What Greenwashing Risks Mean For The Legal Profession

(MENAFN- 3BL) As sustainability issues take center stage in corporate governance, could your company be at risk of inadvertently misleading investors or consumers? Regulators are increasing the pressure on companies to disclose climate-related risks and opportunities, while many key stakeholders are prioritizing sustainability. This means companies are incentivized to make ESG-related claims to stay competitive. Yet business leaders are increasingly recognizing that operating without considering, disclosing or being asked about their impacts is nearly impossible.

As companies respond to demands for both mandatory and voluntary ESG disclosures, the risk of greenwashing grows. Regulators are stepping in to address false or exaggerated claims that misdirect investment and customer spending. Investors and customers are also initiating litigation to hold companies accountable for greenwashing. The reputational, regulatory and litigation risks of greenwashing are higher today than ever before, posing significant challenges for legal and risk management professionals.

Why evaluate greenwashing risks?

Greenwashing refers to practices that deceive or mislead stakeholders into believing a company's goods or services are more sustainable than they truly are. It can take many different forms, from intentionally deceptive statements to unintentional omissions, due to a lack of understanding of ESG risks.

Recent studies highlight how prevalent greenwashing has become. For example:

Regulatory scrutiny on greenwashing is growing across jurisdictions with key recent enforcement actions including:

How legal and risk management professionals can help to manage the greenwashing risks

Legal and risk management professionals play a crucial role as gatekeepers for their organizations, tasked with identifying and avoiding current and future legal and regulatory risks. When it comes to greenwashing, their role is to ensure that the company's ESG claims are accurate, verifiable and well-substantiated. This requires implementing robust ESG due diligence processes and working closely with sustainability teams and external service providers.

Legal and risk management professionals are already responsible for ensuring companies do not engage in misleading statements under securities, misrepresentation, directors' liabilities, consumer protection and advertising laws. Greenwashing now adds another layer to this responsibility, requiring special attention to environmental and sustainability claims. Key challenges include:

Best practices for avoiding greenwashing

Legal and risk management professionals can mitigate greenwashing risks by following these key principles:

1. Make accurate and truthful claims

2. Explain conditions or qualifications

3. Use clear and understandable language.

4. Accountability in the value chain

For legal and risk management professionals, greenwashing presents new challenges but also an opportunity to lead on ESG governance. To mitigate these risks, the first step is to conduct a greenwashing risk assessment within the company, revisiting all ESG claims made across product lines and services. Collaborating closely with sustainability and marketing teams to align claims with the most reliable data, with robust disclosure practices and ongoing monitoring, can prevent potential greenwashing from slipping through the cracks.

ABOUT THE AUTHORS

Elsa Chen is Co-Head of Allen & Gledhill's ESG & Public Policy Practice and Regional Co-Head of its Competition & Foreign Investment Review Practice. Elsa's ESG and public policy experience ranges from assisting clients to map out ESG trends and implications, policy drafting, advocacy, and assisting on legislative changes. She also assists clients in navigating greenwashing and ESG due diligence risks, and the antitrust aspects of ESG. Elsa regularly assists clients in complex antitrust and foreign investments review matters in Singapore and beyond, including merger control, global cartel and abuse of dominance investigations.

Allinnettes (Ally) Adigue has led the Global Reporting Initiative (GRI) in the ASEAN region since 2018. Based in Singapore, she oversees the team responsible for engagement and collaboration with Southeast Asian stakeholders and companies to create a conducive environment for sustainable business and sustainability reporting practices. Prior to GRI, Ally worked in both the public and private sectors in Australia, Philippines and Singapore. She has a PhD in Public Policy from the Crawford School of Public Policy (Australian National University). She also holds two Masters: in Development Studies (Erasmus University, The Netherlands); and Public Administration (Lee Kuan Yew School of Public Policy, Singapore).

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