Greenwashing: regulators circle, enforcement lags behind

These days, Environmental, Social and Governance (ESG) is a concept (and acronym) that requires little explanation in the legal and commercial worlds. Although the roots of the term can be traced back to a UN report published at the turn of the millennium, it has only gained significant mainstream traction over the past decade. With the climate crisis debate reaching fever pitch and as the world continues its pursuit of net zero, eco-friendly goods and services continue to grow in popularity. However, as well as (hopefully) benefitting the planet and society, ESG standards offer fertile ground for potential abuse and exploitation. 

Where it concerns environmental impact, such behaviour has gained infamy through the term known as ‘greenwashing’. In its crudest form, greenwashing can be seen in deceptive marketing tactics through advertising, branding, corporate communications, product labels or company reports, the purpose of which is to present an environmentally friendly image of a business or product that is, in truth, false or unsubstantiated. Such is its growing prevalence that, in the last few years, authorities have looked to insert themselves into the arena in an attempt to ensure fair play. 

As tends to be the way, the regulators have been first on the scene. In May 2024, the Financial Conduct Authority (FCA) introduced its anti-greenwashing rule (AGR) and accompanying guidance. In short, the AGR augments existing FCA rules to put the onus on regulated businesses to ensure that descriptions of products and financial promotions relating to sustainability are accurate, comprehensible to the public, do not omit important information, and are capable of being substantiated. Whilst the introduction of the AGR seems a sensible move to bring ESG to the forefront of the financial services psyche, it is difficult to judge its real impact because, to date, the FCA has only announced one ESG-related investigation and there has been no concluded enforcement action.

More recently, the Competition and Markets Authority (CMA) has been handed the task of patrolling the ESG landscape. In April this year, the CMA was granted new powers through the Digital Markets, Competition and Consumers Act 2024 to fine companies up to 10% of their global turnover for, inter alia, actions that fall under the above greenwashing definition. Significantly, this new power gives the CMA considerable enforcement capabilities that do not require initial sanction by a court. 

Again (although more understandable given the short period since implementation), no action has been taken by the CMA at the time of writing. However, this may well change as counterparts in foreign jurisdictions have begun to dish out hefty penalties: Shein was fined €1 million by Italy’s competition authority in August 2025 and DWS (a limb of Deutsche Bank) was fined an eye-watering €25 million by the German authorities in April 2025.

In the UK, as is perhaps logical, the most active regulator so far has been the Advertising Standards Authority (ASA). Indeed, the ASA has created the biggest splash to date in the greenwashing space with a ruling against Virgin Atlantic Airways Ltd (Virgin Atlantic). 

In summary, the ASA banned a Virgin Atlantic radio advertisement deemed to be misleading. The advert asserted that a particular flight would make Virgin the world’s first commercial airline to fly using ‘100% sustainable aviation fuel’. The issue here was that ‘sustainable aviation fuel’ is an industry term referring to airplane fuel derived from synthetic fuels and biofuels rather than fossil fuels, so making them better for the environment. Crucially in this case, it is important for context to understand that such fuels are not harmless to the environment.

Complaints against the advert argued that by using such language, the ordinary listener would assume not just that the fuel was obtained from sustainable sources (which was accurate) but also that it did not emit greenhouse gases into the atmosphere (which was not accurate). 

Virgin Atlantic argued that the wording mirrored that used by the Department for Transport and that listeners would not interpret the term to believe that ‘the fuel used for Flight 100 was derived from completely sustainable sources, did not generate CO2 or other emissions that had an adverse environmental impact during use, and that over its full lifecycle had no adverse environmental impacts,’ and to suggest so was an overreach. 

To substantiate these assertions, Virgin Atlantic went as far as to survey the general public to ascertain what people had understood from the advert. It concluded that the advert was clear in its messaging that the claim related to the type of fuel used, with 68% of those surveyed aware that sustainable aviation fuel was better for the environment than traditional jet fuel but that it was not without any adverse impact. 

The ASA disagreed, ruling against Virgin Atlantic and banning the advert. In its explanation, the ASA effectively used Virgin Atlantic’s research data against the company. It said that ‘significant minorities’ (32% to be precise) could misinterpret what was meant by sustainable aviation fuel. 

The ruling demonstrates a tough stance on potential misleading ESG claims, with the ASA acknowledging that most people would not be misled by the advert. Further, it accepted that the flight in question was not a commercial flight, and so members of the public could not purchase tickets. The rationale behind the ban was that it painted Virgin Atlantic in such a light that it could redirect listeners interested in pioneering, eco-friendly airlines towards choosing Virgin Atlantic for their travels and away from competitors. Therefore, the ASA concluded that it was imperative that the advert unambiguously represented the full facts around the fuel. 

If other regulators follow the ASA’s lead, and the level of political and public pressure remains, then we will inevitably see more action on greenwashing in the near future. 

It is reassuring that regulators are alert to the issue and being handed the necessary tools to preserve the playing field between consumers and businesses. However, until financial penalties are actually meted out, a requirement to alter the wording in an advert is the most severe enforcement action we have. The big question is: when can we expect prosecutorial agencies to enter the fray against the ‘greenwashers’?

Some white-collar practitioners believe that the watershed moment may have arrived with section 199 of the Economic Crime and Corporate Transparency Act 2023 (ECCTA 2023) – the long-awaited failure to prevent fraud offence – which is now in force.  After all, greenwashing fits squarely into the definition of fraud by misrepresentation, in that there is an alleged misleading or untrue representation, and gains and losses are intrinsic to business.

However, upon closer inspection, prosecutors may have to work a little harder. Greenwashing in almost all its forms is sufficiently vague that criminal prosecutions, particularly under this new piece of legislation (with the additional requirements about the narrow pool of companies that can be prosecuted), may well be a non-starter. 

For example, to commit the offence under section 2 of the Fraud Act 2006, it is insufficient for there to have been a misrepresentation and a gain or loss (or intended gain or loss); there has to be a causal link between the two.  To take the ASA v Virgin Atlantic case as an example, even if it were possible to establish that the company had knowingly and dishonestly misrepresented the nature of the fuel, trying to sew a link between that vague statement in an advert as the very reason that a consumer bought a Virgin Atlantic flight could be challenging. Obviously, it is possible to imagine cases where the link is less tangential. However, the environmental credentials of a product are usually secondary to its primary purpose. If that is where the misrepresentation lies, proving that it is the cause of the loss (or intended loss) may be equally difficult. 

Whether the failure to prevent fraud offence does become a watershed moment in the prosecution of greenwashing remains to be seen. On analysis of the current law, it feels unlikely. However, as we saw with the World Uyghur Congress case, if enough pressure is placed on public bodies to correct a perceived wrong, then the courts are not averse to reaching conclusions with potentially drastic consequences. Plainly, there is political and popular support behind the rise of ESG, to which greenwashing represents a real threat. The question for the near future is what level of enforcement is required to keep that threat under control.