What is greenwashing

Definition

Greenwashing is the practice of conveying a misleading impression about how environmentally sound a company’s products, services, or operations actually are. It occurs when an organization spends more effort marketing itself as sustainable than implementing practices that justify the claim. The gap between what is communicated and what is measurable is the core of greenwashing, whether that gap results from deliberate deception, selective disclosure, or genuine confusion about what counts as a credible environmental commitment.

How greenwashing works in practice

Greenwashing rarely takes the form of an outright lie. More often it relies on vagueness, irrelevance, or misdirection. A company may label a product “eco-friendly” without specifying which environmental impact was reduced, by how much, or compared to what baseline. Another common pattern is highlighting a single minor improvement (switching to recycled packaging, for instance) while the core business model remains carbon-intensive and unchanged.

Consider a fossil fuel company that runs advertising campaigns centered on a small renewable energy division that represents less than five percent of its total capital expenditure. The ads are technically accurate: the company does invest in renewables. But the communication creates an impression that does not match the company’s actual energy portfolio or emissions trajectory. That mismatch is greenwashing.

The same logic applies to financial products. A fund marketed as “sustainable” or “ESG-aligned” may hold securities from companies with no verified emissions reduction targets, relying instead on a proprietary scoring methodology that is opaque to investors. When the methodology lacks external validation and the label suggests environmental performance that the holdings do not deliver, the fund’s marketing qualifies as greenwashing.

Regulatory landscape

Regulators have moved from treating greenwashing as a reputational matter to treating it as a legal and financial one. In the European Union, Directive (EU) 2024/825 on empowering consumers for the green transition, applicable from 27 September 2026, amends the Unfair Commercial Practices Directive to ban generic environmental claims that cannot be substantiated. The proposed Green Claims Directive, still pending since 2023, would add obligations to substantiate claims with verifiable evidence and independent verification, including rules on lifecycle assessments and the methodology behind each claim.

The U.S. Federal Trade Commission (FTC) enforces its Green Guides, which outline how environmental marketing claims should be qualified, substantiated, and presented. While the Green Guides are not formal regulations, they inform enforcement actions against deceptive environmental advertising. The Securities and Exchange Commission (SEC) has also scrutinized ESG-labeled investment products, bringing enforcement actions against asset managers whose portfolio construction did not match the sustainability criteria described in fund disclosures.

In the United Kingdom, the Financial Conduct Authority (FCA) introduced anti-greenwashing rules requiring that any sustainability-related claim made by an FCA-authorized firm must be fair, clear, and not misleading, consistent with the firm’s actual sustainability profile.

Greenwashing in Brazil

Brazil does not have a single statute equivalent to the EU rules on green claims, but several legal instruments apply. The Consumer Protection Code (Código de Defesa do Consumidor) treats misleading advertising as a violation, and environmental claims fall under that scope. CONAR (Conselho Nacional de Autorregulamentação Publicitária), the advertising self-regulatory body, evaluates complaints about sustainability-related ads and can recommend their withdrawal.

The Brazilian Securities Commission (CVM) has increased attention to ESG disclosures in the capital markets. CVM Resolution 193 adopted the International Sustainability Standards Board (ISSB) standards for voluntary sustainability reporting by publicly traded companies; the planned mandatory adoption was revoked in May 2026 (CVM Resolution 244), and from 2027 companies that do not file must explain why. This creates a framework under which vague or unsubstantiated ESG claims in investor-facing materials carry regulatory consequences.

For international professionals dealing with Brazilian operations, the practical implication is that greenwashing risk in Brazil sits at the intersection of consumer law, securities regulation, and environmental licensing. A sustainability claim that triggers a CONAR complaint may simultaneously draw scrutiny from CVM if the same language appears in investor materials, or from IBAMA if environmental licensing conditions are misrepresented.

Common confusion: greenwashing vs. greenhushing

The most frequent mistake is confusing greenwashing with greenhushing, or failing to recognize that they are opposite responses to the same pressure. Greenwashing overstates environmental performance. Greenhushing understates it: companies deliberately avoid communicating legitimate sustainability achievements to escape the scrutiny and litigation risk that comes with public claims.

Both are problems. Greenwashing erodes trust and misleads stakeholders. Greenhushing removes useful information from the market, making it harder for investors, regulators, and consumers to differentiate between companies that are making genuine progress and those that are not. A company that meets verified science-based targets but refuses to disclose them publicly contributes to the same information asymmetry that greenwashing creates, just from the opposite direction.

Another common confusion is treating greenwashing as synonymous with fraud. Greenwashing can involve fraud, but most instances sit in a gray zone of exaggeration, ambiguity, and selective emphasis. A company can greenwash without violating any law, particularly in jurisdictions where environmental marketing claims are loosely regulated. The absence of legal liability does not mean the practice is harmless: it still distorts capital allocation and consumer choice.

How to identify greenwashing

• Vague language without metrics: terms like “green,” “natural,” “conscious,” or “planet-friendly” with no quantified target or baseline.
• Irrelevant claims: emphasizing compliance with a regulation that is already mandatory, presenting legal minimums as voluntary leadership.
• Hidden trade-offs: promoting one environmental attribute while ignoring larger negative impacts across the value chain.
• No third-party verification: sustainability claims that rely entirely on internal assessment with no independent audit or recognized certification.
• Imagery over substance: heavy use of nature imagery, green color palettes, and environmental symbols in branding that is not supported by operational data.

For investors and analysts, the most reliable check is comparing marketing language against the company’s audited sustainability report (if one exists), verified emissions data, and any third-party ratings. When the tone of the advertising diverges significantly from the data in the disclosures, greenwashing is likely present.

Primary sources: Directive (EU) 2024/825, empowering consumers for the green transition (EUR-Lex, 2024); Proposal for a Green Claims Directive, COM(2023) 166 (European Commission, 2023); Green Guides (U.S. Federal Trade Commission, 2012); FG24/3 Finalised guidance on the anti-greenwashing rule (UK Financial Conduct Authority, 2024).