural,” which can mislead—arsenic, uranium, mercury, and formaldehyde are all natural but extremely toxic.

  • False Labels: Claims or imagery suggesting third‑party certification when none exists.

  • Irrelevance: Environmentally true claims that are unhelpful or meaningless—e.g., “CFC‑free,” even though CFCs have been banned for nearly 30 years.

  • Lesser of Two Evils: Claims that may be true for one product category but distract from broader and more harmful industry-level impacts—e.g., organic tobacco.

  • Fabricated Claims: Purported environmental or sustainability claims without factual basis or certification.

3. Why Do Companies Greenwash?

Complying with ESG standards is not only a corporate responsibility toward society and the environment—it is also a key to attracting stakeholders such as:

  • Consumers: A 2021 study found 75% of Gen Z consumers prioritize sustainability over brand when making purchases. Sustainability is now a core element in marketing strategy and customer acquisition.

  • Employees: Many employees consider an organization's sustainability performance a critical factor in their career decisions—they expect clear commitments and meaningful action from their employers.

  • Investors: With ESG investing on the rise, companies are incentivized to portray themselves as “green” to attract like‑minded investors. IIA found sustainable indexes measuring ESG rose 43% in 2021

. Nghiên cứu của Aviva Investor and Aviva Investors reported that 9 in 10 institutional investors consider ESG when investing in real assets.

  • Regulators: Increasing regulatory requirements for sustainability disclosure and transparency create pressure for companies to follow through on and communicate their ESG commitments.

Importantly, not all instances of greenwashing are intentional. As a 2023 Google Cloud study revealed, many senior executives fear being accused of greenwashing despite having genuine intentions and goals. However, lacking the required planning or resources can lead to unintentional missteps.

4. Risks of Greenwashing

  • Reputational Damage: Accusations of greenwashing can erode consumer trust or trigger investor divestment. A 2020 Shift Insight report found 48% of respondents would limit their purchases from brands linked to greenwashing.(Báo cáo năm 2020 của Shift Insigh) 

  • Legal Risks: Greenwashing may infringe regulatory requirements. For example, Deutsche Bank’s DWS asset manager agreed in September 2023 to pay a $19 million fine to the U.S. SEC over greenwashing allegations.
    Additionally, on 17 January 2024, the European Parliament approved the “Green Consumer Empowerment Directive,” outlawing exaggerated or unsupported environmental claims—including carbon neutrality assertions. Although enforcement may take two years in the EU, this signals stricter scrutiny ahead for businesses in both EU and U.S. markets.

  • Civil Litigation: Beyond regulatory enforcement, greenwashing—especially climate-related forms—is increasingly the subject of civil lawsuits..

5. How to Prevent Greenwashing Allegations

Although specific strategies may vary by industry, organization, or product, businesses should consider these best-practice measures:

GOVERNANCE

  • Policies and Procedures: Develop clear internal policies in collaboration with management, compliance, sustainability, risk, and internal audit teams. These policies should outline potential greenwashing risks and mitigation methods, including documentation and monitoring measures to provide evidence of compliance if accusations arise. Also, anticipate current and future legislation, greenwashing lawsuits, and enforcement actions.

  • Training: Educate employees at all levels about greenwashing risks, illustrating both positive and negative examples to ensure transparency and shared understanding.

  • Market Intelligence: Stay informed about evolving greenwashing incidents and regulatory trends. This helps you understand stakeholder expectations and complies with regulatory guidance.

DISCLOSURE

  • Clarity and Accuracy: Sustainability disclosures must be precise, clear, and understandable. Broad terms like “green” or “sustainable” should be clearly defined, evidence‑based, and verifiable. Avoid cherry‑picking positive data while ignoring negative aspects.

  • Address Gaps Between Claims and Actions: Any discrepancy between public claims and actual practices must be acknowledged and explained—these gaps are often central in enforcement actions.

  • Use Disclaimers for Forward‑Looking Statements: When making forecasts or commitments, use cautious and conditional language to mitigate claims of misrepresentation.

  • Avoid Exaggeration—Explain Conditions: Ensure sustainability claims are verifiable, and outline the conditions, assumptions, and calculations behind any claims.

  • Third‑Party Verification: Independent certification adds credibility and helps support sustainability claims.

  • Legal & Audit Review: All public ESG-related statements should be reviewed by legal counsel and/or audit teams.

DUE DILIGENCE

  • Review Current Claims: Regularly audit all public environmental or sustainability claims on labels, advertising, packaging, or digital media to ensure they are fact-based and justified.

  • Assess Feasibility of Future Commitments: Before making future ESG commitments, plan and model scenarios—including resource availability and technology considerations—to ensure you can realistically fulfill them.

  • Transaction Due Diligence: In transactions such as partnerships, investments, or acquisitions, evaluate the sustainability profile of the counterparty, including supply chain compliance and reputation alignment with your organization’s sustainability strategy.

In Summary

With greenwashing increasingly in the spotlight of regulators and international stakeholders, businesses face mounting pressure to genuinely act and prove their environmental commitments. Government regulations and litigation are raising the stakes: companies no longer have the luxury of making exaggerated or unsupported sustainability claims. Strict compliance and transparent communication not only help avoid legal, reputational, and financial risks, but also demonstrate sincerity in building a sustainable future for our planet and future generations.