The Legal Risks of Greenwashing and how to Avoid them

Often overlooked when compared to the automotive industry, pharmaceutical companies are still responsible for 55% more carbon emissions than car manufacturers. Since pharmaceutical companies make life-saving medication and equipment, this issue is often not properly addressed. However, the current trends in environmental legislation mean that medical research and manufacturing companies must carefully consider how to avoid greenwashing.

When a company makes claims about its environmental impact or policy that are either exaggerated or fully inaccurate, they come under legal and reputational risk for greenwashing. This is not limited to the pharmaceutical industry, it is in fact a global-scale issue. Within the EU, a 2021 report found that nearly half of the companies audited fully or partially mislead the public with their environmental claims. 

Pharmaceutical companies may face legal risks if they mislead the public about their environmental or social commitments. The European Union has recently taken steps to curb the practice of “greenwashing” within the pharmaceutical industry, by requiring companies to provide detailed information about their sustainability efforts. Similarly, The US Securities and Exchange Commission is developing new regulations for how companies, including pharmaceutical manufacturers, must disclose their climate-related expenditures. The steady growth of greenwashing has become a concern for these companies which must balance public opinion with their public corporate responsibility. This article seeks to evaluate the current trends of greenwashing in the pharmaceutical industry, while also exploring its implications on EU and US regulations. Outside of government pressure, consumer activist groups can also pose a risk to pharmaceutical companies that fail to meet the necessary standards when presenting their environmental impact. 

Here are some of the main areas where a company may face legal issues in response to greenwashing:

Packaging and other materials

Reducing CO2 emissions, using fair trade ingredients or sourcing natural ingredients are all ways to promote a product or to stand out on a crowded shelf. But when it comes to claiming sustainability on-pack, consumers need credible, independent verification that the company has actually met the goals stated on the packaging. Failure to do so can do more than just harm the perception of the product in the eyes of the consumer, it can lead to legal issues. For example, in the UK, the Green Claims Code is a set of requirements any company must meet when describing its environmental impact. Failure to do so can lead to court proceedings and damages that must be paid out to customers. Most EU member states have similar legislation, with a variety of measures that can be taken against a company guilty of greenwashing. In France, violation of consumer codes can even be met with a prison sentence. To avoid legal complications, a customer-facing pharmaceutical company should do a comprehensive overview of its packaging and promotional materials. 

Environmental spending disclosures

To avoid allegations of greenwashing and regulatory scrutiny, pharmaceutical companies must accurately and transparently disclose their environmental spending. While the pharmaceutical industry has made considerable strides in reducing its environmental footprint, many companies still have work to do to avoid allegations of greenwashing. In the EU, as of June 2022, companies are required to disclose not just their own environmental spending, but the impact on the environment of their entire supply chain. Additionally, the EU will require all disclosures to be independently audited. Failure to comply with these regulations can lead to fines and court expenses. While it is very costly to break down the environmental costs of an entire supply chain, the reputational and legal costs of inaccurately disclosing a company’s impact may be higher. Similarly, the SEC formed a Climate and ESG Task Force last year, to further scrutinize ESG reports for misleading information, including greenwashing. Companies that are found to have lied or provided missing information can be heavily fined. 

Loss of investments

In the European Union, as in several other states, access to certain funds hinges on a company’s status. The EU in particular has a detailed taxonomy of environmental effects, which all contribute to how a company is rated. Failure to meet these requirements or, even worse, failure to disclose environmental spending correctly will lead to a company losing access to such funds and investments. While the pharmaceutical industry is less at risk due to the life-saving nature of its products, loss of funding can still create risks. Companies should conduct a review of their policies and environmental effects in collaboration with experts in the legal code of their area of operations.

So how to avoid the legal risks of greenwashing?

With the EU declaring that “Greenwashing is over” with its 2022 directive on corporate sustainability and due diligence reporting, the trend is clear, companies will be held responsible for greenwashing. Already under particular regulatory scrutiny, the pharmaceutical industry needs to correctly keep track of laws and regulations, otherwise, it risks fines, reputational losses, and possibly further regulation. For companies, there are a number of considerations and actions to take in response to today’s climate. In general, it is valuable to review insurance risk policies. Many exclude false advertising claims, and as consumer watchdogs turn their attention to greenwashing in labels and other materials, comprehensive insurance may be useful. In general, companies should explore the methods and means that their competitors use to avoid the legal risks associated with greenwashing. The Global Summit on Greenwashing Legal Risk Management & Compliance Strategies 2022 conference will be held in Brussels on November 8th is the perfect opportunity to do just that. Decision makers and legal experts from a variety of industries will come together to discuss how to best protect themselves from the risks of greenwashing.