ESG: courts weigh in as crackdown on greenwashing claims intensifies
More than 2,000 companies globally have been involved in greenwashing incidents over the past four years, as scrutiny of unsubstantiated sustainability claims intensifies. During 2024, there were 918 European-headquartered companies linked to at least one greenwashing risk incident, according to environmental, social and governance (ESG) data provider RepRisk, with the oil and gas, food and beverage, and banking and financial services sectors particularly affected. This compares to 338 companies in 2020.
While legislators such as those in the EU implement more stringent rules to tackle greenwashing – the practice of making false or misleading claims about the green or sustainable credentials of a product – companies are also increasingly being held accountable in court by anti-greenwashing litigation.
Felix Roscam, a lawyer at Freshfields in Amsterdam, says his firm is receiving an increasing number of requests for advice about greenwashing and how to avoid it. ‘Clients are asking “can you vet our marketing campaign and advertising, what are the legal thresholds, how do we navigate this?”’, he says. ‘Companies are definitely becoming more aware of the regulatory framework covering green claims.’
Companies in the EU will soon face legal obligations to prevent misleading sustainability advertising as updated consumer protection regulation will enter into force in 2026. This should be closely followed by the so-called ‘Green Claims’ Directive – which is still to receive legislative approval – under which company sustainability statements will need to be verified by an independent body.
‘The proposed “Green Claims” Directive would require companies to substantiate the voluntary green claims they make in business-to-consumer commercial practices by complying with various requirements regarding their verification,’ says Marit Bosselaar, a lawyer at Loyens & Loeff in Amsterdam. ‘The Directive could have a similar impact on the standardisation of “green” claims in business-to-business relationships.’
Globally, people have started to look at ESG and anti-greenwashing regulation as a device to really shape corporate behaviour
Michael Showalter
Membership Officer, IBA Environment, Health and Safety Law Committee
Other jurisdictions have also begun to test legislation around sustainability claims. In 2024 Canada passed Bill C-59 to improve the way in which greenwashing regulation is handled through the country’s Competition Act. This has opened the door for any private party to bring a claim in respect of misleading advertising practices before Canada’s Competition Tribunal.
In the past, scrutiny of greenwashing claims has primarily been handled by regulatory bodies who enforce breaches of the rules themselves – and this continues today. However, court cases involving such claims are now attracting attention. A report by the Grantham Research Institute in partnership with the Sabin Center for Climate Change Law, published in summer 2024, identified for example a surge in ‘climate washing’ cases – through which allegedly inaccurate government or corporate narratives regarding contributions to the transition to a low-carbon future are challenged – from a handful in 2017 to over 140 reported globally by 2023.
In Australia, the Australasian Centre for Corporate Responsibility is currently awaiting judgment in its case brought against oil company Santos, the first case involving a greenwashing allegation against a fossil fuel producer. The claimant, which is also a Santos shareholder, says statements made by the company about being a producer of clean energy and its plan to reach net zero emissions by 2040 were misleading. Santos has said the allegations represent a ‘biased retelling’ of the company’s net zero roadmap.
One of the most prominent rulings connected to greenwashing is 2024’s judgment by the Amsterdam District Court in FossielVrij NL v KLM. The Court found that some claims made by the airline KLM about the impact of CO2 compensation measures and the use of sustainable aviation fuels were misleading. The case followed an initial ruling by the Dutch Advertising Code Authority (the Reclame Code Commissie), which deemed the sustainability claims made by KLM in a promotion to be misleading, with the airline recommended to cease advertising in this way.
‘Airlines won’t stop greenwashing on their own, which is why this lawsuit is so important,’ said campaigners for FossielVrij NL following the Court’s ruling in spring 2024. KLM said it was satisfied with the result of the case, which it said provided ‘clarity’. The airline also noted that the Court didn’t impose a punishment. The Court did ask KLM to be ‘honest’ and ‘concrete’ in its advertising going forward.
Michael Showalter, Membership Officer on the IBA Environment, Health and Safety Law Committee, echoed the need for external pressure, applied via the law and elsewhere, to curb greenwashing. He says that globally, people have begun to look at ESG and anti-greenwashing regulation as ‘a device to really shape corporate behaviour’.
The FossielVrij NL v KLM case is the kind of greenwashing lawsuit that’ll probably be escalated to national courts more frequently going forward as the precedent set allows other claimants to build new litigation cases.
The enforcement work on anti-greenwashing cases carried out by regulators has already shown potential perpetrators that misleading claims can have significant consequences. The Netherlands Authority for Consumers and Markets (ACM) was, in 2020, one of the first regulators globally to establish greenwashing guidelines. Its ensuing investigations into sustainability claims resulted in the payment of charitable donations by various companies found to have misled consumers.
‘We have been focusing on [taking] more informal actions because a potentially misleading green claim is not always suitable for a fine,’ says Tommi Palumbo, Sustainability Coordinator in the ACM’s consumer department. ‘In this case the impact we want to achieve is promoting sustainable consumption so a fine is not always the best solution. That could lead to green hushing [where companies don’t publicise sustainability information] because most of the time companies committing greenwashing are not purposefully being dishonest.’
The Australian Securities and Investment Commission meanwhile has been particularly active in this area. It has listed as a priority for 2025 the continued scrutiny of disclosures where companies mispresent financial products or investment strategies as environmentally friendly, sustainable or ethical when they’re not.
The groundwork laid by regulators has built the foundation for greenwashing cases to be increasingly tried in a court of law, requiring companies to be more transparent and honest than ever before about their sustainability claims or face potentially severe consequences.
‘Going forward, the involvement of financial actors in climate-destructive conduct, including financing of fossil fuels, and greenwashing angles will make up a larger share of new litigation,’ says Nikki Reisch, Director of the Climate & Energy Program at the Center for International Environmental Law.
Franco Tognarini/AdobeStock.comSession three of the IBA ESG Accelerator Training Programme focuses on disputes and discusses greenwashing litigation in Africa.