Knock Knock!
Who’s there?
It’s an AI bot, here to inform you that the EU regulator is on their way to tell you that you have ten days to substantiate your eco claims or else face penalties that could turn Kermit from green to blue.
But I’m based outside of the EU.
Oh, what’s that then?
An EU Customer...oh Compost! Well, isn't this awkward. Did my so-called "environmentally friendly" product just prune my turnover by 4%?
……..KNOCK KNOCK
In the current climate of environmental awareness and corporate sustainability, companies worldwide are amplifying their commitments to adopting green practices. Simultaneously, regulators, environmental NGOs, citizens, and activists across the globe are on a mission to crush the pervasive practice of greenwashing. Their key ally in this battle? Artificial Intelligence (AI).
The key ally against greenwashing
Companies are clamouring to ‘claim’ their green credentials to secure a bigger bite of an ever-growing share of the ethical market. Whilst the regulators encircle with a raft of changes across regulation, including labelling and disclosure requirements, another force is working in tandem, and it comes in the form of AI.
This technology has become an invaluable tool, capable of analysing vast quantities of publicly available information to call out early signs of greenwashing risks. This could be a gamechanger that will likely lead to a significant rise in uncovering greenwashing cases.
When the going gets tough, the regulators get tougher
Regulators worldwide are taking a harder stance to put a stop to these deceptive practices, signalling that financial firms and corporates need to sit up and pay serious attention. If they don’t, the repercussions will be severe, from penalties, damages, reputational damage to loss of trust.
The UK government’s 2023 Green Finance Strategy has committed to fortify protections against greenwashing. The Financial Conduct Authority’s Sustainable Disclosure Requirements (SDR) promise to surpass the well-trodden path of being clear, fair and not misleading. The imminent launch of the new anti-greenwashing rule aims to squash any thought of greenwashing. Furthermore, the UK Green Taxonomy is set to raise the bar for dependable sustainable information, observing and learning from other taxonomies to eliminate any loopholes.
Outside of financial circles, businesses too need to stay alert. Recently, both the EU and the US have stepped up their efforts to combat greenwashing, reinforcing their commitment to ensuring authentic sustainability. The Federal Trade Commission is reviewing its “Green Guides” for the first time in ten years, to guide firms on how to avoid making deceptive claims and take a tougher stance against greenwashing. I envisage these changes will empower the agency to take decisive action when deceptive claims violate US federal laws.
Additionally, the EU Green Claims Directive has tabled significant measures to penalise greenwashing practices, including proportionate penalties. Both the US and EU initiatives represent a significant shift towards stringent scrutiny of companies' environmental claims.
The new robots-enabled greenwashing litigation facilitator
Past experience has taught us that ‘bad’ doesn’t always get found out or punished. The reason for this is twofold, difficulty in identification (finding the problem) then gathering evidence to substantiate an allegation. That was before the days of AI, and the fast-moving technological advancements will likely result in a surge of what some are calling robots-enabled greenwashing litigation.
While not fool proof, AI is proving instrumental in calling out discrepancies in publicly available data. With an increasing number of companies being bound by various disclosure requirements, this pool of data is getting larger and making it easier detect where claims are not entirely accurate. While such information may not suffice in isolation to build a case, it saves considerable time and resources allowing more money to be spent on building a legal analysis and case.
Robots, authenticity, and the future
In this tightening regulatory landscape, 2023 is the year for companies to embrace genuine environmental responsibility, moving beyond superficial sustainability claims. There are fewer places to hide if your control frameworks don’t stand up to scrutiny or worse, you actively try to deceive. With hefty penalties, lowered barriers to enforcement and legal action, the rapid developments in technology, and increased regulatory vigilance, companies must ensure their environmental claims are not only accurate, but also verifiable.
This technological and regulatory shift demands a systemic change in corporate culture, where environmental sustainability is more thoughtfully and deeply integrated into the fabric of every organisation.
In a world increasingly conscious of environmental impact, authenticity is key, and robots are watching. The onus is on business to navigate this complex landscape, align their activities with genuine sustainability goals, and communicate their efforts with honesty and transparency. And don’t even consider engaging in green hushing Once the regulators have made an example of a few companies for bending the truth, I anticipate the Robots will start to investigate those that are purposefully downplaying their positive environmental impact and the regulators be back and turn their focus there.
Leaman Crellin have created a Greenwashing Awareness Training for Financial Professionals course that can be purchased from the shop or we can deliver Greenwashing training to you online or in person.
