With companies vying to portray themselves as responsible business enterprises, ‘greenwashing’ has become a concern in recent times. In this JSA podcast our Environmental Disputes and ESG Practice Partner, Nawneet Vibhaw briefly explains the meaning of ‘greenwashing’ and highlights the recent regulatory developments meant to curb it.
Nawneet highlights the definition of ‘greenwashing’ provided by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) and talks about the initiatives by the Central Consumer Protection Authority, Advertising Standards Council of India and the Government of India.
Transcript:
The businesses today are experiencing a paradigm shift in consumer preferences based on environmental, social and governance parameters. This has also impacted the investor demands and most importantly the regulator expectations.
With the global demand being guided by environmental considerations, companies are tempted to portray themselves as being ‘green’ when the reality may be different. This practice of incorrectly portraying one’s activities as being environment-friendly has been termed ‘green-washing’.
The Reserve Bank of India, last year in its circular on the “Framework for acceptance of Green Deposits” dated 11 April, 2023 defined “greenwashing” as the “practice of marketing products/services as green, when in fact they do not meet requirements to be defined as green activities/projects.
Thereafter, on 12 July, 2023 SEBI issued a circular titled “BRSR Core – Framework for Assurance and ESG Disclosures for value chain”. This framework has introduced the reasonable assurance requirement for companies under the BRSR Core, which will help in checking greenwashing. The assurance of company’s disclosures will ensure that the claims made are duly substantiated and not misleading in any manner.
The Securities and Exchange Board of India (SEBI), earlier this year in February, issued directions for ‘green debt securities to avoid green washing’ wherein it has defined ‘greenwashing’ as “making false, misleading, unsubstantiated or otherwise incomplete claims about the sustainability of a product, service or business operation”.
These directions clearly mention that the Issuers of green debt securities are required to avoid misleading labels, hiding trade-offs, or selectively presenting data to highlight green practices while obscuring unfavourable ones. They are required to maintain the highest standards for green debt securities, adhere to assigned ratings and avoid making false claims about third-party certifications among other requirements.
The Central Consumer Protection Authority, also, in February this year had released the Draft Guidelines for the Prevention and Regulation of Greenwashing to seek comments from the public. The Guidelines prescribe various disclosures that would be required to be made by companies making green claims. For example, companies are required to:
- Ensure that all environmental claims in ads or communications are fully disclosed, either directly or through technology like QR codes or web links.
- Avoid selectively presenting data to favourably highlight environmental claims while hiding unfavourable aspects.
- Clearly define the scope of environmental claims, specifying whether they relate to products, manufacturing processes, packaging, product usage, disposal, services, or service provision processes.
- All environmental claims are required to be backed by verifiable evidence.
- Comparative environmental claims that compare one product or service to another must be based on verifiable and relevant data.
- They are required to substantiate specific environmental claims with credible certification, reliable scientific evidence, and independent third-party verification for authenticity.
The Advertising Standards Council of India, a self-regulatory body, introduced the “Guidelines for Advertisements Making Environmental/Green Claims” in February 2024. These guidelines aim to ensure that environmental claims made by advertisers are reliable, verifiable, and transparent.
The Union Budget 2024-25 has also laid the groundwork for significant regulatory developments in an effort to curb the menace of greenwashing. One such development is the commitment by the hon’ble finance minister to create a climate finance taxonomy for India which will classify economic activities that support climate commitments and other environmental goals. This taxonomy will ensure consistency, thus avoiding the chances of green washing.
Therefore, there is a need that the companies do not indulge in green washing in any manner as it would not only invite regulatory action but would also lead to reputational damage, thus leading to losses, potential fines and decreased valuation.
The businesses should brace themselves for heightened scrutiny by ensuring that they invest the time and resources to align their products and market strategies as per the applicable regulations and avoid making incorrect claims.
Nawneet Vibhaw is a Partner at JSA and specialises in environmental advisory, environmental disputes and Environment, Social and Governance (ESG) matters.