Banning false environmental claims benefits private equity

As consumer demand for environmentally friendly products and services increases and private equity investors look to invest responsibly, Indian businesses are keen to show off their environmental, social and governance (ESG) credentials. From preparing business decks to advertisements, companies are making aspirational and future-looking sustainability and environmental claims.

On 15 February 2024, the Advertising Standards Council of India implemented guidelines (ASCI guidelines) to curb greenwashing and ensure advertisements making environmental and green claims are reliable, verifiable and transparent. These guidelines define greenwashing as the making of “unsubstantiated, false, deceptive, misleading environmental claims about products, services, processes, brands or operations as a whole, or claims that omit or hide information, to give the impression that they are less harmful or more beneficial to the environment than they actually are”.

The Central Consumer Protection Authority has since published draft guidelines (CCPA guidelines), with a guidance note to facilitate compliance. If passed into law, they will require advertisements to be based on such principles as truthfulness, accuracy, clarity, unambiguity and verifiability.

Both sets of guidelines aim to restrict greenwashing and require that aspirational and future-looking claims be supported by clear and actionable plans for achieving such objectives. Any disclosures made must be easily accessible to consumers and not contradictory to the relevant environmental claim.

Other regulators are also working to ensure that ESG claims are clear, legitimate and accurate. To avoid accusations of greenwashing, businesses must ensure that they have robust internal processes and compliance, do not cherry-pick data, have fair and true disclosures and revisit labelling and claims made in respect of the advertisements, products or services as appropriate. They should also undertake regular internal compliance reviews to deal with evolving regulations and increased scrutiny.

Regulators must take a uniform stand against greenwashing and ensure that any legislation and guidelines are consistent with those issued by each other. A multiplicity of legislation, particularly where such legislation is inconsistent, will lead to difficulties in compliance and enforcement.

For instance, the ASCI guidelines proscribe the dilution of absolute claims through disclaimers or clarifications, such as QR codes and URLs. However, the CCPA guidelines permit this to be done. The ASCI guidelines restrict advertisements claiming environmental benefits, which result from a legal obligation if competing products are subject to the same requirements, whereas the CCPA Guidelines do not impose such limitations. The ASCI guidelines, unlike the CCPA guidelines, require advertisers to make disclosures if offsets do not occur within two years of making a carbon offset claim.

International regulatory developments prove the need for standardising guidelines, especially when, for example, they require third-party verification and life cycle assessments. These are at the core of the European Union’s proposed Green Claims Directive (EU proposal) but currently do not appear to have been adequately addressed by Indian regulators. The ASCI and CCPA guidelines refer only briefly to certification, but neither prescribes the qualifications of certifying authorities nor the way in which they carry out certification.

The EU proposal defines life cycles, provides guidance on measuring life cycle environmental performance and requires, among other matters that claims must demonstrate environmental benefits through life cycles and not in isolation. The CCPA guidelines do not address these matters and the ASCI guidelines briefly refer to similar requirements only for general environmental claims. However, the definition of life cycles and guidance on measuring life cycle environmental performance are absent under Indian regulations.

Regulators must ensure ease of compliance and effective implementation so that companies with genuine ESG-focussed approaches benefit commercially, especially by attracting environmentally aware investors. Regulators should use the CCPA guidelines as a template to draft their own regulations preventing greenwashing and misleading environmental claims.

Vandana Pai is a partner and head of the investment funds practice and Ayush Jain is a counsel at Bharucha & Partners.