How-to guide: How to understand and avoid the risks of greenwashing

Updated as of: 01 August 2025

Introduction

This guide provides an introduction for in-house counsel and their teams to the legal and business risks associated with greenwashing. It also provides practical steps that businesses can take to avoid greenwashing risks within their organisations.

This guide covers:

  1. What is greenwashing
  2. Why greenwashing is a business risk
  3. The rise of greenwashing regulation and legal risks
  4. Reputational risks of greenwashing
  5. Practical tips to protect against greenwashing allegations

This guide can be used in conjunction with the following How-to guides: Understanding environmental, social and governance (ESG); How to understand and implement the ‘E’ in ESG and How to navigate the regulatory and litigation risks associated with greenwashing in the UK and EU and Checklist: Greenwashing risk assessment (UK).

Section 1 – What is greenwashing?

There is growing public concern for the environment, climate change and protection of our planet, and increased public scrutiny of the effect that business activities have on the environment. This has resulted in calls from consumers and investors for organisations to ‘go green’. In general terms, this means becoming more environmentally aware and implementing changes to reduce the amount of pollution and waste generated by the organisation’s activities.

Across the globe, ‘green’ marketing campaigns have become commonplace, as organisations have used environmental slogans and performance claims to appeal to consumers. Green marketing campaigns have included references to an organisation’s low carbon output (eg, Nike), focus on recyclable materials (eg, Carlsberg), claim of being carbon-neutral (Delta), and use of renewable energy solutions (eg, Ikea).

However, the growing green agenda has also resulted in a rise in false and overstated claims about an organisation’s green credentials, often referred to as greenwashing.

‘Greenwashing’ is a term coined in discussion of environmental and climate change issues and occurs when a business or organisation, including a state entity or agent, overstates or exaggerates ‘green’ credentials. Greenwashing occurs when an organisation makes unsubstantiated claims, which convey a false impression and provide misleading information, about how environmentally friendly its product or service is.

‘Greenwashing’ is distinct from other climate change litigation issues, such as when companies and organisations have failed to meet regulatory-imposed or contractually agreed climate targets, or when the impact their actions are having on climate change is questioned.

Section 2 – Why greenwashing is a business risk

Greenwashing detracts attention away from genuine eco-friendly initiatives, causing greater environmental harm as consumers and investors are unable to direct their support to organisations that are genuinely focused on green initiatives.

There is also a significant business risk to an organisation that engages in greenwashing. While greenwashing tactics are often used to improve an organisation’s image, wrongfully seeking to capitalise on ‘going green’ can result in unintended negative consequences, including:

  • Legal risk – with regulatory scrutiny increasing, there is a clear trend of organisations being held responsible for greenwashing by regulators. There is also an increasing prevalence of class action lawsuits from consumers alleging greenwashing against organisations.
  • Reputational risk – greenwashing scandals can create an erosion of trust from consumers and the general public, undermining the credibility of an organisation altogether. Due to the increasing consumer focus on sustainable buying practices, greenwashing scandals can result in significant reputational damage from a consumer perspective.
  • Access to finance – with ESG credentials becoming increasingly important to an organisation’s access to finance, misleading sustainability claims can result in distrust from investors and present financial challenges.
  • Loss of consumer trust – as consumers become more environmentally conscious and better informed, a perception of greenwashing can lead to a significant loss of trust. This erosion of confidence can impact customer loyalty, reduce brand value and ultimately affect long-term revenue and market position.

These risks are explored in more detail in sections 3 and 4.

Outside of legal and reputational risk, the unintended consequences of greenwashing claims can also have a severe impact on the environment itself. Misleading claims can result in consumers, who have every intention to be part of the solution, being part of the problem. For example, consumers may follow an organisation’s green marketing campaign and, as a result, may use or dispose of the organisation’s products in a way that is counter-productive, such as incorrectly attempting to recycle packaging or putting material into compost bins where it may not break down effectively.

In the same way that greenwashing has unintended consequences on the environment, it also poses a health and safety risk. Organisations can put their employees and people in the communities in which they operate at risk by failing to declare any unsafe or harmful products that they are using.

Section 3 – The rise of greenwashing regulation and legal risks

3.1 Existing laws and greenwashing

Greenwashing is the practice of misrepresentation in an environmental and sustainability context, in that it involves providing information about a product or service that is misrepresentative or misleading.

False and misleading statements generally are prohibited by existing legislation that regulates advertising and consumer protection. Individuals are able to make complaints to regulatory bodies, such as the UK’s Advertising Standards Authority, which can result in enforcement action being taken by the regulatory body against the offending organisation.

In the UK, by way of example, existing consumer protection law can be found in:

Existing laws also protect consumers in relation to the quality of goods that are sold to them and the manner in which they are sold, for example, in the UK through the Misrepresentation Act 1967, the Sale of Goods Act 1979, and the principles of common law negligence.

3.2 Legal risks

The legal frameworks referred to in section 3.1 above give regulators a cause of action against businesses involved in greenwashing, as well as in some cases an avenue for individual consumers to bring claims against businesses from which they have brought a product or service.

In the consumer context, establishing a financial or economic loss flowing from greenwashing is often a barrier to bringing a claim; however, class actions are occurring in the US and other jurisdictions. Other forms of civil redress (such as a right to undo a contract) may also be available to individual consumers.

The powers available to regulators taking enforcement action vary across different jurisdictions and regulatory bodies, but the resulting consequences for organisations can include:

  • fines, which in some cases can be issued by regulators without having to take action through the courts;
  • orders to amend or withdraw offending adverts and marketing campaigns;
  • the issuing of opinions by regulators, which have evidential value in court proceedings;
  • litigation, which can be expensive, time-consuming and generate significant adverse publicity; and
  • the possibility of criminal liability for company directors.

Greenwashing-related litigation is also a risk in other contexts, including:

  • investor action – for example, in the UK, the Financial Services and Markets Act 2000 provides a potential statutory cause of action for an investor who suffered a loss due to greenwashing; and
  • corporate disputes – for example, concerning debt or equity transactions where a company is in breach of warranties and indemnities relating to compliance with environmental laws and standards.

3.3 Legal developments in the UK and the EU

Legislation, standards and codes of conduct specifically targeting greenwashing are becoming increasingly prevalent across the globe, coming from a wide range of bodies, including those responsible for advertising standards, consumer protection and financial supervision. These standards are in most cases aimed at supplementing existing legislation and helping organisations to understand how to comply with consumer protection and advertising laws in the context of environmental issues. Some examples are provided in this section.

Although the legal framework has been in place for some time, in 2021, the UK Competition and Markets Authority (CMA) published its Green Claims Code and accompanying guidance. The Code sets out six principles specifying that environmental claims must:

  1. be truthful and accurate;
  2. be clear and unambiguous;
  3. not omit or hide material information;
  4. only make fair and meaningful comparisons;
  5. consider the full lifecycle of the product or their service; and
  6. be substantiated.

The purpose of the Green Claims Code is to help businesses understand and comply with their responsibilities under existing consumer protection law when making environmental claims.

In September 2024, the CMA published a compliance guide to help fashion businesses follow the Green Claims Code when making claims about their products and services.

In France, the Climate and Resilience Law, adopted in 2021, adds an environmental dimension to the French Consumer Code, which now includes greenwashing in the list of misleading commercial practices. Such practices are punishable by imprisonment of two years and a fine of 300,000 euros.

In February 2024, the EU adopted the Empowering Consumers Directive, amending the Unfair Commercial Practices Directive and prohibiting companies from making generic environmental claims for which they are not able to demonstrate recognised excellent environmental performance relevant to the claim.

In addition, in March 2023, the EU Commission put forward a proposal for a Green Claims Directive (GCD) aiming to complement the Empowering Consumers Directive by proposing more specific rules on environmental claims (on their substantiation, communication and verification). The main objective of the GCD is to tackle the risk of consumers being misled by companies over the purchase of products with environmental claims and protect them from ‘greenwashing’. The proposed directive would require companies to substantiate the voluntary green claims they make in business-to-consumer commercial practices by complying with a number of requirements regarding their assessment (eg, taking a life-cycle perspective). Inter-institutional negotiations have not yet concluded. As of 8 July 2025, Denmark, which holds the presidency of the EU Council, has stated that it will continue to negotiate the Green Claims Directive.

The emergence of new laws and standards targeting greenwashing is combined with an increased focus and enforcement action from regulators.

For further information on greenwashing in the UK and EU, see How-to guide: How to navigate the regulatory and litigation risks associated with greenwashing in the UK and EU.

3.4 Greenwashing disputes – examples

The legal risk of greenwashing is best demonstrated by the following examples of greenwashing disputes within a range of sectors, that have occurred in recent years:

  • In June 2020, the UK National Contact Point (UKNCP) for the Organisation for Economic Co-operation (OECD) Guidelines for Multinational Enterprises, set a precedent for complaints against corporate greenwashing. The OECD is an international organisation with 38 member countries that states its purpose as establishing evidence-based international standards. The OECD complaint filed by ClientEarth lawyers alleged that BP had misled the public in its advertising campaign, thereby breaching OECD Guidelines relating to the environment and consumer interests. The UKNCP accepted that the issue was material and substantiated, despite the complaint not proceeding due to BP ending its campaign. The complaint was lodged in response to BP’s ‘Keep Advancing’ and ‘Possibilities Everywhere’ advertising campaigns, which ClientEarth lawyers alleged misled the public by focusing on the company’s low-carbon energy products when more than 96 per cent of BP's annual spend is on oil and gas.
  • In 2022, an Italian court heard the first greenwashing case between corporates. In a landmark decision, the court upheld a corporate request for an interim injunction against a competitor, ordering it to stop making ‘vague, false and non-verifiable green claims’. The ‘green claims’ in question included statements such as ‘made of recycled polyester’, ‘environmentally friendly’, ‘100% recyclable’, and ‘reduction of energy consumption and GHG emissions by 80%’.
  • In 2022, fast fashion brand H&M faced another lawsuit when a claim was filed against it in a federal court in Missouri for ‘misleadingly, illegally and deceptively’ allowing customers to believe that its ‘Conscious Choice’ products are an environmentally responsible purchase.
  • In 2022, the UK’s CMA launched an investigation into three fashion brands, ASOS, Boohoo and George at Asda, to scrutinise their green claims. In March 2024, all three companies signed formal agreements to use only accurate and clear green claims. In addition, all three firms must regularly provide the CMA with reports on how they are complying with the commitments they signed – as well as taking steps to improve their internal processes.
  • ESG data firm, RepRisk, recorded 148 cases of greenwashing from the banking and financial services industry globally between September 2022 and September 2023, rising 70% from the previous year. Many of these cases involved fossil fuels claims.
  • Overall, in 2024, there were 67 global climate litigation cases reported against corporations for misleading advertisement.
  • In June 2025, the Australian Competition & Consumer Commission launched Federal Court action against gas distributor Australian Gas Networks Limited, alleging it made false and misleading representations in its ‘Love Gas’ TV and digital advertising campaign. The ACCC alleges the company misled millions of consumers when it represented, in ads that ran during 2022 and 2023, that the gas it distributes to households on its network will be renewable within a generation, without having reasonable grounds.
  • In March 2024, the District Court of Amsterdam determined that an advertising campaign for Sustainable Aviation Fuel (SAF) and other environmental measures by Dutch flag carrier, KLM, was greenwashing because it painted an overly optimistic picture of the effects of its activities on the environment.

Section 4 - Reputational risks of greenwashing

In recent years, the rates of conscious consumerism have risen, and buyers are increasingly making decisions based on organisations’ sustainability profiles. While this puts pressure on brands to compete with one another in relation to green credentials, particularly in fast-paced sectors such as the garment industry – the negative consequences of greenwashing allegations can be significant, with organisations suffering reputational damage even when no formal action has been taken by regulators or in the courts.

For example, clothing brand Boohoo appointed Kourtney Kardashian-Barker as their new sustainability ambassador in 2022, to coincide with the release of her first clothing collection with the brand. Both the appointment decision and the campaign around her appointment itself faced greenwashing accusations. The decision to appoint Kourtney Kardashian was heavily criticised, with suggestions that she represents an excessive and unsustainable way of living. The collection itself fell under fire due to it featuring items priced as low as £5, on the basis that many cheap clothes come at both a human and environmental cost. The fast fashion retailer dropped its second sustainable collection with the celebrity in September 2023, and the collaboration remains controversial.

Section 5 - Practical tips to protect against greenwashing allegations

To avoid allegations of greenwashing, organisations should keep in mind the following principles when developing marketing campaigns, advertising, social media content, product labelling, website content and any other means through which the organisation conveys information to consumers and stakeholders.

  • Do not use language without a clear meaning.
  • Do not make statements that cannot be supported by evidence.
  • Watch out for hypocrisies, do not invest in green products from ‘dirty’ companies (eg, a small eco-friendly range of products from an inherently unsustainable business).
  • Be wary of content that gives an unjustified green impression, even if indirect, including using images from nature or a green colour in certain contexts.
  • Never use fabricated data or incorrect information.

Steps organisations can take to avoid greenwashing include:

  • Be honest with consumers, employees, investors and other stakeholders when discussing the organisation’s impact on the environment and any measures being taken to improve its green credentials.
  • Make any environmental claims clear and easy to understand.
  • Include details such as specific units of measurement in information and disclosures about the environment.
  • Ensure any environmental data, such as emissions levels or recycling achievements, are kept publicly available and up to date whenever claims about sustainability are made.
  • Seek credible third-party certification where possible (eg, B-Corp status or ISO 14001).
  • When comparing a product or service to a competitor, ensure that the same product type or service is used for comparison, so that claims are not misleading.
  • Make sustainability part of the business model by deconstructing products or services and embedding sustainable practices into processes.

For further detailed information, see Checklist: Greenwashing risk assessment (UK).

This how-to guide was produced in partnership with Ardea International.

Additional resources

What is Greenwashing? How It Works, Examples and Statistics
5 Fast Fashion Brands Called Out for Greenwashing
Why Greenwashing is a Commercial Risk
Greenwashing Risks
COP27: mitigating climate change and navigating the legal risk of greenwashing
What to know about Europe's new anti-greenwashing laws
Greenwashing: Exploring the Risks of Misleading Environmental Marketing in China, Canada, France, Singapore and the UK
Enforcing consumer rights to combat greenwashing

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