GREENWASHING AND CORPORATE ACCOUNTABILITY: REGULATING MISLEADING ENVIRONMENTAL CLAIMS IN INDIA’S ESG FRAMEWORK

Introduction

Environmental, Social and Governance (ESG) considerations have become a significant factor influencing corporate reputation, investor decisions, and consumer behaviour. Companies across the world increasingly promote their sustainability initiatives to demonstrate environmental responsibility and attract stakeholders. However, this growing emphasis on sustainability has also resulted in the emergence of a new form of corporate misrepresentation known as “greenwashing.” Greenwashing refers to the practice of making false, exaggerated, or misleading environmental claims to create a perception of ecological responsibility without sufficient evidence supporting such claims.

Unlike traditional forms of corporate misconduct involving financial misstatements, greenwashing involves manipulation of sustainability narratives. Misleading environmental claims can distort investor decisions, influence consumer choices, and undermine genuine sustainability efforts. Therefore, greenwashing is not merely an ethical concern but a matter of corporate governance and market integrity.

India has taken significant steps towards improving ESG transparency through the Securities and Exchange Board of India’s (SEBI) Business Responsibility and Sustainability Reporting (BRSR) framework. However, the existing regulatory approach primarily focuses on disclosure rather than accountability. This article argues that while India’s ESG framework has improved corporate transparency, the absence of a comprehensive liability mechanism allows companies to make misleading environmental claims with limited legal consequences. A stronger regulatory framework combining securities regulation, consumer protection, and corporate governance principles is necessary to effectively address greenwashing.

Understanding Greenwashing as a Corporate Governance Issue

Greenwashing occurs when companies portray their products, services, or operations as environmentally sustainable through misleading statements, selective disclosures, or unsupported claims. Statements such as “carbon neutral,” “eco-friendly,” or “sustainable” can influence consumer and investor decisions, particularly when they are not backed by measurable evidence.

The increasing importance of ESG investing has amplified the consequences of greenwashing. Investors often rely on sustainability disclosures while evaluating companies, meaning inaccurate environmental information can affect capital allocation and market valuation. Similarly, consumers may choose products based on environmental claims, making misleading sustainability representations a form of unfair commercial practice.

From a corporate governance perspective, greenwashing raises questions regarding transparency, accountability, and directors’ responsibilities. Companies have a responsibility to provide accurate information to stakeholders, and sustainability disclosures should not become merely a marketing tool. Therefore, addressing greenwashing requires moving beyond voluntary commitments towards enforceable legal obligations.

Indian Legal Framework Governing Greenwashing

A. SEBI’s Business Responsibility and Sustainability Reporting Framework

SEBI introduced the Business Responsibility and Sustainability Reporting (BRSR) framework to enhance ESG disclosures by listed companies. The framework requires companies to disclose information relating to environmental impact, social responsibility, and governance practices. By mandating structured sustainability reporting, BRSR aims to improve transparency and enable stakeholders to make informed decisions.

However, the effectiveness of BRSR in preventing greenwashing remains limited. The framework primarily operates through disclosure obligations and does not establish a dedicated mechanism for verifying every environmental claim made by companies. A company may comply with reporting requirements while still presenting sustainability information selectively or in a manner that exaggerates its environmental performance.

This creates a regulatory gap. Transparency is essential, but disclosure alone cannot prevent misleading claims unless companies face consequences for inaccurate or deceptive sustainability statements. Unlike financial disclosures, where misrepresentation may attract regulatory action, ESG-related misstatements currently lack a similarly developed enforcement mechanism.

Therefore, while BRSR represents an important step towards responsible corporate behaviour, it must evolve from a disclosure-based framework into an accountability-oriented regime. This raises the question of what other legal tools might fill that gap.

B. Consumer Protection and Securities Regulation

The Consumer Protection Act, 2019 provides a possible avenue for addressing misleading environmental claims. Section 2(28) defines a misleading advertisement as one that falsely describes a product or service or provides information likely to mislead consumers. Environmental claims that exaggerate sustainability benefits may fall within this category.

The Central Consumer Protection Authority (CCPA) has also been empowered to take action against misleading advertisements. However, consumer protection law primarily focuses on protecting consumers and does not fully address the broader impact of greenwashing on investors and financial markets.

SEBI’s securities regulations provide another potential mechanism. Sustainability-related information disclosed by listed companies can influence investment decisions, making inaccurate ESG disclosures a concern for investor protection. Misleading ESG information may affect market integrity in a manner similar to inaccurate financial disclosures.

Nevertheless, the current legal framework remains fragmented. Consumer law addresses misleading advertisements, while securities regulation focuses on investor protection. Neither provides a comprehensive framework specifically dealing with environmental misrepresentation. As a result, companies may face limited accountability for misleading sustainability claims.

A more integrated approach is required, where environmental disclosures are treated as material corporate information subject to verification and regulatory scrutiny.

Comparative Perspective: Lessons from Other Jurisdictions

Several jurisdictions have moved beyond disclosure-based approaches to directly regulate greenwashing.

The European Union has adopted a stricter approach by focusing on substantiation and verification of environmental claims. The proposed Green Claims Directive seeks to ensure that companies provide scientific evidence before making environmental representations. This reflects a shift from merely requiring disclosure to ensuring that sustainability claims are accurate and reliable.

The United States has approached greenwashing largely through investor protection principles. Regulatory discussions around climate-related disclosures focus on ensuring that investors receive accurate and material information regarding environmental risks and corporate commitments.

Compared to these approaches, India’s regulatory framework remains primarily disclosure-oriented. While BRSR has improved sustainability reporting, India lacks a specialised mechanism requiring companies to prove the accuracy of environmental claims before communicating them to stakeholders.

Critical Evaluation and Recommendations

The regulation of greenwashing requires balancing two competing interests. On one hand, excessive regulation may discourage companies from adopting sustainability initiatives due to fear of liability. On the other hand, inadequate regulation allows companies to exploit ESG concerns for reputational and financial benefits without genuine environmental commitment.

The current Indian framework requires strengthening for three reasons.

First, ESG claims increasingly influence investment decisions and therefore have implications for financial market integrity. Misleading sustainability information should attract consequences similar to other forms of corporate misrepresentation.

Second, existing laws operate in separate areas and fail to address greenwashing comprehensively. Consumer protection, securities regulation, and corporate law must be integrated to create effective accountability.

Third, corporate directors should have greater responsibility regarding sustainability disclosures. Under Section 166 of the Companies Act, 2013, directors are required to act in good faith and in the interests of stakeholders. This duty should extend to ensuring that ESG claims made by companies are accurate and reliable.

To address these concerns, India should introduce specific anti-greenwashing guidelines under SEBI, require independent verification of significant environmental claims, impose penalties for misleading ESG disclosures, and strengthen director accountability for inaccurate sustainability reporting.

Conclusion

Greenwashing represents a modern challenge to corporate accountability by transforming sustainability claims into a tool of corporate reputation management. While India has made significant progress through ESG disclosure requirements such as the BRSR framework, transparency alone cannot prevent misleading environmental representations.

A credible ESG ecosystem requires more than voluntary reporting; it requires enforceable accountability. By adopting stronger verification mechanisms, regulatory oversight, and corporate responsibility standards, India can ensure that sustainability claims reflect genuine environmental commitments rather than mere marketing strategies. Effective regulation of greenwashing will not only protect investors and consumers but also strengthen trust in India’s evolving corporate governance framework.

Reference(S):

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