Regulatory, Investor Scrutiny Prompts Fall in Greenwashing
Repeat offenders face increasing reputational and legal risks, but high-severity cases spike.
Rising levels of sustainability-focused regulation and investor scrutiny have contributed to a decline in greenwashing activities by companies.
A new report from date science firm RepRisk highlighted a 12% year-on-year decrease in companies linked to greenwashing – marking the first fall in six years. However, high-severity cases of greenwashing surged by over 30%.
“The rise of [sustainability-related] regulation has brought attention to greenwashing and made it a material risk for companies,” Alexandra Mihailescu Cichon, RepRisk’s Chief Commercial Officer, told ESG Investor.
The UK saw a 4% reduction in greenwashing incidents between 2023 to 2024 compared to the previous year, whereas the EU logged a 20% decline.
The EU has introduced several pieces of regulation that have likely contributed to the decrease in greenwashing cases across the bloc, the report said, including the Green Claims Directive.
RepRisk annually scores companies to determine their greenwashing risk, identifying instances of misleading communication on one or more environmental issue. An example of greenwashing could be an advertising campaign deceiving consumers about a company’s climate-related progress.
Peak greenwashing
The drop in greenwashing cases is not uniform across the EU. The Netherlands experienced the largest reduction, with cases falling by 48%, but France recorded an 11% increase in greenwashing cases.
Meanwhile, greenwashing cases in the US peaked in 2022 with 503 incidents – a 35% year-over-year increase from 2021. This was followed by a 10% decline in 2023 and 6% increase in 2024 to date.
“While regulatory efforts are reducing greenwashing risk overall, the repercussions for companies found to be greenwashing are quite severe reputationally and there are also big financial repercussions,” said Mihailescu Cichon.
As such, investors have also had a big impact, she added, through closer scrutiny of portfolio companies’ commitments and behaviours.
Last year, Volkswagen’s shareholders challenged the alleged inconsistency between the company’s climate pledges and its anti-climate corporate lobbying.
Usual suspects
Nearly 30% of companies linked to greenwashing in 2023 were repeat offenders this year.
In particular, the oil and gas sector accounted for the largest share of greenwashing cases, followed by food and beverage firms, and banking and financial services.
Oil and gas nonetheless saw a 6% reduction in the overall number of greenwashing incidents over the past 12 months, but recent high-profile cases show that misleading environmental claims remain a “notable issue” in the industry, RepRisk said.
RepRisk also noted an increase in high-severity greenwashing cases, where companies took purposeful and systematic actions to conceal ESG-related violations. These increased by 32% year-on-year, representing less than 8% of all recorded greenwashing incidents.
High severity incidents of greenwashing in the US were up by 114% in 2024 compared to 2023, but rose by just 27% in the EU.
At the same time, RepRisk identified a global undercurrent of greenhushing – where companies understate or avoid discussing their sustainability initiatives to reduce legal risks.
“This suggests that greenwashing is increasingly being seen as a material issue, with companies actively looking to mitigate exposure,” said Mihailescu Cichon.
This trend could result in reduced transparency and hinder progress toward genuine sustainability, the report warned.
Day in court
The rise in lawsuits, investigations and enforcement actions, driven by the tangible environmental impacts of corporate operations, reflects growing momentum to address greenwashing, the report said.
“There is a clear link between rising litigation risk and overall regulatory scrutiny of greenwashing,” said Mihailescu Cichon.
In June, the London School of Economics’ Grantham Research Institute on Climate Change and the Environment (LSE GRI) published the latest edition of its ‘Global Trends in Climate Litigation’ report.
It observed a sharp increase in climate-related greenwashing litigation cases, from just a handful in 2017 to over 140 today – 47 of which were filed in 2023 alone.
“Climate-washing cases tend to have higher success rates compared to other types of climate litigation, such as those seeking damages for emissions,” said Tiffanie Chan, Policy Analyst at LSE GRI.
The analysis shows that more than half of the nearly 140 climate-washing cases filed since 2016 have reached official rulings, with 70% of these decisions favouring the claimants.
“This success rate is encouraging more litigants to pursue similar claims, as there’s a strong transnational exchange of legal strategies and precedents in climate litigation,” Chan said.
“Rather than seeing a decrease in incidence of greenwashing, it seems that heightened scrutiny and legal challenges are holding companies to account more effectively.”
In June, California’s Attorney-general filed an amended complaint in an ongoing lawsuit against a group of oil and gas majors – including ExxonMobil, Shell and Chevron – claiming that the companies have been aware of the harmful effects of fossil fuel combustion on climate change since the 1960s but denied or downplayed this knowledge in their public statements.
The amended complaint presented new evidence of greenwashing and called for the companies in question to forfeit profits gained from these alleged practices.
“As regulations take root and litigation continues, I would expect the overall downward trend in greenwashing to continue next year,” said Mihailescu Cichon.
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