In a market that is becoming more conscious of the environmental (and social) impact of corporate activities, businesses in a vast array of sectors are keen to capitalise on this new trend by actively promoting their 'green' credentials. This incentive can lead to an increased risk of 'greenwashing' claims, as echoed by the recent international press.
The present article is the first of the series that we want to dedicate to ESG (litigation) issues. As a starter, we discuss the criminal angle of greenwashing, which has only started to emerge.
What is meant by ‘greenwashing’?
There is no general definition of the concept of “greenwashing” under EU law. Often, the concept is broadly described as making people believe that a company is doing more to protect the environment than it really is. However, the concept of greenwashing has received a specific definition in some recent legislative instruments. For example, in the context of the Taxonomy Regulation a specific definition is provided under Recital 11 which states that “greenwashing refers to the practice of gaining an unfair competitive advantage by marketing a financial product as environmentally friendly, when in fact basic environmental standards have not been met”.
Have prosecuting authorities started to act upon greenwashing issues?
In May 2022, the press reported that prosecutors in Frankfurt raided the offices of an asset management subsidiary of a top-tier European bank as part of an investigation into greenwashing. The searches related to allegations of financial institutions marketing investment products as more environmentally friendly than they really were. The prosecutors were following up on accusations based on statements made by a former employee of the raided subsidiary.
There is little doubt that this kind of investigation will further develop across the EU in the next coming years. Such development may be fostered by the implementation of the whistleblowing Directive in all Member States. The “speak-up” culture that this Directive is meant to enhance might indeed lead to more reports relating to ESG-related malpractices.
How can your company best handle greenwashing allegations?
Such a scenario can on the one hand be avoided by implementing an internal early warning monitoring tool to facilitate the detection and thorough investigation of possible ESG-related misconduct. Take this as an opportunity to understand and mitigate any such problems before they become public disclosures and protect those who raise concerns or report breaches. The latter is an important part of maintaining the integrity of the company’s ESG policy and is proof of the company’s healthy “speak-up” culture.
On the other hand, the company should prepare for investigations into the sustainability claims that it made. In doing so, ask yourself the following questions:
- in case of a dawn raid, who will be in charge of doing what (who will welcome and shadow investigators, who will detain ESG-related information, who will be able to answer the questions of investigators, etc) ?
- who will be your external advisers (including for communication purposes)?
- how will you follow-up on the raid?
What criminal charges does the company risk in belgium?
In Belgian criminal law, no specific offence targeting greenwashing has been created so far. This does not mean, however, that the prosecuting authorities cannot fall back on other (more broadly formulated) types of offences, namely:
- Forgery (Art. 196 of the Belgian Criminal Code) : if a product is marketed as more environmentally friendly than it actually is, and if the environmental virtues of the product are misrepresented in written documents, these documents may very well be found to be forged documents. Under Belgian law, documents embedding a lie may indeed be considered as forged documents.
- Forged annual accounts (Art. 3:44 of the Code of Companies and Associations) : if the annual accounts of a company embed lies in respect of its environmental performances, these accounts may be found forged.
- Unfair practices towards consumers (Art. VI.93 and VI.97 to VI.100 of the Code of Economic Law) : misrepresentation of the environmental virtues of a product may constitute unfair practices towards consumers, which are criminally sanctioned under Book XV of the Code of Economic Law.
- Deceptive communication (Art. 33 of the Prospectus Act and Art. 25 and 40 of the Act of 2 August 2002 on the monitoring of the financial sector): under certain circumstances, the statements made by listed companies in relation to the environmental performance of their activities or investments might be found to be deceptive communication towards the market, leading to criminal sanctions.
This (unexhaustive) list of offences shows that – as most European prosecuting authorities – Belgian criminal authorities do have the means to prosecute greenwashing based on pre-existing types of offences.
Who is at risk?
Not only the company itself, but also the directors and members of the top management are at risk of prosecution for the above-mentioned offence. For the directors/top managers to be found guilty of aiding and abetting the offence, it must be established that they facilitated the offence by acting or by failing to act upon the deceptive statements, while having the knowledge and the willingness to commit the offence. In that respect, it is worth recalling that failure to act may be seen as willful blindness. For that reason, directors and top managers should make sure that they have dedicated and competent teams to whom they can delegate the monitoring of the sustainability efforts of the company they managed.
How can your company mitigate risk?
A company can mitigate these risks by avoiding wide sweeping and broad statements about sustainability efforts. For example, corporates should avoid advertisements focused solely on the end-product or service provided. Additionally, the truth is the best defence; if a company can support the statements it made with concrete sustainability efforts and firm data, they are better able to neutralize and defend the greenwashing claims. In other words, make sure that you are at all times in a position to substantiate the statements made by the company.
