az Alert | How can ESG criteria prevent greenwashing in companies?

Feb 8, 2023

A bill is currently being processed that aims to punish greenwashing with harsh penalties, mainly fines and a ban on advertising.

In a world marked by the continuing advance of the climate crisis, the need has arisen to reconcile the development of large-scale world trade with not only profitable but also sustainable investment.

In this context, various international organizations have been active in proposing principles and standards of conduct. However, the so-called ESG criteria have become particularly popular, involving a business practice marked by three aspects: environmental (E), social (S) and corporate governance (G).

Due to the general acceptance of these criteria and the affinity of consumers for environmentally friendly products, several companies have begun to carry out a bad practice called greenwashing, which consists of false or insufficient advertising delivered by an organization to the public, to show itself as sustainable and ecological, with a view to obtaining a profit derived from it.

Apart from the ethical and moral considerations related to the deception of customers, greenwashing can often involve direct damage to the environment by disregarding ESG criteria in the investment process.

Due to its seriousness and massiveness, the case of a U.S. company dedicated to the production of personal care products stands out. This company was sanctioned in 2019 to pay a fine of $1.76 million dollars and other measures concerning limitations to its advertising, due to the accusations of the Federal Trade Commission (FTC), an entity equivalent to our SERNAC.

These allegations were accepted by the Court of the Southern District of Florida, which found that the company had marketed products labeled as “vegan” that in fact were not, and, in turn, had pretended to have certain certifications from the U.S. Department of Agriculture, and had even used components directly prohibited by this entity, among other actions.

At the national level, in spite of some advances regarding the ecological sustainability of business practices, it is still not possible to find legislation that addresses greenwashing. However, since last year there is a bill in process that includes precisely this objective as its main idea. Thus, the law aims to punish greenwashing with harsh punitive measures, mainly fines and a ban on advertising, highlighting its focus on consumers, who are directly affected by this misleading information.

In this sense, it is important to continue advancing along this line, where we know how to balance technological progress and economic development with the imperative need to protect the environment, through commitments to truly responsible investment.

Thus, it is key that companies have more effective compliance policies, which must be implemented correctly to achieve good practices throughout all its members and collaborators.

For more information on these topics, please contact our Compliance Group:

Francisca Franzani | Director Compliance Group |

Florencia Fuentealba | Associate Compliance Group |

Jaime Viveros | Associate Compliance Group |

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