Does pollution pay? It might do unless we develop legal remedies for greenwashing
THERE has recently been an extraordinary surge in products and services labelling themselves as “green”. From rebranded energy companies to car manufacturers and logistics companies, everyone appears to be jumping on the green bandwagon.
But how do customers know who is really green and who is not? And, if one catches a business faking their green credentials, what can one do to hold them legally accountable?
There is a growing concern about “greenwashing”, the practice of making out that one’s business is more environmentally friendly than it actually is. At its extreme, greenwashing involves fake investments, such as the Brazilian forestry scheme set up by two directors who were sentenced last week to 11 years in prison for fraud. Earlier this month, the chief executive of DWS Group, Deutsche Bank’s asset management business, resigned after German police seized documents from its offices in connection with an investigation into allegations that it had misrepresented its investments as eco-friendly.
But what action can investors take in the civil courts? Some protection against greenwashing is offered by well-established claims for breach of contract, negligent or fraudulent misrepresentation, and in some cases consumer protection legislation-based remedies.
However, there are three fundamental difficulties with most of these claims when applied in this context.
The first is the lack of clarity that still plagues many green terms. Before you can prove that a description such as “eco friendly” or “made from recycled materials” or “working towards net zero” is false, you first need to prove what exactly a reasonable person would have understood that description to mean in context. Until the regulators step in and define those terms, that is not always an easy task. It is even more complicated where a company avoids making specific claims about its products, and merely uses creative branding to claim, in a very general sense, its ethics and processes are built on the values of sustainability.
The second is that most private law remedies require a claimant to prove individual loss before a court will intervene. This is relatively sensible for personal injury or defamation claims, as it keeps cases with no real significance from clogging up the court system. But it doesn’t really work in environmental cases, which are “tragedy of the commons” situations, where the true scale of the loss is only understood when the effect on society as a whole is taken into account.
The third problem is similar: most private law remedies are aimed at compensating the individual claimant for the loss that they have suffered. But a company prepared to damage the environment may well take the view that it can maximise its profits by continuing its dirty practices if it only has to compensate the small subset of individuals who claim, and only for their individual loss.
Better regulation is part of the answer, but regulators are under-resourced, over-stretched, and almost always behind the curve. Action by investors and others prepared to be green champions is going to be needed, but such green knights should beware. It will require a great deal of legal creativity to persuade the courts that innovative environmental claims brought by individuals should be taken seriously – along with appropriate remedies – to ensure that the pollution does not pay.
Ian Shipley contributed to this article