In light of recent trends regarding Environmental, Social and Governance (“ESG”) management and sustainable consumption, the “environmental friendliness of products or business activities” has become a key marketing element. A growing movement against “fake or disguised environmentalism” (through which companies falsely promote the environmental properties of their products or management practices) that aims to hold greenwashing companies accountable has gained prominence.

Greenwashing, which initially exposed companies to “reputational risks” and “market risks,” now carries with it “legal risks” in the form of regulatory and litigation risks arising from the introduction of various regulations and active intervention by regulatory agencies.

This legal update provides the latest developments and trends in greenwashing for companies seeking to establish ESG management strategies and/or implement compliance controls.
 

• The EU’s Green Claims Directive (the “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, which is expected to take effect in 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 evidence supporting it, must accompany the product in physical form or through a link or QR code (or in a 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, process or 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 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 extend 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 the following eight basic principles that environmental labeling and advertising must comply with: (i) authenticity, (ii) clarity, (iii) specificity, (iv) substantiality, (v) completeness, (vi) verifiability, (vii) consideration of a product’s entire life cycle, and (viii) voluntariness.
   

• 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 broader 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, as 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 (the “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 in environment-related labeling and advertising into the principles of: (i) authenticity, (ii) clarity, (iii) substantiality, (iv) verifiability, (v) consideration of a product’s entire life cycle, (vi) specificity, and (vii) completeness, providing specific examples for each principle and presenting 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.
   

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

• In the US, New York City sued oil and gas corporations and the American Petroleum Institute, alleging that the named defendants violated the 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 cases of environmental labeling and advertising found to be in violation, the MOE has imposed only a few corrective orders, administrative fines, or cease and desist orders and mostly resorted to mere “administrative guidance.” In fact, the statistics presented at the National Assembly 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 advisory committee members, who decide the level of sanctions for greenwashing, make passive decisions in fear of retaliatory lawsuits by companies. As such, the Environment and Labor Committee members requested that the MOE and 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.
   

As last year’s National Assembly Audit revealed the deficiencies in greenwashing regulations, the Korean government is expected to investigate and take more active enforcement action against greenwashing. To this end, we anticipate that regulatory agencies like the MOE will prepare more specific criteria for determining greenwashing and increase the level of penalties by amending guidelines and public notices.
 

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

[Korean Version]