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Greenwashing refers to a company¡¯s act of exaggerating its environmental efforts to mislead consumers into believing it is more eco-friendly than it actually is. Essentially, the company is spreading false green information to create a responsible environmental image. With stricter ESG regulations, the Shanghai Stock Exchange, Shenzhen Stock Exchange and Beijing Stock Exchange have each issued Guidelines for Sustainable Development Reports of Listed Companies (Trial) effective from 1 May 2024, significantly raising the bar of corporate ESG compliance management.

Types of greenwashing

Generally, greenwashing is categorised into seven forms, namely: vague expression, hiding the truth, insufficient evidence, irrelevance, fraud, beating around the bush, and certification-centric. These can then be grouped into two types: active and passive greenwashing. Active greenwashing is evident in corporate promotions and reports such as false environmental claims on official websites and in advertisements. Passive greenwashing, on the other hand, involves selective or omitted disclosures, such as making energy-saving or zero-carbon commitments in reports without providing supporting evidence.

Greenwashing examples

Famous instances of greenwashing include:

• An automaker once installed in its vehicles an illegal software that had been designed to detect whether the vehicle was under emissions tests and automatically altered the vehicle¡¯s performance to reduce the emissions level during testing, aiming to circumvent US regulations;
• A beverage company claimed to reduce its water consumption by 4% annually without disclosing any specific data. It also promoted its award-winning ¡°plant bottle¡±, but no experimental data had ever been released regarding the R&D process; and
• An oil giant, which allocated more than 96% of its annual expenditure to petroleum and natural gas, was accused by an NGO of misleading advertising by promoting low-carbon energy products.

Beyond these famous examples, the Chinese media outlet, Southern Weekly, publishes a greenwashing ranking, highlighting notable domestic cases.

Regulations and punishment

Securities Law on information disclosure. The Securities Law (2019 Revision) stipulates in article 78 that the information disclosure obligor shall perform the obligations of information disclosure in a timely manner. The information disclosed shall be true, accurate, complete, concise, clear and easy to understand, and shall not contain any false or misleading statement or material omission. Violators of information disclosure obligations may face orders to rectify, warnings and fines. Immediate supervisors and responsible persons involved may also be subject to warnings and fines.

Advertising Law on green products promotion. Article 28 of the Advertising Law (2021 Amendment) states that advertisements containing false or misleading content that deceives or misleads consumers constitute false advertising. Clauses 4 and 5 of this article specifically stipulate that fabricating the effects of using a product or service, as well as other scenarios where false or misleading content deceives or misleads consumers, are considered false advertising.

In accordance with the Advertising Law, advertisers who publish false advertisements may face such penalties as: orders to cease advertising and eliminate the impact; fines; revocation of business licences; annulment of advertisement approval; and a one-year ban on advertisement review applications.

Punitive damages for misleading and defrauding consumers. The Consumer Rights Protection Law (2013 Amendment) stipulates in article 20 that businesses shall provide consumers with truthful and comprehensive information regarding the quality, performance, usage and expiration of goods or services, and shall not engage in false or misleading advertising. In accordance with article 55 of the same law, businesses found guilty of fraudulent practices shall be liable for punitive damages.

Violations of environmental information disclosure obligations or compliance requirements. In accordance with article 28 of the Administrative Measures for the Disclosure of Environmental Information by Enterprises, companies failing to duly disclose environmental information, or providing false or inaccurate information, shall receive correction orders and public reprimands from the authorities, and may be fined accordingly. Under article 29, enterprises failing to disclose the environmental information subject to relevant rules and timeframes, or failing to upload the environmental information to the mandated system, may face orders for correction, public reprimands and fines.

Violations of certification administration. The Administrative Measures for Organic Product Certification (2022 Revision) sets out regulatory requirements on texts and images that may mislead the public into believing a product is organic.

With regard to carbon-related certifications, the Notice on Clarifying the Filing Requirements for Direct Carbon-Related Certification Rules, issued by the State Administration for Market Regulation, mandates self-inspection of filed certification rules, requiring cancellation of non-compliant rules and revocation of certificates issued accordingly.

Legal risk prevention

Listed companies, multinational corporations and large conglomerates tend to adopt stringent measures of compliance management, but weaker ones in environmental protection and ESG. It is recommended that enterprises verify the accuracy of every statement in their reports and promotional material. For green labels and certifications such as carbon neutrality and zero carbon in particular, companies should examine their authenticity, reliability and traceability to ensure validity in promotions.

Additionally, enterprises should establish an ESG management system tailored to their specific circumstances. Beyond environmental information disclosure, ESG management is increasingly influenced by international policies, investment philosophies and requirements, as well as local regulations.

Enterprises are to develop a comprehensive supply chain ESG management system in compliance with the information disclosure requirements so as to achieve their goals of sustainable development through effectively anticipating and mitigating risks.