Viktors Toropovs: The practice of greenwashing can lead to litigation and a shift away from climate goals

Glorifying oneself as a sustainable, “green” and climate-neutral company can have quite unpleasant consequences these days. The company or organization can be taken to court for so-called greenwashing if there is no real cover for this communication. Moreover, this “fudging” is more than just a business threat – it shifts us away from our common goal of reducing our carbon footprint.

Several surveys conducted in Europe and the Baltic States show that people are becoming more aware of climate change and they expect companies to give high priority to environmental protection and sustainable practices. People are willing to pay more for sustainable and climate-neutral products or services. Sustainability is in the focus of consumers, but also of the international community and the European Union. Companies must increasingly comply with stricter and more specific sustainability standards. 

It is common for companies to discuss sustainability issues and acknowledge the importance of sustainability, but not take action on sustainability. Every single word in advertising, marketing communications, and product descriptions needs to be carefully considered and justified so that companies that get carried away with greenwashing do not get into big trouble.

Here are some specific examples of businesses that have faced the consequences of greenwashing. Keurig Canada, a manufacturer of coffee machines and capsules, learned a bitter lesson last year. As a result of the Canadian Competition Bureau finding that the company's assertions that disposable beverage capsules could be recycled with other recyclable materials were inaccurate, the company was fined USD 3 million. As it turned out, many provinces in the country refused to accept used capsules and the company's instructions on how to prepare the waste for recycling were misleading. According to competition watchdogs, it is illegal to advertise goods and services as environmentally friendly. 

As well as companies that advertise their goods and services as sustainable, polluters are also taken to court. It is for this reason that the management of the oil giant Shell has been challenged over the sustainability of its climate strategy, which, according to ClientEarth environmental lawyers, is insufficient to meet its objectives. In addition, it poses a risk for the company itself, since as the world shifts to more climate-neutral energy sources, it may not be able to adapt to the change and will become uncompetitive. An interesting aspect of this case is that specific individuals are held liable, i.e., eleven members of the company’s management board.

ClientEarth has asked the UK High Court of Justice to order Shell's management to adjust its strategy and manage climate risks in line with the Companies Act, as well as to comply with the Dutch court's May 2021 decision to reduce carbon emissions by 45% by 2030. The company has appealed the latter ruling. It should be noted that Shell is not receiving complaints about non-compliance with environmental regulations only from Europe. The US company has been accused of investing too much in renewable energy, whereas two Nigerian communities have reported pollution of their water supply.

Ensuring sustainability through funding

Court cases against polluters can take years. A much more effective and quicker way to stop pollution is to stop the flow of funds. This is why environmental and climate organizations are scrutinising the sustainability performance of financial institutions.

For example, DWS, the asset management unit of Deutsche Bank, Germany's largest credit institution, was accused last year of a misleading marketing strategy, i.e., greenwashing. Researchers found that the company's investment services were publicly portrayed as more sustainable and environmentally friendly than they actually were. A lawsuit was filed against one of Europe’s largest banks, BNP Paribas, for financing fossil fuel projects in Paris as well.

Just like people use their credit cards to “vote” for goods and services, banks also consider sustainability aspects when distributing funds. Some projects and initiatives receive priority and more favourable financial terms and conditions, while others are severely restricted or discontinued altogether.

Investing should have been done yesterday

Environmentalists are also scrutinising the decisions of the authorities. Four major environmental organizations have sued EU policymakers in the European Court of Justice for making exemptions for certain gas and nuclear activities as part of the plans to neutralise climate impacts by 2050. Environmentalists argue that all fossil fuels pose a threat to the planet. Electricity generated by burning gas, for example, would not qualify as “green”. The plaintiffs claim that the European Union’s policy is to revert to the same fossil fuels and replace coal or oil with gas. 
A court ruling in this case is expected within the next two years. This means that any investments in natural gas-related technologies or projects before the judgment is announced are quite risky. The outcome of the legal proceedings could lead to the removal of this resource from the EU taxonomy package. In the lawsuit filed by the plaintiffs, one of the hypotheses is particularly thought-provoking: had the EU invested in green energy solutions at least ten years earlier, we would not be so dependent on energy imports. As a result, people on low incomes would not be so affected by food and energy price increases.

Sustainability is about the present, not the future. Using the free natural resources – sun, wind, and water – without polluting the environment is an opportunity for all. For this reason, sustainability must become a central obligation for all people on earth, and environmental protection must be part of our daily lives.

However, it is companies that we expect to act with particular responsibility and drive. Profit-seeking human economic activity has the greatest impact on natural resources and the environment (as well as on social issues such as employment). In cooperation with the relevant authorities, companies have the best chance to make an immediate difference and truly promote sustainability in all areas of life - not through flashy marketing messages, but in their routine work.