It's Not Easy Being Anti-Greenwashing

Abstract

Policy-makers who focus on financial regulation have identified greenwashing — the making of false claims relating to the environment and sustainability— as a major problem requiring enforcement and regulatory responses. In order to prevent greenwashing effectively, it is necessary to define what is, and is not, green, but there is not as yet an international agreement, or in many cases any domestic agreement, about the definition—or how to achieve one. Regulators, including the SEC, are working on regulating firms’ disclosures relating to climate change, but this only indirectly addresses the issue of defining what is green. The article compares the ways in which the US and the EU have begun to address these climate disclosure issues, and notes that the US and EU approaches vary substantially, for example, the contrast between the EU’s vision of materiality as relating to the impact of climate change on business, and of business on the climate (double materiality) in contrast to the US focus on simple materiality which emphasizes the impact of climate change on business. But EU rules affect some US-based enterprises. The EU and the US also differ as to levels of political contestation around core concepts of sustainability and of the regulatory state.

Greenness and sustainability have no inherent meaning. The concepts are inevitably a function of political processes, and of the efforts of actors who try to influence how policy-makers conceive of issues relating to climate change and the role of law. If regulatory concepts of sustainability or what is green are inadequate to help us to address climate change, then regulatory enforcement efforts to fight greenwashing will inevitably also be inadequate. But confusion over how to think about sustainability may even work to discourage firms from engaging in climate mitigation efforts.

More fundamentally, governments, and legislators who are responsible for developing the rules the rest of us must live by, themselves engage in greenwashing, failing to make appropriate disclosures about their own climate risks, and issuing green bonds which contain no binding commitments to use the proceeds to promote sustainability. Governments also engage in greenwashing when they subsidize fossil fuels and present inadequate policies as promoting sustainability.

Whereas the EU rules are part of a planned EU-level project to ensure that EU financial markets as a whole promote sustainability, the SEC has the task of addressing issues relating to climate change by reference to its statutory mandate. While the SEC is clearly involved in international conversations about climate change and finance, it is also hampered by challenges to its regulatory authority. The political and legal climate in the US makes it harder for US regulators effectively to address issues relating to finance and climate change than is the case in the EU.

Keywords: climate change, climate finance, greenwashing