As global warming and climate change become more prevalent in the public zeitgeist, companies are eager to exhibit a connection with the concerns of their consumers by demonstrating that they too are climate conscious. However, there are inherent risks to this as companies may fall foul of what is known as Corporate Greenwashing.
Greenwashing refers to the practice of making misleading, exaggerated, or unsubstantiated claims about the environmental benefits of a product, service, or company operation. This process has often involved marketing strategies that suggest a company is more environmentally responsible than it truly is.
Whilst there are instances of companies which have been caught intentionally greenwashing their products, services or operations to gain a competitive edge, the vast majority of instances are unintentional. Unintentional greenwashing may occur due to poor oversight or misunderstanding of Environmental, Social and Governance (“ESG”) obligations. In this age of heightened climate consciousness and regulatory scrutiny, greenwashing is not only unethical, but it can also carry significant legal, financial, and reputational consequences.
Case Studies
There are a number of case studies which highlight how companies, both intentionally and unintentionally, have engaged in greenwashing with serious consequences.
Car Manufacturer
Perhaps one of the most infamous examples of corporate greenwashing is the diesel emissions scandal involving a major European car manufacturer. In 2015, it was discovered that the company had installed “defeat devices” into around 11 million diesel vehicles to cheat emissions tests. While they had heavily marketed their vehicles to emphasise fuel efficiency and clean emissions, the reality was starkly different. The company ultimately paid over $30 billion in fines and settlements globally, highlighting the catastrophic financial and legal consequences of deliberate greenwashing.
Fashion Industry
Turning now to the fashion industry, a global fast fashion retailer introduced environmental scorecards to inform customers about the sustainability of its clothing. However, in 2022, it was revealed by a campaign group that many of these labels were inaccurate or misleading. Subsequent investigations suggested that the retailer had overstated the environmental benefits of certain garments, undermining public trust in the brand’s sustainability claims. For example, a dress was found to have a scorecard stating it used 20% less water than the average garment, when in reality it actually used 20% more. The backlash demonstrated how attempts to align to consumer values without robust data and transparency can damage reputation and invite scrutiny from regulators and campaigners alike.
Homeware Retailer
A leading international home furnishings retailer came under fire in 2020 due to a supply chain oversight. Despite positioning itself as a leader in sustainability, the company faced criticism after an 18-month investigation by an environmental campaign group revealed that it had been sourcing wood illegally harvested from protected forests. Although the wood had been certified by a third-party certification body, the situation exposed the limitations of certification and the difficulty of maintaining ethical supply chains. This incident underscores how even well-meaning sustainability efforts can fall short without rigorous due diligence.
Airline
In 2020, a well-known low-cost European airline ran an advertising campaign claiming it had the “lowest carbon emissions of any major airline” in Europe. The UK’s Advertising Standards Authority (“ASA”) found that this claim was misleading, as it lacked the necessary context and failed to present emissions data in a way that consumers could meaningfully understand. As such, the ASA ordered that “the ads must not appear again”. This case illustrates the importance of grounding environmental claims in clear, verifiable, and comparative data.
The repercussions of being accused of greenwashing can be severe, extending beyond reputational damage. As shown by the diesel emissions scandal, deliberate deception can result in staggering financial penalties, prolonged litigation, and lasting damage to consumer and investor confidence.
Even in cases where greenwashing arises from oversight rather than intent, the fallout can still be significant. Both the fashion and furnishings examples faced public backlash, loss of trust, and increased scrutiny from regulators and NGOs. These cases highlight how insufficient diligence or flawed verification processes can expose even well-meaning companies to reputational and operational risk.
Moreover, as the airline case shows, regulatory bodies such as the ASA are increasingly active in policing environmental claims in advertising. Being found in breach can result in forced withdrawal of marketing campaigns, reputational damage, and a public perception of dishonesty or opportunism. In all cases, the underlying theme is clear: consumers, regulators and stakeholders are increasingly intolerant of superficial or inaccurate sustainability claims. Once public trust is lost, it can be both extremely difficult and costly to regain.
How ESG Audits Can Help
ESG audits are an essential tool for companies seeking to navigate the complex landscape of sustainability, regulation, stakeholder expectations, and reputational risk. An ESG audit provides an in-depth evaluation of a company’s performance and practices. It examines how well a company aligns with sustainability standards and assesses its impact on various stakeholders. By subjecting internal claims and operations to scrutiny, companies can identify the gaps between their stated environmental commitments and their actual practices.
In the context of greenwashing, ESG audits provided by Prospect Law can serve as a critical line of defence. They enable businesses to substantiate environmental claims with evidence, correct inaccurate or outdated information, and detect weak points in the supply chain or operational processes that may inadvertently contribute to false sustainability narratives. Crucially, audits help senior management understand where the business may be exposed to legal or regulatory risk. Allowing for preventative action as opposed to costly reactive damage control once scrutiny arises.
Article by Harvey Riggot
Harvey Riggott is studying BPC at the University of law with the aim of becoming a barrister. Harvey intends to specialise in personal injury and clinical negligence however, he is fascinated by employment, environmental and property law.
