Greenwashing: claims, rules and risk

What is greenwashing?

Greenwashing covers any environmental or sustainability claim that misleads, whether through false statements, vague language, selective facts, irrelevant claims, hidden trade-offs, or images and labels that imply more than the evidence supports. It applies to products, companies and financial products, and to forward-looking claims such as targets. The opposite risk, greenhushing, is saying nothing about real progress for fear of challenge. See setting and reporting net zero targets.

What changed in the EU in September 2026?

Directive (EU) 2024/825 amended EU consumer law. Member states had to transpose it by 27 March 2026, and it applies from 27 September 2026. It adds to the list of practices always considered unfair:

• generic environmental claims, such as green, eco-friendly or climate friendly, where the company cannot show recognised excellent environmental performance relevant to the claim;
• environmental claims about an entire product or business when they concern only one aspect;
• claims that a product has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions based on offsetting;
• sustainability labels not based on a certification scheme or established by public authorities; and
• presenting legal requirements as a distinctive feature of an offer.

Claims about future environmental performance must rest on clear, publicly available commitments and a detailed, realistic implementation plan with measurable, time-bound targets, verified regularly by an independent expert whose findings are made available. Enforcement is national: under EU consumer law, maximum fines for widespread cross-border infringements must be at least 4% of annual turnover in the member states concerned. A separate Green Claims Directive, which would have required claims to be verified before use, stalled in June 2025 and has not been adopted.

What are the rules in the UK, US and Australia?

In the UK, the FCA's anti-greenwashing rule requires authorised firms' sustainability references to be consistent with the sustainability characteristics of the product or service and fair, clear and not misleading, and since April 2025 the Competition and Markets Authority can fine companies up to 10% of global turnover for unfair consumer practices, applying its Green Claims Code. In the US, the Federal Trade Commission polices deceptive environmental marketing using its Green Guides, and California's AB 1305 requires companies making net zero, carbon neutral or similar claims in the state to publish how they are substantiated, with civil penalties of up to 2,500 dollars a day, capped at 500,000 dollars. In Australia, ASIC won penalties of 11.3 million Australian dollars against Mercer in 2024, 12.9 million against Vanguard in 2024 and 10.5 million against Active Super in 2025 for misleading sustainability claims about investment products.

Greenwashing review in practice: a drinks company's claims

Before 27 September 2026, a drinks company sold in the EU reviews four claims.

The carbon neutral claim relies on offsets, so it is banned for the product, and the company removes it, while describing its offsetting separately as a contribution. Eco-friendly packaging is generic, so it is replaced by a specific, quantified claim. The recycled content claim is specific and supported by supplier certificates, so it stays, with the evidence on file. The net zero claim stays only because the company publishes an implementation plan and has an independent expert review it each year. See climate transition plans.

Where does greenwashing risk sit in sustainability reports?

Sustainability statements are themselves claims. Risks include selective KPIs, unexplained changes in method, targets without plans, and marketing statements that contradict reported data. Assurance helps: ISSA 5000 requires practitioners to consider the risk of fraud, including greenwashing, and companies under the CSRD and California SB 253 face assurance requirements. Consistency between the report, the financial statements and marketing is the first test regulators apply. See sustainability assurance explained and ESG KPIs.

How can companies reduce greenwashing risk?

• Keep an inventory of every environmental claim, in marketing, packaging, websites, reports and investor materials.
• Make claims specific and quantified, state their scope and basis, and avoid vague words.
• Hold the evidence for each claim, approved by someone accountable, and review it when data change.
• Do not base product neutrality claims on offsets, and publish plans behind future claims. See carbon credits in reporting.
• Reconcile claims with reported data, and train marketing and product teams. See green bonds and sustainability-linked loans for labelled debt.

This guide is general information. It is not tax or legal advice for your situation.