Abstract
Greenwashing – the practice where corporations, organisations, or products present misleading, exaggerated, or unsubstantiated claims of environmental responsibility—has escalated into a pervasive and economically significant form of corporate deception. Once confined to isolated instances of marketing spin, greenwashing has matured into an organized phenomenon that not only distorts consumer choice but also corrupts market signals, misdirects capital flows, undermines legitimate sustainability efforts, and, in many cases, constitutes regulatory and criminal wrongdoing. This extended study situates greenwashing within the conceptual framework of economic crime by examining the essential elements of intent, deception, and financial gain, and by documenting how false environmental claims translate into measurable economic harm to consumers, competitors, investors, and public treasuries.
The paper traces the historical trajectory of greenwashing from its early marketing origins to its modern manifestations—ESG-washing, carbon credit fraud, AI-generated deceptive advertising, and life-cycle concealment—while assessing evolving legal responses at the national and international levels, including the European Green Claims Directive, FTC enforcement in the United States, and India’s CCPA guidance. Through in-depth case studies (e.g., Volkswagen Dieselgate, major fast-fashion controversies, plastic and water claim by global FMCG firms, and significant Indian regulatory actions), the study demonstrates the complex interplay between corporate strategy, regulatory gaps, technological enablement, and consumer psychology.
The paper concludes with concrete, multi-layered recommendations: robust statutory definitions, mandatory scientific life-cycle assessment disclosure, independent third-party verification regimes, enhanced civil and criminal sanctions calibrated to turnover, broader powers for regulators to compel corrective advertising and restitution, and coordinated international cooperation to close cross-border enforcement gaps. The findings underscore that without decisive policy action and stronger enforcement, greenwashing will continue to erode trust in sustainability markets and thwart meaningful progress toward environmental objectives.
INTRODUCTION
The past two decades have witnessed an extraordinary reorientation of economic, political and social priorities toward environmental sustainability. Consumers increasingly expect firms to reduce greenhouse gas emissions, to conserve biodiversity, to manage waste responsibly, and to commit to circular economy principles. Simultaneously, institutional investors, asset managers and sovereign wealth funds have integrated environmental metrics into investment decisions, rendering environmental performance a material factor for corporate valuation[1]. Governments have likewise introduced incentives and regulations intended to accelerate the transition to low-carbon economies, including subsidies, preferential procurement, tax breaks, and access to green finance channels[2]. In this context, a firm’s environmental reputation has acquired substantial commercial value and regulatory leverage. This transformation has created powerful incentives for entities to project an appearance of environmental stewardship. When those projections are truthful and backed by measurable action, they accelerate positive change; when they are deceptive, they constitute greenwashing and, as this study argues, an economic crime with tangible harms.
Greenwashing therefore sits at the junction of advertising law, corporate governance, consumer protection, financial regulation, and environmental law. Its illicit aspects must be understood both legally and economically: legally, because deceptive environmental assertions may violate statutes and regulations designed to protect consumers and markets; economically, because such deception reallocates resources away from genuine sustainability investments and inflates valuations premised on false premises.
In recent years, the discourse surrounding corporate environmental accountability has transcended voluntary ethics to become a matter of enforceable governance. Global frameworks such as the Paris Agreement (2015), the United Nations Sustainable Development Goals (SDGs), and the European Union’s Green Deal have established explicit links between environmental disclosure and international economic participation. These initiatives have prompted jurisdictions worldwide to develop robust reporting standards—ranging from the EU’s Corporate Sustainability Reporting Directive (CSRD) to the Securities and Exchange Board of India’s Business Responsibility and Sustainability Reporting (BRSR) framework – that embed environmental transparency into corporate compliance regimes. The convergence of mandatory disclosure norms has thus elevated the cost of misrepresentation, while simultaneously expanding the scope for scrutiny. From a socio-economic perspective, greenwashing operates as a distortionary mechanism within sustainability-driven markets.
Misleading claims regarding carbon neutrality, recyclable materials, or ethical supply chains create informational asymmetries that undermine the efficiency of both consumer choice and capital allocation. Investors who allocate funds under the assumption of verifiable environmental performance may inadvertently finance polluting activities, eroding trust in green financial instruments and destabilizing the credibility of ESG (Environmental, Social, and Governance) indices. Consumers, in turn, make purchasing decisions under false pretenses, weakening the moral and market-based incentives for genuine sustainability.Moreover, greenwashing reveals the tension between private environmental claims and public regulatory oversight. While corporate disclosures aim to demonstrate voluntary responsibility, they frequently intersect with legally enforceable duties under securities, advertising, and competition laws. The absence of harmonizeddefinitions for “sustainability,” “carbon neutrality,” and related terms allows firms to exploit interpretive grey zones, blurring the line between permissible branding and fraudulent misrepresentation. National and transnational regulators are increasingly responding through litigation, administrative sanctions, and disclosure-based enforcement—signalling a global shift from normative persuasion to punitive accountability[3].Ultimately, this study situates greenwashing as an emerging form of economic crime that manipulates trust-based systems central to both environmental governance and market integrity. Understanding greenwashing through this dual legal-economic lens reveals it not merely as a lapse in business ethics but as a structural challenge that compromises sustainable development goals, misguides investment flows, and erodes democratic oversight of corporate power. The introduction frames greenwashing as a systemic problem—one that calls for integrated analytical approaches and systemic solutions rather than piecemeal remedies.
[1] Larry Fink, A Fundamental Reshaping of Finance, BlackRock CEO Letter to CEOs (2020)
[2] International Energy Agency, Net Zero by 2050: A Roadmap for the Global Energy Sector (IEA, 2021).
[3]UN Environment Programme, Integrity Matters: Net Zero Commitments by Businesses (2022).