1.

Low Perception of Greenwashing Practices: Increased Enforcement Action and Lack of Internal Controls to Track and Respond to Greenwashing Allegations

According to the Ministry of Environment (“MOE”), the number of greenwashing cases (i.e., the number of violations of labeling and advertising standards for eco-friendly business activities) in Korea has increased significantly from 57 in 2019 and 272 in 2021 to 4,935 in 2023.

Nevertheless, Korean companies are still getting acquainted to greenwashing risks and are largely unprepared for the global crackdown on greenwashing. In September 2024, the Korea Chamber of Commerce & Industry released the results of a greenwashing survey it conducted with 100 companies in Korea.^[1] When asked about the level of awareness of greenwashing, a colossal 45% of the companies surveyed responded with either “I do not know well” or “I have no idea.” In addition, as to how they are responding to greenwashing risks, 36% indicated their level of response is “low” while 8% indicated “very low.” Furthermore, 61% stated that “they have no division or personnel dedicated to handling greenwashing allegations” and 48% stated that “they have no internal system or controls in place for responding to greenwashing allegations.”

In short, despite the increasing regulatory risks posed by greenwashing, a large number of companies still have a low level of awareness on greenwashing regulations and standards and thus remain unprepared for such risks.
 

2.

Regulations on Greenwashing Practices: Recent Trends in Korea and Beyond

Other countries have actively engaged in discussions on introducing greenwashing legislations well before Korea. In particular, the European Union (“EU”) has established a regulatory framework aimed at greenwashing and continues to pave the way for regulating greenwashing. A close review of the EU’s regulatory framework provides an outlook on the future of greenwashing regulations in Korea.
 

–

The EU Green Claims Directive (“GCD”) aims to prevent greenwashing, thereby providing reliable, comparable, and verifiable environmental information to consumers by establishing (i) minimum requirements for substantiating, communicating, and verifying explicit environmental claims (regarding the environmental benefits and performance of products/services offered to consumers by companies), and (ii) minimum criteria for environmental labels and environmental labeling schemes.

–

The European Parliament adopted its position on the proposed GCD, which now awaits inter-institutional negotiations (i.e., trilogue negotiations). After the GCD is finalized through the trilogue negotiations, EU Member States will be required to implement the directive into national law within 24 months. As such, it is expected to take effect from around 2026.

–

The GCD proposes the minimum requirements for substantiating environmental claims. Communications of explicit environmental claims are only allowed when the environmental claims are backed up by proof as required by the GCD. Information about the product or company making the environmental claim, along with the evidence supporting it, must accompany the product in physical form or through a link, QR code, or similar digital format. In addition, the GCD stipulates a number of conditions that must be met in order to communicate environmental claims to consumers.

–

The GCD also proposes the minimum criteria for environmental labeling schemes. According to the GCD, an environmental labeling scheme is essentially a certification process that guarantees that a product, a process, or a trader complies with the requirements for an environmental label. Environmental labels must be transparent, developed by experts, and verified by a third party. Setting out strict requirements of environmental labels, the GCD stipulates that existing labels can be maintained as long as they comply with these requirements.

–

The GCD calls on the Member States to introduce effective, proportionate, and dissuasive penalties in their national law with a specific mandate for the maximum penalty to be at least 4% of turnover in the relevant Member State.
 

–

Article 16-10 of the ETISA prohibits false or exaggerated labeling or advertising, deceptive labeling or advertising, unfair comparative labeling or advertising, and slanderous labeling or advertising that may deceive or mislead consumers with respect to environmental claims.

–

Notably, the ETISA only applies to labeling and advertising with environmental claims about “products.” On the other hand, the MOE’s “Guidelines on Labeling and Advertising of Eco-friendly Business Activities” published in October 2023 extends the scope of regulations beyond “products” to cover corporate activities and present more specific standards for environmental labeling and advertising.

–

The Guidelines on Labeling and Advertising of Eco-friendly Business Activities set forth eight basic principles that environmental labeling and advertising must comply with: (i) authenticity, (ii) clarity, (iii) specificity, (iv) considerableness, (v) completeness, (vi) substantiability, (vii) consideration of a product’s entire life cycle, and (viii) voluntariness. (For more information, please refer to our December 2023 Newsletter titled “Announcement of the Guidelines on Labeling and Advertising of Eco-friendly Business Activities,” Link)
 

–

The KFTC regulates greenwashing as a type of labeling/advertising through the FLAA. Like the ETISA, Article 3 of the FLAA prohibits false or exaggerated labeling or advertising, deceptive labeling or advertising, unfair comparative labeling or advertising, and slanderous labeling or advertising.

–

The scope of the FLAA is wider than that of the ETISA in that the FLAA covers not only labeling and advertising on products but also labeling and advertising on companies. That said, since the FLAA was originally introduced to regulate all labeling and advertising activities in general, it does not stipulate specific standards for environmental labeling and advertising.

–

Accordingly, the KFTC enacted the “Guidelines on Examination of Environment-Related Labeling and Advertising” to present detailed criteria for determining greenwashing. In June 2023, the KFTC revised the Guidelines on Examination of Environment-Related Labeling and Advertising (“Amended Guidelines”) to make the standards clearer and present specific enforcement cases by reflecting recent developments from both inside and outside of Korea, such as the MOE’s Public Notice on Environmental Labeling and Advertising Management System (MOE Public Notice No. 2019-24) and greenwashing guidelines from other countries.

–

The Amended Guidelines reorganize the general principles for reviewing unfairness of environment-related labeling and advertising into the principles of (i) authenticity, (ii) clarity, (iii) considerableness, (iv) substantiability, (v) consideration of a product’s entire life cycle, (vi) specificity, and (vii) completeness, provide specific examples for each principle, and present examples of unfair environmental labeling and advertising. Furthermore, reflecting the life cycle of a product, the Amended Guidelines introduced a simplified self-checklist to help companies self-assess the illegality of their environmental labeling and advertising. (For more information, please refer to our June 2023 Newsletter titled “KFTC Proposes Amendment to Review Guidelines Regarding Greenwashing,” Link).
 

3.

Greenwashing Outlook: Diversification of Risks and Regulations in Full Swing
 

–

In the UK, the Advertising Standards Authority banned ad campaigns by oil refineries and airlines in relation to expressions such as “renewable hydrogen” and “sustainable flight” on greenwashing grounds.

–

In the US, the City of New York sued oil and gas corporations and the American Petroleum Institute, alleging that the named defendants violated the New York City’s Consumer Protection Law by systematically and intentionally misleading New York City consumers about their products’ role in causing climate change. In addition, an airline is facing a class action lawsuit over its carbon neutrality claim which plaintiffs say is “false and misleading” as it relies on voluntary carbon offsets that do little to mitigate global heating. Both cases are still pending.
 

–

The Environment and Labor Committee mainly raised an issue with the fact that despite the continued increase in the number of environmental labeling and advertising found to be in violation, the MOE has imposed corrective orders, administrative fines, or cease and desist orders in a very limited number of cases and mostly resorted to mere “administrative guidance.” In fact, the statistics presented at the National Assembly’s audit showed that 99.6% of 4,935 cases in 2023 were closed with “administrative guidance,” and only 21 cases were subject to corrective orders or other sanctions.

–

Throughout the audit, members of the National Assembly argued that the ambiguous criteria is one of the reasons why advisory committee members, who decide the level of sanctions for greenwashing, make passive decisions to avoid retaliatory lawsuits by companies. As such, the Environment and Labor Committee members requested that the MOE/KEITI come up with measures to hold large online retailers accountable and provide more specific and accurate criteria for determining greenwashing. Both the MOE and the KEITI expressed their agreement with the lawmakers.
 

4.

Implications

To prevent and respond appropriately to greenwashing risks in advance, it is necessary to quickly establish a more sophisticated greenwashing prevention system based on accurate information on greenwashing regulations at home and abroad.