In many instances today, sustainability sells. From fashion brands touting “eco-friendly” collections to corporations pledging carbon neutrality, green credentials have become a powerful marketing tool. But behind the bold claims, how much of it is real and how much is smoke and mirrors? Enter greenwashing: a practice that not only misleads consumers but also undermines genuine efforts to combat climate change. As regulators tighten the screws and fines mount, understanding the roots, risks, and realities of greenwashing has never been more critical.

Understanding greenwashing and its origins

Greenwashing is the practice of making false or misleading claims about a company’s environmental efforts to appear more eco-friendly than they actually are. It’s a marketing tactic designed to win over eco-conscious consumers without delivering genuine environmental benefits.

The term was coined in the 1980s by environmentalist Jay Westerveld, who criticized a hotel’s claim that reusing towels was about saving the environment, when in reality it was more about cutting costs. Since then, greenwashing has evolved from isolated incidents into a widespread challenge, shaping consumer trust, regulatory scrutiny, and corporate accountability.

Why do companies do it?

Even as the cost of living and inflationary concerns weigh heavily on consumers, many are still willing to pay a sustainability premium, up to 9.7%, as indicated in a 2024 PwC Voice of the consumer survey.

Driven by a need to attract environmentally conscious consumers, to gain a competitive edge, and to improve their brand reputation, companies have engaged in greenwashing. The Environmental Resources Management (ERM) reported, in 2024, that 68% of U.S. corporate leaders admitted to greenwashing their brands.

Despite the shifting political sentiment towards sustainability in some jurisdictions, an updated survey released by Morgan Stanley, in 2025, showed that sustainability remains a long-term value creation opportunity with nearly nine out of ten companies expecting it to drive benefits including higher profitability, better customer and employee retention, revenue growth and improved cost of capital.

Greenwashing isn’t just a marketing issue; it has real-world consequences. When companies exaggerate or fake their environmental claims, they mislead consumers and distort purchasing decisions. It undermines regulatory efforts aimed at tackling climate change by creating a false sense of progress. Investors may also be misinformed, basing financial decisions on misleading sustainability claims.

How governments are responding to greenwashing

Regulators have taken increasingly serious action to stop greenwashing in the last 5 years the European Union has led the way in drafting and enacting legislation, by introducing stricter disclosure requirements, requiring firms to back up environmental claims with verifiable data, through measures like the EU taxonomy and Sustainable Finance Disclosure Regulation (SFDR).

The UK introduced the CMA’s Green Claims Code and new anti-greenwashing rules from the Financial Conduct Authority (FCA). France enacted strict laws under its Climate and Resilience Law and anti-waste legislation, banning vague terms like "carbon neutral" without scientific backing. This has led to fines and enforcement actions against companies accused of greenwashing across multiple sectors and jurisdictions:

• In Germany, asset manager DWS was fined €25 million under financial and consumer protection laws for misleading ESG claims.

• In Canada, Keurig (a beverage company) was fined USD 2.3m for misleading consumers about the environmental impact and recyclability of its products.

• In Italy, Eni (an energy company) was fined USD 5.6m for misleading ads calling palm-oil-based diesel "green".

However, there has been pushback that the raft of legislation has overwhelmed business and stifled growth; in Feb 2025, the European Commission amended key sustainability laws via the Omnibus Directive, and in Jun 2025, it announced plans to withdraw the proposed Green Claims Directive. The evolving regulatory landscape highlights the need for banks to implement robust systems to verify the environmental claims made by their clients, as greenwashing can result in fines that hinder companies’ ability to repay loans, while also exposing banks to increased regulatory and reputational scrutiny, legal penalties, and higher compliance costs and increase the risk of stranded assets that lose value prematurely due to shifting market and regulatory pressures.

Using technology to spot greenwashing risk

Some recent examples of fines associated with greenwashing give an indication of the data challenges involved:

• Giorgio Armani was fined USD 4.1 million for making misleading ethical and social responsibility claims, particularly regarding labour practices in its supply chain. Clues pointing to greenwashing included the absence of verifiable information or third-party certifications, lack of active membership in fair labour initiatives, and reports from media and NGOs documenting labour rights abuses in factories associated with the brand.

• H&M was fined USD 3 million for misleading consumers by labelling products as “conscious” and “eco-friendly,” despite 90% of its marketing claims being false. Key indicators of greenwashing included a lack of transparency about the environmental impact of materials, absence of third-party certification for sustainability claims, and concerns raised by independent organizations.

• Clorox, a cleaning and household products company, was fined USD 5.5 million for falsely claiming its garbage bags contained “50% Ocean Plastic Recycled” when the material was actually sourced inland. The absence of traceability, certification, credible audits, or third-party labels were key clues pointing to the greenwashing.

As the above examples demonstrate, clues about a company’s practices are publicly available; it’s a matter of connecting and aligning disparate pieces of data together.

Decision intelligence platforms can accomplish this effectively and at scale, identifying greenwashing by integrating both structured and unstructured data to offer a comprehensive view of a company, enabling timely detection of potential greenwashing issues. These platforms cross-verify company-provided information with data from independent organizations. Leveraging advanced analytics, AI, and third-party data sources enhances transparency and equips banks, investors, and regulators with the tools to spot misleading or false environmental claims, thereby minimizing the risk of supporting greenwashing.

Greenwashing is more than a reputational risk; it can lead to financial penalties and regulatory scrutiny. Now is the time to strengthen your ESG strategy with transparency, verifiable data, and robust monitoring systems. Equip your organisation with the tools to detect misleading claims and protect against compliance risks. Contact us to find out more about building genuine sustainability.