Understanding greenwashing is not just about mitigating your liability risks. It is the key challenge in getting ESG right in the years to come.

CONTENTS

1. Is greenwashing defined under Belgian law?

2. Is greenwashing defined under EU law?

3. What are examples of claims that may turn out to be greenwashing?

4. Can greenwashing be considered as a misleading commercial practice?

5. Can greenwashing be considered as misleading under financial legislation?

6. Is proportionality a risk limiting factor?

7. What are the don'ts when considering greenwashing risks?

8. What are the do's for limiting greenwashing risks?

9. What about 'greenbleaching' as a way to limit greenwashing risks?

10. What are other possible strategies to reduce risk?

1. Is greenwashing defined under Belgian law?

On the Belgian level, no legal definition exists to date.

That said, on 14 June 2022 the Belgian Federal Ministry of Economy published guidelines on environmental claims (SPF Economy Guidelines, in Dutch and in French).

In these SPF Economy Guidelines, greenwashing is described as "commercial practices, which consist of misusing a green positioning or environmental practices for marketing purposes. (...) Greenwashing can include all forms of business-to-consumer commercial practices related to the environmental characteristics of goods or services. In other words, a company engages in greenwashing if: the product which ecological merits the company promotes attaches little or no importance for the environment; sustainability arguments are cited whilst the company is little or not at all committed to a sustainability approach; the message it conveys to consumers is misleading as to its sustainable development efforts or the environmental quality of a product it promotes".

The SPF Economy Guidelines explicitly mention that they are subject to change and can be adapted at any time.

2. Is greenwashing defined under EU law?

No. On the EU level, greenwashing was rather narrowly described in Preamble 7 of the Commission Delegated Regulation (EU) 2021/1253 of 21 April 2021 as: "(...) the practice of gaining an unfair competitive advantage by recommending a financial instrument as environmentally friendly or sustainable, when in fact that financial instrument does not meet basic environmental or other sustainability-related standards".

However, in the past months, regulatory authorities seem to be adopting a much more expansive view. For instance, ESMA in its Sustainable Finance Roadmap 2022-2024 (published on 10 February 2022) referred to greenwashing as a "phenomenon" which includes not only intentional but also unintentional behaviour and which includes not only acts but also omissions. Greenwashing in that sense manifests itself via misrepresentation, mislabelling, mis-selling and/or mis-pricing. This more expansive approach was confirmed by ESMA Chair Venera Ross in a speech of 9 June 2022.

On 15 November 2022, the three European Supervisory Authorities (EBA, EIOPA and ESMA; together the ESAs) published a Call for evidence on greenwashing (the Greenwashing Call for Evidence) to gather input from stakeholders on how to understand the key features, drivers and risks associated with greenwashing and to collect examples of potential greenwashing practices. Feedback reports can be expected in May 2023.

The Greenwashing Call for Evidence of course cannot be considered as an interpretation or position. That said, there may be some indications on how a future legal definition of greenwashing may take shape. In that sense, three important points made be noted:

  • The ESAs expressly point out that, whilst typically more prominence is given to environmental aspects, greenwashing refers to sustainability-related claims not only on environmental but also on social and governance aspects.
  • The ESAs take an expansive view on the potentially 'misleading' nature of a sustainability-related claim. The misleading nature may derive from: (1) selective disclosures, (2) cherry-picking positive information, (3) omission of relevant information, (4) exaggerated claims, (5) failure to deliver on claims, (6) vagueness, (7) ambiguity or lack of clarity, (8) oversimplistic statements, (9) untimely information, (10) poor advice; etc.
  • The ESAs look at all channels through which the sustainability-related claims are communicated. This can be via: (1) regulatory documents, (2) ratings/benchmarks/labels, (3) product information, (4) marketing materials, (5) product manufacturing, (6) product delivery, (7) monitoring etc. The ESAs also specifically consider communication of claims currently not explicitly covered by the EU sustainable finance legislation (e.g. references to ESG awards made in marketing materials, claims made on websites, social media, etc).

In addition to the joint action by the ESAs it should be expected that in the coming months greenwashing will be a key political focus.

First, on 30 March 2022, the European Commission has introduced a proposal to amend the Unfair Commercial Practices Directive 2005/29/EC (UCPD) to combat greenwashing. This proposal is still in the process of being discussed by the European Parliament and the European Council. If adopted, these new rules will likely have an important impact. The proposal for instance characterizes claims related to future environmental performance as potentially misleading if they are "without clear, objective and verifiable commitments and targets and without an independent monitoring system".

Second and even more importantly, after long political debate, on 16 December 2022, Directive 2022/2464 as regards corporate sustainability reporting (CSRD) was finally published. Recital 13 of the CSRD refers to greenwashing as one of its core justifications: "there is a clear need for a robust and affordable reporting framework that is accompanied by effective auditing practices to ensure the reliability of data and avoid greenwashing and double counting". The CSRD entered into force on 5 January 2023, with the Member States being now required to transpose these key reporting rules into their national laws by July 2024.

To view the full article please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.