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Liability of greenwashing under Indian advertising regulations

Kalindhi Bhatia and Pratik Bakshi


Introduction

Many investors and consumers are focusing more on the environmental, social and governance principles of companies. As a result, boards are now being forced to rethink their corporate strategy and lay added emphasis on the societal impact of their businesses. To show investors and consumers how their businesses or products are environmentally friendly and sustainable, some companies have been knowingly or unknowingly making inaccurate claims to capitalise on growing investor or consumer demands.


Eco-advertising and green marketing campaigns have become commonplace among businesses of all sizes and in all sectors. Understandably, advertising the environmentally friendly attributes of a product or service – through slogans, trademarks, performance claims or various other marketing practices – is appealing to consumers who share growing concerns for the environment and call for companies to "go green".


In India, too, the need for urgent action to address the issue of climate change has become more pressing. The average consumer is now increasingly aware and thorough when making a purchase. As a result, companies have been forced to make public commitments and set ambitious targets, such as achieving "net-zero emissions" or becoming "carbon-neutral". However, achieving these targets requires significant investment, effort and time, which often results in companies resorting to the practice of "greenwashing".


Greenwashing and disclosure

While Indian regulators do not define greenwashing, it is globally understood as a deceptive tactic used by companies to create a false perception or mislead the public regarding the environmental friendliness and positive impact of their products and practices. It undermines public trust in the marketplace and creates an unfair advantage for companies that engage in it, while also harming consumers who rely on accurate information to make informed decisions.


Measuring and quantifying the impact of climate initiatives is a complex task, and there are currently no standardised metrics available to evaluate and compare the effectiveness of such measures. This lack of standardisation leaves ample room for manipulation. Further, in India, the absence of regulatory policies further aggravates the issue. Within companies, the disclosure of information regarding climate initiatives is voluntary, which means that management is free to decide what to disclose and how much to disclose.


Ad regulations on misleading consumers

India does not have specific advertising regulations governing greenwashing. However, its advertising regulations are drafted widely enough to prevent the practice of making misleading or false claims in advertisements.


The primary legislation governing false and misleading ads in India is the Consumer Protection Act 2019. It protects consumers against unfair trade practices, including misleading ads. Further, the Advertising Standards Council of India, which is a self-regulatory body and de facto authority on advertising in India, has issued a voluntary code that lays down guidelines for advertising across various sectors. It requires ads to be truthful and free of any false claims. There may also be consequences for unlawful ads under the Indian Penal Code 1860, which penalises cheating, among other things.


While existing codes and regulations do not explicitly mention greenwashing, they prohibit the use of false or misleading claims in ads. As such, an advertiser engaging in greenwashing, such as by making deceptive or exaggerated claims about its environmental impact, would likely be considered in violation of applicable legal requirements. Consumers can file complaints with the appropriate authorities if they believe an ad is misleading or engages in greenwashing. Posting an unlawful adcarries the risk of, among other things, fines, imprisonment and ad removal. It also has a significant adverse impact on the company's reputation.


Comment

Regulators and enforcement agencies in India are becoming proactive in acting against companies engaging in greenwashing. The Securities and Exchange Board of India released a circular on greenwashing and "do's and don'ts relating to green debt securities", which for the first time defined greenwashing.


Greenwashing and any claims of sustainability are therefore being closely looked at by the regulatory watchdogs. To steer clear of the pitfalls of greenwashing, companies can take comprehensive measures while advertising their products, such as:

  • complying with applicable law while preparing ads, and working with their legal department to verify the materials prepared;

  • making accurate claims in ads that can be substantiated and supported by evidence. Exaggeration and vague statements should be avoided;

  • keeping research materials handy on the environmental benefits of the company's products and practices;

  • having credible third parties verify practices, products and claims; and

  • providing clear disclaimers where necessary and being transparent about any limitations or qualifications applicable to the environmental claims made.

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