Eco-Friendly or Eco-Fraud: Analysing the Indian Regulatory Framework On Greenwashing

- by Eshita Dhawan, IIIrd year student at Rajiv Gandhi National University of Law

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Introduction

Recently, in October  2024, the Central Consumer Protection Authority released the “Guidelines for Prevention and Regulation of Greenwashing or Misleading Environmental Claims, 2024” (“Greenwashing Guidelines”) to regulate all environmental claims and curb the practice of greenwashing. Additionally, the Ministry of Environment, Forest and Climate Change notified the Ecomark Rules on 26th September 2024 to standardise the grant of Ecomark and prevent misleading information on the environmental aspects of products.

Globally, the regulatory framework to curb greenwashing is also developing. The United States(US) has notified the Federal Trade Commission (“FTC”) Green Guides and the European Commission has published “green claims.” which aim to guide the application of European Union (EU) competition and consumer protection rules to environmental claims. This article will analyse the concept of greenwashing and the recent regulatory framework being developed in India to regulate the environmental claims made by manufacturers and service providers. By analyzing global practices, the article will provide recommendations to strengthen these regulatory mechanisms to ensure the enforcement of the guidelines and combat greenwashing.

What is Greenwashing?

Greenwashing is a deceptive marketing strategy adopted by market players wherein they falsely claim or exaggerate the environmental benefits of their products or services by using unsubstantiated terms such as “natural,” “eco-friendly,” or “pure” to make a profit off the growing wave of green consumerism.

Initially coined by Jay Westerveld in 1986, the concept of greenwashing cannot be compartmentalized into a single definition. Section 2(f) of the Greenwashing Guidelines defines greenwashing as “any deceptive or misleading practice, which includes concealing, omitting, or hiding relevant information, by exaggerating, making vague, false, or unsubstantiated environmental claims.” It includes the “use of misleading words, symbols, or imagery, placing emphasis on positive environmental aspects while downplaying or concealing harmful attributes.”

The studies indicate that green consumerism is on the rise wherein consumers are willing to spend more on sustainable products and services. The companies in an attempt to capitalize on the growing environmental consciousness mislead the consumers into believing that their products and services are sustainable and eco-friendly. This misrepresentation results in wasted expenditure on goods that do not deliver the promised environmental benefits. It erodes the consumer’s trust and leads to financial loss for consumers who purchase the products based on these misleading claims.

Notable examples include the Godrej Soaps Greenwash case and the Voltas AC case. It was alleged that Godrej Consumer Products Limited their Godrej No. 1 soap contains synthetic chemicals, despite the company's claims that it was "100% natural," "biodegradable," and "eco-friendly." Similarly, Voltas Limited, which produces air conditioners, was charged with fabricating statements regarding the energy efficiency of its units. The company falsely claimed that its air conditioners were "eco-friendly" and had a "5-star energy rating." Several other companies like Coco Cola, H&M, Volkswagon, Nestle and Starbucks have been accused of Greenwashing.

Indian Regulatory Framework on Greenwashing

The Consumer Protection Act, 2019 empowers the Central Consumer Protection Authority (CCPA) to tackle misleading advertisements. It has the power to issue directions and penalties on misleading advertisements upto Rs 10 lakh and in case of repeated violations, a penalty of upto Rs 50 lakh. While The Act does not specifically address greenwashing, the practice of greenwashing is an aspect of misleading advertisements and is thus covered under The Act. The quantum of penalty is, however, too generic to effectively penalise greenwashing

The CCPA released the “Greenwashing Guidelines” to curb greenwashing. The guidelines prohibit all persons from using generic terms such as “clean”, green”, “eco-friendly”, “cruelty-free”, “carbon neutral”, “natural”, “organic”, or “pure”, etc without adequate accessible and verifiable qualifiers and evidence based on independent studies or third-party verifications. The relevant evidence that substantiates the environmental claim has to be disclosed via QR code, URL or similar digital technology that can be accessed by the consumer. These guidelines are recommendatory in nature without an enforcement mechanism.

The Ministry of Environment, Forest and Climate Change had notified the Ecomark Rules, 2024 to promote environmentally friendly production and sustainable consumption. It provides for eco-labelling of goods that help in reducing energy consumption, waste generation, pollution, emissions and the effects of climate change This motivates producers to switch to producing eco-friendly goods which empowers customers to make informed purchasing choices. However, these certifications are not mandatory. SEBI has made it mandatory for the top 1000 listed firms to report their environmental, social, and governance (ESG) policies and investments through the Business Responsibility and Sustainability Reporting (BRSR).

Global Perspective

Globally, countries are becoming conscious about the harms caused by greenwashing. The UN Secretary-General, António Guterres, addressed the issue at COP27 and called for zero tolerance for greenwashing.

The United States FTC through the “Green Guides” offers guidelines on how to differentiate real green products from greenwashed. It provides that qualifications and disclosures should be clear, prominent, and understandable to prevent deceptive claims. Marketers should avoid making contradictory claims or using distracting elements that could undermine or contradict the disclosure, use plain language and large enough type to make disclosures visible, and place disclosures close to the qualified claim.

The European Union is also enacting a legislative framework called the Green Claims Directives (GCD), which mandates that businesses must substantiate explicit environmental claims before publishing, providing consumers with transparent, reliable, and valuable information that must be shared via a QR Code or URL. The commendable feature is that directives provide procedures for complaints and appeals by the aggrieved person. The GCD has a proportionate and effective penalty structure under Article 17 which allows for the imposition of fines upto a certain percentage of the annual turnover and confiscation the revenue made from the products associated with misleading environmental claims to minimise the economic advantage gained from greenwashing. The offenders can also be barred from public procurement processes like tender, concession and grants for upto 12 months.

Limitations in the Indian Regulatory Framework

The regulatory framework for greenwashing in India does not include an enforcement mechanism. The guidelines issued by the CCPA are voluntary and lack provisions for penalties for greenwashing.  Although, under section 21 of the Consumer Protection Act, 2019, the CCPA has the power to impose a penalty of upto 50 Lakh on misleading advertisements, the quantum of this penalty is generalised and inadequate to address the varying degrees of greenwashing and the revenue generated from it.  It is disproportionately impacting small businesses and discouraging legitimate sustainability claims. However, excessive deterrence may stifle innovation, create market uncertainty, and hinder consumer awareness of genuine eco-friendly initiatives. Additionally, the guidelines create a positive obligation on persons to substantiate environmental claims but there is no mechanism to evaluate if companies adhere to the guidelines. The SEBI BRSR make it mandatory for companies to report about their environmental responsibility but it extends to only the top 1000 listed companies.

The CCPA guidelines are exemplary model in the aspect that they prohibit vague claims of sustainability and impose a duty on persons to provide relevant certifications on environmental claims. However, the guidelines do not have any mechanism to provide criteria to verify the authenticity of certifications. The qualifications to obtain those certificates vary for each organisation granting such certificates which leads to a lack of standardisation in the meaning of such claims. Additionally, the terms “green”, “clean”, “cruelty-free”, “organic”, and “pure” do not have accepted universal meanings which makes the authentication of such claims even if they are substantiated by certification complex to evaluate and verify. The Ecomark rules are a step towards providing such standard criteria however, it is voluntary for the companies to opt for Ecomark certifications which still leaves the problem of standard certification unresolved.

Way Forward

The Consumer Protect Act, 2019 and the recent CCPA guidelines create the regulatory framework to address the deceptive practice of greenwashing. It creates obligations on manufacturers and service providers to substantiate environmental claims which is a laudable step towards curbing greenwashing. The authorities must, however, create a committee or any other mechanism to monitor or audit the persons making such claims to ensure compliance with the guidelines. The CCPA can also include a provision for penalties in the guidelines to ensure enforcement. It can adopt an approach similar to the penalties provided in the EU’s GCD which allows the imposition of fines on the annual turnover to minimise the economic advantage gained for greenwashing and confiscate the revenue made from the products associated with misleading environmental claims. The authorities can also lay down the criteria required for various certifications to standardise the meaning of such claims. Additionally, efforts should be made to raise consumer awareness. They should be made aware of the guidelines and encouraged to carry out due diligence and check if products have substantiated their environmental claims and provided a QR Code or URL to access the certifications. In case of default, the consumers should report to CCPA for further action. It is eventually the consumers whose rights are affected and who can best prevent the companies from greenwashing.