PUBLICATION in Le Monde du Droit: "Greenwashing, a high risk practice"

Since greenwashing is considered as deceptive commercial practices, the environmental and climate commitments made by companies fall under the criminal law (art. L121-2 and following of the consumer code). In addition to criminal sanctions, civil and administrative sanctions may also be applied. Companies must therefore be careful in their extra-financial communications on environmental and climate issues.

NGOs are not the only ones chasing greenwashing practices, i.e. misleading advertising by companies on their climate commitments. After the Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR), and after the Securities and Exchanges Commission (SEC) in the United States, their British counterpart - the Financial Conduct Authority (FCA) - submitted for public consultation on October 25, 2022 a draft regulation on sustainable information and sustainable investment labels [1]. The text should apply from June 2023, reflecting the concern of public authorities not to accept greenwashing.

• Information or images that are not only misleading, but also equivocal

Since the Paris Agreement [2] put the fight against global warming at the heart of the world's concerns, the scope of greenwashing as a deceptive/unfair commercial practice has been extended. It is no longer just a question of misleading advertising, but possibly of commitments or allegations that are merely equivocal. This is clear from the British [3] and American [4] legislation as well as from the French legislation.

In France, Article L121-2 of the Consumer Code, amended in 2021 [5], defines greenwashing as any "false allegations, indications or presentations or those likely to mislead [in particular the consumer and investors on] the essential characteristics of the good or service, namely: its substantial qualities, its composition (...), its properties and the results expected from its use, in particular its environmental impact [and] the scope of the advertiser's commitments, in particular with regard to the environment".

Greenwashing occurs when communication, branding or marketing intentionally or inadvertently contains false or misleading information about the environment or the sustainability of a product or service. This can occur when a product/service or the company itself is misrepresented as "green" or "clean", when an environmental initiative is overstated, or when the volume of greenhouse gas ("GHG") emissions is understated. Greenwashing can also occur when a company promotes a positive environmental image of its product/service or supply chain while failing to mention the negative aspects [6].

• Legal risks regardless of the medium or form of the images or writings

The risk of being accused of greenwashing has increased considerably as a result of European directives reinforcing the transparency obligations of companies. This is the case with the obligation to publish a declaration of extra-financial performance (DPEF) under Article L225-102-1 of the French Commercial Code [7] or the greenhouse gas balance sheet (BEGES) provided for by the French law on Energy Transition for Green Growth [8]. Although the vigilance plan to be published in the framework of the application of the law on the duty of vigilance [9] does not concern climate change as such, but the measures to prevent environmental damage to be put in place, some stakeholders, including NGOs, have seized upon this publication to find erroneous or triumphalist statements on "greening" that fall under the ban on greenwashing.

Greenwashing is independent of the medium and can take all conceivable forms of marketing: whether by traditional means (advertising inserts, flyers, posters, photos, packaging [10], order forms, catalogs [11], billboards, interviews with executives in the press [12], comments at conferences, etc.) or digital means (Internet site [13], applications, hyperlinks, social networks, videos, radio [14], television [15], etc.)

This includes both financial and non-financial reporting. The universal registration document - including the EPFD and the BEGES - is to be looked at with the greatest attention from this point of view. However, all written material, all interviews, all press releases or even the climate strategy [16] presented at a general meeting or published in a sustainable development report may contain allegations constituting greenwashing.

• Risks of heavy penal sanctions

Not only companies, whatever their corporate form and sector of activity, but also their managers may be held criminally liable for greenwashing on the basis of articles L121-2 et seq. of the French Consumer Code, the Consumer Protection Act in the United Kingdom and the US Federal Trade Commission Act.

The "Climate and Resilience" Act of 2021 [17] has increased the criminal penalties incurred. Now, under Articles L.132-2 et seq. of the Consumer Code, the offending executive or director faces two years' imprisonment - up to seven years if the offence was committed in an organized gang - and a fine of 300,000 euros.

In the case of legal entities, the fine can be as high as 1,500,000 euros [18]. The fine may be adjusted "in proportion to the benefits derived from the offence" up to 80% of the average annual turnover [19] or of the expenses incurred for the offending practice.

In addition, the additional penalties provided for in Article 131-39 of the French Penal Code [20] and the publication, under penalty, of the decision or of a press release on the reasons for the decision and its provisions, at the expense of the convicted person, may be imposed [21].

• Significant risks of civil sanctions

Companies may also be held civilly liable by consumers - individually or through class actions - and their associations, or even shareholders. 

Class actions brought by consumers are provided for in French [22], British [23] and American [24] legislation; it should be noted that in France, in addition to the injured individuals, approved associations may bring actions. In the United States, class actions have been brought against H&M for its allegations concerning the sustainability of its products [25] and against KLM Royal Dutch Airlines for having claimed that by offsetting its GHG emissions, it had been able to cancel out the negative environmental impact of air travel [26]. 

Another type of litigation that is growing rapidly is that of shareholders. The Commercial Code and the Monetary and Financial Code in France, the Financial Services and Markets Act (FSMA) in the United Kingdom and the Dodd-Frank Act in the United States allow shareholders of listed companies to sue for damages for false or misleading climatic claims contained in disclosure documents such as prospectuses and annual reports [27]. In the United States, the shareholders of Exxon Mobil Corporation sued it, claiming that it had misled them on the commercial consequences of regulations aimed at fighting global warming [28].

• The risk of professional sanctions by independent administrative authorities

These authorities include competition authorities [29], advertising control authorities [30] and market authorities for listed companies, banks, investment funds and asset management companies.

The sanctions they impose have far-reaching consequences. In addition to fines, they may issue warnings, reprimands, or even a temporary or permanent ban on doing business, as well as withdrawing approval. Moreover, in France, the combination of these administrative sanctions with criminal sanctions has been judged to be in conformity with the Constitution [31].

The AMF and the ACPR have a severe assessment of the all too often misleading or equivocal nature of climate claims. In their third joint report, "Monitoring and evaluation of the climate commitments made by market participants" [32], they emphasize "a lack of consistency between commitments and reality, and a lack of transparency regarding shareholder commitment". They invite companies to follow the AMF's recommendations on investor information of 2020 [33] (updated on January 27, 2022), which includes recommendations on sustainable investment communication [34].

The SEC, for its part, has published three draft recommendations for public comment: "The Enhancement and Standardization of Climate-Related Disclosures for Investors" [35] in March 2022, "Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices" [36] and "Investment Company Names" [37] in May 2022. These projects provide for the publication of a climate performance report, a strengthening of non-financial reporting obligations and the criteria allowing investment funds and products to present themselves under the label of "sustainable development".

Finally, the European Securities and Markets Authority (ESMA) announced in February 2022 in its 2022-2024 roadmap its intention to "study [the] problem [of greenwashing], define its fundamental characteristics and address it through coordinated action across several sectors, finding common solutions throughout the EU."

• Sustainable investment labels promoted by the AMF and FCA

The FCA is considering three labels [39]: the Sustainable Focus for investments that are sustainable for people and/or the planet, the Sustainable Improvers for investments with sustainability potential, and the Sustainable Impact for investments in sustainability-enhancing technologies.

The AMF has not created a label, but recognizes two for sustainable investments [40]: the SRI label of the Ministry of Economy and Finance for ESG investments [41] and the Greenfin label of the Ministry of Ecological Transition [42].

The Corporate Sustainability Reporting Directive (CSRD), which considerably increases the reporting obligations of companies, was adopted on November 10 [43] and also promotes labels. It attributes to them the value of certification of a company's sustainability if they are issued by an independent official body [44].

The labels will not provide all the guarantees, judging by the approximate value of the ratings given by the rating agencies. Moreover, they will pose difficulties if they are not labels in harmony with the green taxonomy decreed by the European Commission, which classifies activities as "virtuous" or not from the point of view of sustainability [45]. There are inconsistencies: in France, funds investing in nuclear power were excluded from the Greenfin label of the Ministry of Ecological Transition [46], while the government asked EDF to restart 32 nuclear reactors [47]. Companies that market fossil fuels are deprived of them, while the "Purchasing Power" law of August 16, 2022 [48] provides for the creation of a methane tanker to import gas and aid is allocated to households to reduce their gasoline bills. These examples show that it is impossible not to evolve the labels. The Ministry of Ecological Transition has announced that it will review the criteria regularly, and therefore the elements that constitute greenwashing. This is a good thing, even if it is doubtful that the legal security to which companies should be able to aspire will really benefit.

• Beware of misleading names for investment funds

The regulators ensure that the name of investment funds reflects the reality of their investments. For the AMF [49] and the FCA [50], a fund that calls itself "ESG", "Green" or "Sustainable" must have a "significant" share of sustainable investments meeting the required criteria. The SEC is more precise: only funds whose investment policy is at least 80% ESG-oriented can claim this designation [51].

• Systematically verify product sustainability disclosure

The AMF insists that product information must be "clear, accurate and not misleading" [52] and proportionate to its real impact on the environment [53]. Documentation (prospectuses, reports, sales literature) must define "measurable objectives" and actions that have a "significant" effect on the environment [54]. Foreign funds offering products in France that do not comply with this recommendation must mention it in their marketing documentation [55].

The FCA requires that product disclosures include: (i) key sustainability characteristics, (ii) pre-contractual data such as legally binding environmental performance statistics, (iii) a report on progress towards the sustainability objective of the products [56] and (iv) a report on the company's sustainability in terms of its governance, strategy, risk management, metrics and sustainability objectives [57].

The same concern to control the consistency of climate claims with actual climate performance can be found in the SEC. Based on the model of the French BEGES [58], companies will have to publish information on the ecological transition (governance, strategy, risk management, etc.) in their registration statements and reports, as well as their GHG emissions from scopes 1 and 2. Some of them will also have to publish data on scope 3 under conditions that remain to be defined [59]. Finally, "green" funds will have to publish data on the GHG emissions of their investment portfolio [60].

Several investigations into greenwashing have been launched in connection with the marketing of ESG-labeled financial products. These include the SEC's investigation of Goldman Sachs [61] and the joint investigation by the SEC and the German regulator BaFIN into Deutsche Bank's subsidiary DWS [62]. And this is only the beginning!


Noëlle Lenoir, partner at NLAV, and Irène Lim, lawyer at NLAV

[1] FCA, "Sustainability Disclosure Requirements (SDR) and investment labels", Consultation paper, CP22/20, October 2022.

[2] Paris Agreement, 12 December 2015.

[3] Consumer Protection from Unfair Trading Regulations, 2008.

[4] Federal Trade Commission Act, 1914.

[5] Ordinance No. 2021-1734 of December 22, 2021 transposing Directive 2019/2161 of the European Parliament and of the Council of November 27, 2019 on better enforcement and modernization of EU consumer protection rules.

[6] United States District Court, Southern District of New York, Lee v. Canada Goose US, Inc, 20 Civ. 9809 (VM) (S.D.N.Y. Jun. 29, 2021).

[7] Article of the Commercial Code and clarification of the EPAD.

[8] Law n°2015-992 of August 17, 2015 on the energy transition for green growth.

[9] Law n° 2017-399 of March 27, 2017 on the duty of care of parent companies and ordering companies.

[10] Crim. 6 October 2009, No. 08-87.757: concerning the packaging of a Monsanto company herbicide presenting the product as "biodegradable" and leaving "a clean earth" with a logo representing a bird surrounded by the phrase "respect for the environment".

[11] TGI Nanterre, summary order, October 23, 2012: regarding an advertisement by Toyota depicting a motor vehicle driving in nature published in a catalog.

[12] U.S. District Court for the Southern District of Florida, Federal Trade Commission v. Truly Organic Inc. September 18, 2019, No. 19-23832-Civ-Scola: regarding statements made by company executives presenting products as "100% organic", "certified organic" and "vegan".

[13] U.S. District Court for the District of Colombia, Federal Trade Commission v. Walmart Inc. April 8, 2022, No. 1:22-cv-00965: regarding an advertisement published on the company's website claiming that its bamboo textile products had been manufactured using environmentally friendly processes when polluting products had been used.

[14] Advertising Standards Authority, Shell v. WWF UK and others, July 8, 2020: Concerning a radio advertisement suggesting that the oil sands are a sustainable source of energy.

[15] Advertising Standards Authority, Ryanair v. Greenpeace, Notre Affaire à Tous and Friends of the Earth, February 5, 2020: regarding a print, radio and television advertising campaign that portrayed Ryanair as having the lowest CO2 emissions in Europe.

[16] In Le Monde, Neutralité carbone : trois ONG assignent TotalEnergies en justice pour pratique commerciale trompeuse, 2 March 2022.

[17] Law no. 2021-1104 of August 22, 2021 on combating climate change and strengthening resilience to its effects.

[18] Article 131-38 of the penal code.

[19] The average turnover is calculated on the basis of the last three known annual turnovers at the time of the commission of the offence. 

[20] Article 131-39, 2° to 9° of the Criminal Code.

[21] Article L.132-4 of the Consumer Code.

[22] Articles L623-1 and following of the Consumer Code.

[23] Chapter 19 of the British Code of Civil Procedure.

[24] Article 23 of the US Code of Federal Civil Procedure.

[25] Commodore et al. v. H&M Hennes & Mauritz LP, No. 22-cv-6247, S.D.N.Y. (July 2022); Lizama et al. v. H&M Hennes & Mauritz LP, No. 22-cv-1170, E.D. Mo. (Nov. 2022).

[26] Kandus Dakus et al. v. KLM, No. 1:22-cv-07962, S.D.N.Y. (Sept. 2022).

[27] Sections 90 and 90A of the Financial Services and Markets Act. 

[28] In re Exxon Mobil Corp. Derivative Litigation, No. 3:19-cv-01067, N.D.Tex.

[29] These are the Autorité de la concurrence in France, the Competition and Markets Authority in the United Kingdom and the Federal Trade Commission in the United States.

[30] These are the Jury de déontologie publicitaire in France, the Advertising Standards Authority in the United Kingdom and the Federal Trade Commission in the United States.

[31] Constitutional Council, decision no. 2019-790 QPC of June 14, 2019, Société ENR Grenelle Habitat and others [Criminal repression of misleading commercial practices and authority competent to impose administrative fines in consumer matters].

[32] ACPR/AMF, Third joint report "Monitoring and evaluation of the climate commitments of financial market participants", October 2022: https://www.amf-france.org/sites/default/files/private/2022-10/Rapport%202022%20AMF-ACPR_0.pdf

[33] These AMF recommendations apply to companies offering collective investments to non-professional investors, such as French and foreign UCITS management companies, investment funds, mutual funds, etc.

[34] AMF, Position - recommendation relating to the information to be provided by collective investments integrating extra-financial approaches, DOC-2020-03, 11 March 2020, updated on 27 January 2022: https://www.amf-france.org/sites/default/files/private/2022-01/doc-2020-03_vf3_0_0.pdf

[35] SEC, "The Enhancement and Standardization of Climate-Related Disclosures of Investors", March 2022: https://www.sec.gov/rules/proposed/2022/33-11042.pdf

[36] SEC, "Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices," May 2022: https://www.sec.gov/rules/proposed/2022/ia-6034.pdf

[37] SEC, "Investment Company", May 2022: https://www.sec.gov/rules/proposed/2022/ic-34593.pdf

[38] ESMA, Sustainable Finance Roadmap 2022-2024, 11 February 2022: esma30-379-1051_sustainable_finance_roadmap.pdf (europa.eu) 

[39] FCA, "Sustainability Disclosure Requirements (SDR) and investment labels", §4 "Classification and labelling". 

[40] ACPR/AMF, Third joint report "Monitoring and evaluation of the climate commitments of financial institutions", op. cit.

[41] https://www.lelabelisr.fr/label-isr/criteres-attribution/

[42] https://www.ecologie.gouv.fr/label-greenfin

[43] Proposal for a Directive amending Directives 2013/34/EU, 2004/109/EC and 2006/43/EC and Regulation (EU) No 537/2014 as regards the disclosure of sustainability information by companies, COM/2021/189 final.

[44] The proposal for a directive provides that companies must have their sustainability report certified by a specially qualified auditor or, failing that, by an independent certifier.

[45] Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to promote sustainable investment and amending Regulation (EU) 2019/2088.

[46] See the Ministry's reference document of October 2021, which excludes from the label "the entire nuclear sector, i.e. the following activities: uranium mining, concentration, refining, conversion and enrichment of uranium, manufacture of nuclear fuel assemblies, construction and operation of nuclear reactors, processing of spent nuclear fuel, nuclear decommissioning and management of radioactive waste.

[47] A parliamentary question was asked on this subject. Written question n° 27590 from Mr. Hervé Maurey (Eure - UC). JO Sénat of 07/04/2022 - page 1825.

[48] Law n° 2022-1158 of August 16, 2022 on emergency measures to protect purchasing power.

[49] AMF, Position - recommendation relating to the information to be provided by collective investments integrating extra-financial approaches, §3 and 4.

[50] FCA, "Sustainability Disclosure Requirements (SDR) and investment labels", op. cit. §6 "Naming and marketing".

[51] SEC, "Investment Company", §III.B.1.

[52] AMF, Position - recommendation relating to the information to be provided by collective investments integrating extra-financial approaches, op. cit. §3 and 4.

[53] Ibid., §2.

[54] Ibid., §3.

[55] Ibid., §6.

[56] The publication of a report on sustainable products would initially concern only those products benefiting from one of the FCA's sustainable investment labels.

[57] FCA, "Sustainability Disclosure Requirements (SDR) and investment labels", op. cit. §5 "Disclosures".

[58] The BEGES is an evaluation of the quantity of greenhouse gases emitted into the atmosphere or captured by the company over a year. 

[59] SEC, "The Enhancement and Standardization of Climate-Related Disclosures of Investors", §II.

[60] SEC, "Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices", §III.D.5.

[61] In Les Echos, Greenwashing : Goldman Sachs targeted by an investigation of the American regulator, June 12, 2022.

[62] In Les Echos, Greenwashing : le grand défi des régulateurs des fonds ESG, 21 June 2022.