Greenwashing is an advancement to green hushing (2023)

The ESG matrix continues to expand with a multitude of legal and regulatory considerations for companies operating in the energy sector, among others. It is sometimes measured, sometimes, to quote the industry, "boring" and "stressful." Certain ESG indices are commendable because they provide benefits, mitigate the risk of greenwashing, and create a more sustainable environment. However, there is a growing opposite effect, known as 'green silence', where companies deliberately downplay their environmental/green credentials or simply keep them secret. This article reviews the current regulatory environment for greenwashing, covers specific jurisdictions, discusses the pros and cons of green silencing, and offers some practical advice.

green wash

Some business leaders are happy with greenwashing when it comes to a company's existing or planned green credentials. Unfortunately, greenwashing seems to be widespread. The UK government reported that a global review of randomly selected websites by the Competition and Markets Authority (CMA) found that 40% of "green claims" made online could mislead consumers.[YO]. The European Commission recently found that 53% of environmental claims made to advertise products in the EU are misleading or unfounded.[ii].

The motivations for this are varied but may include: attracting investors, particularly green investors; Securing green subsidies, which are significant in Western markets[iii]; allay investor concerns; and image enhancement. In a market where capital and liquidity are increasingly scarce and competition is fierce, these drivers should come as no surprise. But whatever the motivation, exaggerated green credentials mean that a company, and in some cases its directors, are at risk of certain legal and business repercussions listed below. The solution seems obvious: just tell the truth. However, the reality is less clear, particularly when a company's statements are open to interpretation, statements reach multiple jurisdictions, and markets change.

Examples of Current Greenwashing Laws

Greenwashing generally falls into three categories, each based on misrepresentation in relation to: (i) corporate and government commitments, (ii) product/service qualities, and/or (iii) environmental/sustainability/climate protection investment disclosures and related financial risks. In short, there are mandatory greenwashing laws (or codes) in the UK, US and Australia, while in the EU and some parts of Asia there are no specific laws, but general consumer and market protection laws. public address the issue. Much has been written on this subject and it is not intended to go into detail, but a high level summary is provided below.

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Investor and stakeholder activism

While the above greenwashing laws provide regulators and, in some cases, consumers with a cause of action, there are also a variety of other claims and demands that investors and/or interested parties can bring (subject to the proof of standing required). While such matters are not within the scope of this article, they may be grouped together, for example, as negligence tort claims, consumer protection class actions, and corporate suppression actions. Non-judicial remedies can also include filing resolutions with a company: a group of Glencore shareholders recently filed a resolution asking the company to disclose how its thermal coal production proposal meets the Paris Agreement target; one of the reasons for the action to help investors assess risk[iv].

green silence

Basically, green muting means downplaying a company's green credentials or hiding such details altogether. The term was first coined by scientists in 2008, but has seen widespread use of late: a 2022 survey by the South Pole found that one in four companies surveyed have set science-based emissions reduction targets, but have not plans to publish them.[v].

Why green-silence?

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There are many reasons why companies may give the green light. Some suggest that it is fear of increased scrutiny and criticism from the media, along with NGOs and authorities in consumer markets, that makes companies reluctant to publish their environmental credentials.[vi]. Others suggest that it is the "fear" that companies will not want to be sued if they do not meet their stated goals and/or are labeled as greenwashing, and that there is little value in being truly open about climate goals. There are also concerns among companies about its legal implications, namely that environmental claims are not part of their value proposition; Not surprisingly, companies do not want to be sued or prosecuted, preferring instead to focus on generating profit for shareholders. In addition, the increase in lawsuits from interest groups, which entail lengthy procedures and significant legal costs, may discourage companies from making ambitious claims. While the talk of promoting private label and demonstrating leadership in green credentials sounds commendable, for some this is not incentive enough and the risks, potential or otherwise, outweigh the rewards.

A corollary to "Why green silence?" it is what it isabilityfrom a company to green-silence? Publicly traded companies are subject to strict rules that say, for example, that a company must disclose information to the market when a reasonable person would believe that doing so would have a material impact on the company's share price.[vii]. It is conceivable that, in some cases, a company's environmental performance and/or environmental objectives are “material” and therefore need to be disclosed. On the contrary, private companies are not usually subject to the same rigor[vii]. As such, there is a greater potential for green silence for private companies than for public companies, so the problem may run deeper than is currently understood.

The effects of green silence

However, green-hushing comes with numerous consequences, for example:

  • Companies may be less ambitious in terms of their green goals and the bias towards optimism is attenuated or denied.
  • Goals and achievements are harder to challenge, limiting knowledge sharing and potentially missing out on opportunities for sectors to decarbonise through collaboration.[ix]
  • Potentially misleading statements are made to the market about a company's true potential and/or intent, which can harm shareholders (see above).
  • Green silencing can put companies at odds with their ESG goals; ESG goals are driven in part by investors and other stakeholders; Therefore, green-hushing risks bringing companies into conflict with their stakeholders.[X].
  • Additionally, ESG factors are becoming increasingly important to investors, and companies that omit such details can result in lost investments. Consequently, Alvera notes that by 2020, more than 3,000 organizations with assets greater than $100 trillion will have signed the Principles for Responsible Investments, a UN-backed initiative that states that ESG factors should be considered in investment decisions. .[xi].
  • It also potentially means missing out on the opportunity to drive positive change and steer your entire industry in a more sustainable direction, attracting investment from stakeholders looking to invest in sustainable businesses, potentially accelerating the development of new sustainable technologies.[xii].

Despite the above, the reality is that increasing pressure on companies to disclose green credentials has led to an increase in negative media coverage and/or environmental claims, with companies wanting to limit their exposure and risk profile. ; This has advantages from both an economic and a legal point of view.

Where is the balance?

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There are a few solutions to refute accusations of greenwashing and mitigate the potential for green silencing.

  • Be honest. It is easier for a company to defend its green credentials when they are based on facts that are accurate, clear, unambiguous, complete and undeniable; ergo, without deception, period. (In the case of green targets, they must also be realistic and achievable.) To this end, ensure that adequate records are kept so that the validity of such evidence can be maintained when necessary.
  • If a more nuanced approach is required, and this is not intended to be deception, but rather nuances that may be open to discussion or conjecture, then qualify such statements with appropriate caveats, while at the same time being accurate, clear, complete, etc. as possible are (see above). If the statement refers to a future ESG-related forecast/outlook, then the use of the qualification "forward-looking statement" ("FLS") is prudent. FLS are common in the public stock market. However, for the uninitiated, this is effectively a disclaimer, with management expressly disclosing that, among other things, the statement is not a guarantee of future performance, is based on reasonable assumptions, involves known and unknown risks, and it should not be trusted. . Still, those who make such statements sometimes break the law because they are unreasonable; that is a very subjective test.
  • Be humble. As a reputable used car salesman once told me (yes, there are people like that), it's better to under-promise and over-deliver than the other way around when it comes to attracting customers. The same goes for ESG-related statements meant to reassure both investors and regulators. Unless there is a compelling reason, either a legal or contractual obligation, to fully disclose such information, you should take a conservative approach. A more detailed explanation or even a corrective explanation can be given later when the situation is clearer.


Not only energy companies will be affected by environmental problems; Voters, investors and consumers will increasingly be able to hold states and corporations to account.[xiii]. Whether or not a company wants to give the green light must be decided on a case-by-case basis. Unless required by law or contract, there is no obligation for a company to disclose its green goals, instead leaving it to company leaders to do what is in the best interest of its shareholders. As uncomfortable as this may be for some, this is the reality of the situation and the assumption that there is a "moral duty" is, with all due respect, hackneyed.

However, it is unimaginative to suggest that the growing trend of ESG-related laws and regulations could eventually require full disclosure of green objectives by companies, particularly public companies and those in the energy sector where policy programs of energy security and decarbonization are accelerating the energy transition. . However, until then, companies are advised to pay close attention to the relevant laws and contracts that affect them and to seek legal advice where necessary, as this space is becoming increasingly complicated both domestically and internationally.

To see the full format of this article (for example, tables, footnotes), access the originalhere.


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