Key insights:

• • Litigation risk is evolving 鈥� Greenwashing litigation is rapidly increasing and evolving worldwide, with different drivers and enforcement priorities across regions, including NGOs in the EU and consumer class actions in the US.

  • Compliance becoming more challenging 鈥� Companies, especially multinationals, face heightened legal risks and complexity due to the lack of global alignment on sustainability regulations and standards, making compliance more challenging.

  • Proactive legal consultation is essential 鈥� Early legal guidance and comprehensive training for corporate teams are essential to help businesses navigate this shifting landscape, ensure compliance, and mitigate the risk of costly greenwashing claims.

Navigating the nuanced world of corporate sustainability claims has become more treacherous in 2025, as businesses face a proliferation of greenwashing lawsuits driven by distinct regional pressures and shifting enforcement priorities.

Indeed, the greenwashing trends are multifaceted with changes across regions and industries, as well as the expansion of which parties are bringing litigation, according to legal experts from Morgan, Lewis & Bockius. For example, private consumer-based litigation remained robust in the United States, despite changes in federal enforcement priorities, according to , a Partner in International Transactions, Finance and Trade at the firm.

In the European Union, non-governmental organizations (NGOs) are driving litigation because of new EU regulations regarding green claims and consumer protection, according to , Partner & Co-Leader of the ESG & Sustainability Advisory Group at Morgan Lewis. 鈥淲e see an increase in NGOs being very active because there is a pushback on sustainability as a whole, and the different governments around the world push now even harder in relation to greenwashing or even climate change litigation,鈥� Apetz-Dreier explains.

In addition, greenwashing claims continue to proliferate across several key industries, according to , a Morgan Lewis litigation partner and his peers. Oil and gas, consumer products, and transportation sectors, in particular, are facing added scrutiny, Corrado adds.

Consumer class actions and NGOs filling void

In the US, litigation activity by class action attorneys, NGOs, and state attorneys general has picked up in 2025 during a time in which federal enforcement has pulled back, according to Valenstein. More specifically, Corrado says he continues to see NGO-driven consumer litigation and NGOs taking advantage of consumer protection laws that permit derivative claims on behalf of consumers to seek injunctive relief to stop false advertising practices. 鈥淐onsumer class actions are targeting companies for the presence of contaminants like microplastics and PFAS” in a range of products from food packaging to apparel have proliferated, he adds.

In the area of supply chain integrity, Valenstein notes an increase in the US of civil litigation under the Victims of Trafficking and Violence Protection Act of 2000 to attack forced labor in the supply chain, which has led some companies to settle before such lawsuits are filed to sidestep negative publicity. In addition, there is more consumer protection class-action litigation challenging the reasonableness of reliance by companies on third-party supply chain audit firms, he says.

Further, companies are exercising caution in their diversity, equity & inclusion (DEI) public statements to avoid drawing negative attention. 鈥淚 think that the DEI space is unique in terms of complexity,鈥� Valenstein says. 鈥淐ompanies are worried about action from the federal government, but they’re also worried about litigation from stakeholders who feel disappointed that companies are walking back and no longer honoring commitments.鈥�

Greenwashing claims around statements regarding net zero commitments is still a key area of litigation as well. For example, companies in the airlines industry are being targeted for “emission statements and carbon neutrality goals,” in which the legal theory is that “these statements induced consumers to… pay a premium” under false pretenses, Corrado explains.

Outside assistance necessary to manage legal risk

Multinational companies are particularly challenged by the varying regulations and legal risks across different countries because of the lack of global alignment around sustainability laws and standards. “The big challenge for multinationals is that in the past, there was an alignment globally by most administrations and governments,鈥� says Apetz-Dreier. 鈥淏ut this is now changing. It is a big challenge to comply with the different national approaches and regulations.”

As companies seek to align their practices with new areas of legal risk exposure, Corrado, Valenstein, and Apetz-Dreier advise companies to consult proactively with legal counsel for guidance and training. For example, they suggest that legal counsel from several multidisciplinary areas review the company鈥檚 sustainability reports, website copy, product labels, and marketing messages before any product launch to better mitigate the murky multi-layered divergence in the legal landscape. Indeed, Valenstein describes the holistic approach he and his peers use with clients: Companies approaching outside counsel with the expertise in litigation, regulatory & compliance, and antitrust is a best practice, he explains.

They also recommend hiring external experts to conduct training sessions for corporate marketing department teams to better equip them with the necessary awareness and skills to craft messages that are both appealing to consumers and legally sound. By doing so, companies can balance their marketing strategies with compliance requirements and reduce the risk of facing costly legal disputes. Corrado describes how bringing in external experts to review 鈥渞eal world examples of claims and statements that seemed innocuous but led to litigation鈥� helps to 鈥渞ecalibrate the marketing department鈥檚 view鈥� on how their words can open up the company to risk exposure.

As the landscape of environmental claims continues to shift, companies must brace themselves for anticipated trends in both greenwashing legal claims and regulatory changes. 鈥淲e are living in a very quickly evolving legal environment and it’s important for our clients to be prepared for the unknown because there is a lot of insecurity about what is going to happen,鈥� says Apetz-Dreier. 鈥淲e prepare our clients for the different opportunities and challenges 鈥� that’s a big part of our work.鈥�

You can learn more about the concept of greenwashing here

Key developments such as companies narrowing the scope of ESG, the increasing importance of corporate governance, and the growth of collaboration within industries will all expand the aperture around how companies are evaluating risks, business opportunities, and impact.

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Indeed, the European Union鈥檚 Corporate Sustainability Reporting Directive (CSRD) reporting deadline in early 2026 for multinationals and C-Suite decision-makers may help bring us closer to the day that sustainable practices are so commonplace in the corporate world that they’ll no longer need a separate label.

In that light, we look at several predictions for the coming year that may have a great impact on ESG and corporate sustainability issues.

Prediction 1: The term ESG fades, even as material risks, opportunities & impact endure

Corporate ESG initiatives have long been influenced by a combination of pressures from governments, investors, and other stakeholders. Recently, some companies appeared to be retreating from their ESG commitments, in response to an aggressive anti-ESG agenda.

, Senior Managing Director of the ESG practice at FTI Consulting, said she sees it differently. 鈥淭his movement from talk to action may look like a slowdown to outsiders, but it represents meaningful progress because it shows that companies are building internal capacity to measure and manage these issues,鈥� Wrobel explains. 鈥淎t its essence, ESG is a toolkit for companies to identify material risks and opportunities. Being smart about maximizing opportunity and minimizing risk will never go out of style.鈥�

This evolution of the ESG label is causing companies to re-think their corporate approaches to sustainability and dramatically prioritize their material issues.

Prediction 2: Corporate governance is more critical in 2025

鈥淯ncertainty leads to an indirect tax on companies,鈥� says , author of ESG Mindset, adding that as uncertainty increases. Changes in political structures across the globe combined with the more extreme weather events 鈥� such as cyclones, hurricanes, or floods 鈥� mean that no company can know with certainty what the US new administration will do, what policies may come, or how federal government agencies will respond (or not) 鈥淭his political-fueled poly-crisis may combine with other issues to tip over governance as the focus over the next four years,鈥� Sekol says.

Similarly, Audit & Assurance Partner at Deloitte & Touche, says she sees robust governance being a key priority for 2025 for other reasons, which include assurance processes being used as a 鈥渟trategic overlay to stress test and enhance internal confidence鈥� in companies鈥� ESG data.

Prediction 3: ESG integration into core business strategy goes mainstream (finally)

ESG alignment with central business objectives will become the norm, thanks to CSRD reporting deadlines in 2026, growing awareness of climate risks and stakeholders鈥� ongoing interest in sustainability. Critical too is the involvement of key C-suite members in this process. For example, CFOs are central to the ESG reporting success, according to the 成人VR视频 Institute鈥檚 2024 State of Corporate ESG Report.

Several drivers of this trend include the increasing requirements for assurance in ESG disclosure over the next few years and the expertise that corporate finance functions have in implementing rigorous processes to support assurance in financial disclosures.

Likewise, the role of the corporate general counsel (GC) in ESG is expanding because of the growing importance of governance across a larger set of risks, the necessity for reviews of corporate messages (including marketing content), and the need to amend supplier contracts with vendors to accommodate growing ESG regulation requirements across jurisdictions. Further, AI, big data, and other technologies also are making the chief information officer and chief tech officers more central to companies鈥� sustainability tech investments, which is further forcing integration of ESG into core business strategies.

Prediction 4: Reverse of federal ESG-related regulations & rules accelerates, leaving gaps

In the aftermath of the US election, anti-ESG rulemaking and legislation at the federal level in the US will expand while pro-ESG rulemaking and legislation will stall. Wrobel says she sees ESG transparency in doubt more than ever before. For example, climate risk regulation from the U.S. Securities and Exchange Commission is likely to be tabled permanently.

In addition, the President-Elect Trump has indicated a desire to ban diversity, equity, and inclusion initiatives in workplaces and educational institutions. Likewise, FTI鈥檚 Wrobel says she expects federal dollars earmarked for renewable energy will be scaled back, and domestic manufacturing and investment in under-served communities as part of the Inflation Reduction Act likely will be under attack.

To fill in the gap, some state and local governments are diving into action. Nicole DeNamur, of states: 鈥淲e are already seeing this as California appears to be moving ahead with its carbon disclosure laws, and state and local governments across the US continue to develop and implement new regulatory tools, and emissions standards.鈥�

Prediction 5: Growth in greenwashing litigation and industry collaboration continues

CSRD requires many multinational companies to report their 2025 data in January 2026. This is likely to prolong the risk of ESG-related litigation for several years. The EU鈥檚 requirements for disclosures on double materiality and the increased emphasis on supply chain practices offer more support for potential legal actions on greenwashing, including allegations of contaminants in consumer products, net zero statements, and forced labor in supply chains.

Likewise, corporate leaders increasingly are refocusing on issues that materially influence their businesses, which is expediting greater industry collaboration. 鈥淐ollaborations can help bring some transparency from a product and commodity level, for example, in the chemicals industry,鈥� says Deloitte & Touche鈥檚 Sullivan. 鈥淟eading companies are pushing for more technical specificity across the entire value chain of inputs and outputs to show how investments in lower carbon intensity materials translate to decarbonization goals.鈥�

In 2025, businesses are expected to rigorously prioritize their ESG impact toward more material business issues. And an increasing number of companies are likely to adopt ESG as a strategic lens and use it as an opportunity to fundamentally reshape their business models.

These changes will lead to a widespread overhaul of product design, procurement, business, and the decision-making processes. However, expect opponents to work actively to hinder this progress.

For more, check out the 成人VR视频 Institute’s ESG Resource Center

In fact, since the beginning of the year, litigation related to claims around environmental initiatives, net zero statements, and forced labor issues, are the key areas of increased legal activity around greenwashing, including:

Allegations of contaminants in consumer products 鈥� There has been an increase in cases alleging that consumer products contain contaminants, such as lead and PFAS, according to , a litigation partner at Morgan Lewis. For example, a alleged that products, which were being marketing towards children, contained unsafe levels of lead.

Forced labor in supply chains 鈥� Forced labor cases are also on the rise, with a focus on those that involve supply chain issues. This reflects a broader trend towards holding companies accountable for their supply chains and the ethical implications of their sourcing practices.

, a litigation partner at the Morgan Lewis, says he sees the novel application of forced labor statutes in recent legal cases being focused on consumer claims related to economic harm caused by unethical labor practices in supply chains. These claims argue that human rights violations, such as forced labor abroad, have a direct impact on consumers who buy the end products.

Carbon neutrality claims 鈥� Litigation that is targeting companies鈥� net zero statements have become increasingly prevalent as companies seek to show their commitment to sustainability and appeal to environmentally conscious consumers. “You’re seeing some companies no longer making claims they’re currently carbon neutral,” says , co-head of the Environmental, Social & Governance (ESG) practice at Morgan Lewis. 鈥淭hey still have their aspirational goal of getting there by 2030, but these legal claims are causing companies to be more conservative in statements and disclosures, rather than making specific claims about current achievements.”

At the same time, however, there is growing recognition of the need for greater regulation of carbon offset markets and more rigorous standards for verifying carbon neutrality claims. As the regulatory landscape evolves, companies will need to carefully evaluate their carbon-related disclosures and ensure they can substantiate any neutrality claims.

In addition to the expanding areas of greenwashing cases, recent changes in European Union regulations have provided more precise guidelines for judges, resulting in a shift towards more judgments confirming greenwashing claims, says , a litigation partner at Morgan Lewis based in Germany. Historically, many greenwashing allegations brought by non-governmental organization (NGOs) or consumers were dismissed. This makes this current shift noteworthy, according to Apetz-Dreier, because it represents a move towards stricter scrutiny and accountability for companies on their environmental claims.

Double-edged sword of CSRD

The EU鈥檚 Corporate Sustainability Reporting Directive (CSRD) is having a significant impact on greenwashing concerns and practices in the EU. As companies prepare to comply with CSRD’s extensive ESG disclosure requirements, there is an increased focus on accurate data collection and reporting.

Indeed, the highly prescriptive nature of CSRD is pushing companies to be more cautious and specific in their sustainability claims and disclosures to potentially reduce greenwashing risks.

However, the expanded disclosures required by CSRD may also create new litigation risks themselves, as the information reported can be scrutinized by stakeholders and potentially used as a basis for further greenwashing claims. Companies are having to carefully balance compliance with CSRD against potential legal exposure, especially as the disclosures made in Europe may have implications for litigation risks globally.

Guidance for in-house lawyers

As a result of these trends and growing risks, corporate in-house lawyers need to focus their efforts to best mitigate the increasing risk exposure of greenwashing. Some of these mitigation tactics include:

Carefully reviewing marketing strategy and disclosures 鈥� Corrado recommends for corporate legal functions to take extra care in inspecting their companies鈥� marketing strategy, product labels, and other advertising to ensure that corporate leaders are not making misleading or exaggerated claims about their companies鈥� ESG practices or sustainability. The same goes for disclosure documents.

Offering forward-thinking advice and risk management 鈥� Valenstein notes that in-house lawyers should give forward-thinking advice to their internal clients, including ways to identify areas of risk exposure and develop strategies to mitigate that. They also need to educate their boardrooms and C-Suites on the risks and consequences of greenwashing.

To execute, corporate lawyers need to stay close to their companies鈥� external counsel in order to remain up to date on the latest legal developments and trends in greenwashing litigation. For example, 鈥渙ne of the things that we’ve been watching closely is when the FTC [U.S. Federal Trade Commission] is going to issue its new set of the green guides because it could lead to additional litigation based on guidance the agency puts out there about what types of disclosures companies can and should be making,鈥� explains Lane.

Seek collaboration across departments 鈥擫awyers at companies should collaborate with other in-house corporate functions, such as sustainability, communications, operations, and marketing, to ensure that companies鈥� messaging and disclosures are accurate, consistent, and compliant with regulations.

This collaboration is key to mitigate greenwashing risks. Compliance with CSRD is making data collection and accuracy 鈥� without exaggerating 鈥� in disclosures a critical activity in risk mitigation. Not doing so 鈥渃an lead to future greenwashing claims, because those documents for the disclosure are also advertising materials,鈥� Apetz-Dreier adds.

As the landscape of greenwashing litigation continues to evolve, companies must remain vigilant in their sustainability claims and practices. By having internal legal functions prioritizing these actions, companies can protect their reputations, avoid legal liabilities, and ultimately contribute to a more sustainable and trustworthy future for themselves and their stakeholders.

The EU’s framework, set out in the聽聽(SFDR), has been around much longer than the UK’s聽聽(SDR), which includes a new anti-greenwashing rule that will shortly come into effect.

At their core, the two regimes differ. The EU鈥檚 SFDR is a disclosure framework, whereas the British SDR is a labelling regime. When the European Commission issued its 聽last year, it said the legislation acted as a labelling regime for Article 8聽and Article聽9 funds. (Article 6 funds must explicitly label themselves as non-sustainable.)

Comparing what greenwashing means

The UK’s new聽, coming into effect on May 31, has raised questions for market participants, given its broad scope. It requires all sustainability-related claims to be “fair, clear and not misleading.” While limited to financial promotions, the rule is much wider, as sustainability claims can exist in different ways, including assertions that institutions make about themselves.

The accompanying聽聽from the UK鈥檚 Financial Conduct Authority (FCA) outlined what firms must do to comply with the anti-greenwashing rule, such as ensuring that sustainability references are correct and can be substantiated. This will challenge firms by requiring them to build an evidence base to support assertions made in all manner of communications, including stakeholder presentations.

Another challenge is that communications must be complete and should not omit important information. Given the rules’ applicability to all firms, each will need to be prepared to address completeness across a broad range of interactions by calibrating communications to client-specific needs.

From the EU perspective, anti-greenwashing has been an integral part of financial services policies. Outside the financial sector, two of the most recent and visible initiatives have been the聽聽and the proposed Greenwashing Directive.

In the financial sector, there is not only the SFDR, but the European Securities and Markets Authority (ESMA) has proposed guidelines on fund names using environmental, social & governance (ESG) or sustainability-related terms. Compared to the UK regime, the EU financial sector does not have a dedicated anti-greenwashing rule.

Variations on the objective of sustainability

Another significant difference is the sustainability objective. Under the UK鈥檚 SDR, all products using a label must have a sustainability objective, which is an explicit statement of intention to invest “with the aim of directly or indirectly improving or pursuing positive environmental and/or social outcomes.” Such objectives must be clear, specific, and measurable.

On the other hand, the EU鈥檚 SFDR identifies three financial product categories, each with a different transparency obligation, but these do not have a sustainability scope.

Market participants are required to objectively assess their financial product’s ESG and sustainability characteristics to apply the correct transparency obligations for their category. However, the EU Commission’s consultation asked whether labels were preferable, and it will be interesting to see if there is any re-alignment with the SDR.

How sustainable asset thresholds and taxonomy alignment differ

A further important difference concerns sustainable asset thresholds. In the UK, the SDR provides that for each label, at least 70% of assets must be invested according to a robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability.

Article 9 of the EU鈥檚 SFDR establishes a sustainability threshold for so-called dark green funds, but there is no specific link to an evidence-based standard. Instead, these funds need to justify the proportion of their investments that is not aligned with their sustainability characteristics. They are not confined to a fixed minimum percentage of their portfolio being aligned with these characteristics.

There are also variations in terms of taxonomy alignment. The UK aspires to develop its own green taxonomy, although there have been delays. The EU has its own green taxonomy to help companies and investors identify environmentally sustainable economic activities, but it does not have a social sustainability taxonomy.

The UK remains a strong advocate of the International Sustainability Standards Board (ISSB), which issued its first standards in June 2023. The FCA has said it will consider updating product-level disclosure requirements once the UK Green Taxonomy is in use and may issue entity-level disclosure requirements that align with future ISSB standards.

Additionally, the FCA said it will consult on updating its Taskforce on Climate-Related Financial Disclosures (TCFD) rules for listed companies to reference the ISSB standards. (The 45th edition of the Primary Market Bulletin set out the FCA’s proposed approach to implementing the standards.聽The ISSB standards build on the TCFD framework, which has been consolidated into the International Financial Reporting Standards Foundation.)

The EU has instead developed the European Sustainability Reporting Standards (ESRS), although it has sought to ensure alignment between these and the ISSB standards. In聽, the Commission stated: “The EU goes further than any other major jurisdiction to date in terms of integrating the ISSB standards into its own legal framework.”

Looking ahead

It will be interesting to see how the EU鈥檚 SFDR regime changes in light of the Commission’s consultation. Some member states have already faced calls to create labels. For instance, the Netherlands Authority for the Financial Markets advocated the creation of three new sustainable products: transition products, sustainable products and sustainable impact products.

Developments in the United States, such as聽those from the U.S. Securities and Exchange Commission and the state of California, will also be key influences.

This article was written by Simon Lovegrove, the Global Director of Financial Services Knowledge, Innovation and Product for Norton Rose Fulbright; and Haney Saadah, Managing Director of Risk Consulting for Europe, Middle East and Asia for Norton Rose. Both are based in London.

Potential litigation is likely to focus around three major areas of ESG concerning: i) voluntary company disclosures; ii) litigation that challenges products and the integrity of companies鈥� supply chains; and iii) legal action confronting existing corporate diversity, equity & inclusion (DEI) policies and practices, according to , co-head of the ESG practice at Morgan Lewis, and Partner . In addition, the increasing multifaceted mandates for corporate ESG disclosures worldwide are likely to keep greenwashing as a major challenge into 2025 and beyond.

Greenwashing lawsuits have continued to gain steam as companies have increased their voluntary disclosures concerning ESG-related commitments to satisfy investor and consumer demands. Decarbonization and net zero commitments are at the forefront of this risk and look to remain a hot button topic. The addition of the European Union鈥檚 march towards the first reporting deadlines of its Corporate Sustainability Reporting Directive at the beginning of January 2025 is ensuring that litigation risk around ESG issues is going to stick around for a few more years, says Valenstein. Indeed, he adds that the EU鈥檚 mandates around double materiality disclosures and the increased attention paid to supply chain practices creates fodder for litigants, who now will have access to more public information to scrutinize for potential claims.

, an economist and managing director at Berkeley Research Group, agrees and points to methodologies being used to estimate greenhouse gas (GhG) impacts as an area of exposure. Tools that estimate GhG emissions using averages, such as the one from the , may or may not be a good proxy for reporting numbers across a supply chain, even if it is reported in the notes of the disclosure report. A plaintiff could allege that the averages used in the estimation do not consider all the information that plaintiffs think are important and therefore, they could challenge the validity of the reporting.

Litigation over products and supply chains gaining steam

Just a few years ago, cases involving greenwashing tended to focus on some aspect of a product itself, often in the food & beverage, personal care, and apparel industries. Gradually, however, greenwashing claims have expanded to class action suits that challenge supply chain integrity, including the sustainability of the practices utilized to make and distribute those products, as well as human rights and animal rights issues, according to Corrado. For example, the recyclability of products that are marketed as made from recycled materials has been another area ripe for challenge, he adds.

Cantor sees the same trend as an economist and notes the complications of varying legal decisions made across jurisdictions. 鈥淪ome courts have said that a recycling claim on a product is not misleading if the product is capable of being recycled, but other courts have said that a similar claim is misleading because the local recycling facilities cannot actually perform the recycling,鈥� she explains.

Attacks on the impact of supply chains on environment and social issues likely will continue, and many of these cases to date reside in the cocoa industry and sugar industries because of troubling labor practices with claims that the cocoa is not sourced ethically or sustainably despite alleged representations to the contrary.

Another area of expansion in the third-party litigation environment includes companies using voluntary carbon markets to achieve their net zero commitments. Greenwashing claims are questioning whether or not using carbon offsets for companies鈥� net zero targets is sufficient to actually achieve carbon neutrality. In addition, carbon offsets are under attack for being a voluntary system with no regulatory consequence; while other critics are challenging the companies鈥� goals themselves as to whether or not they are even realistic.

Guidance for in-house legal departments

Legal risk around greenwashing is likely to be here for a while, but there are still actions that companies can take to protect themselves. To reduce legal risk exposure, Corrado and Valenstein recommend certain key actions for in-house legal departments, including:

Review all public statements related to ESG 鈥� ESG communications create risk, so in-house legal teams should increase their reviews of all public statements to provide an extra layer to mitigate risk exposure. Valenstein advises companies to fact check and identify areas in which they may need to walk back previously stated goals or qualify existing statements. Further, companies may need to have multiple lawyers with different areas of expertise to review the information 鈥� one from a marketing angle, another from securities law perspective, and still another from the public disclosure vantage point, Valenstein adds. 鈥淲e receive tricky questions from clients on net zero commitment disclosure that need both a review from a litigator and a securities lawyer because derivative actions can instigate a breach of fiduciary duties.鈥�

Proactively train your advertising and marketing colleagues 鈥� According to Corrado, marketing and advertising teams need to understand the risks associated with making ESG related statements. 鈥淲e regularly train business professionals and those who craft marketing copy to know what to look out for and share examples of how seemingly innocuous statements have been distorted by the plaintiffs鈥� bar,鈥� Corrado explains. 鈥淲e walk them through best practices on how to modify their own advertising practices to help mitigate risk.鈥�

Many countries, including the United Kingdom, Australia, Hong Kong, Taiwan, Singapore, Canada, China, Brazil, and South Africa have or that they will integrate the new reporting standards from the into their national laws. This means that legal risks around greenwashing likely will continue over the next few years.

Claimants and their lawyers who leverage legal systems to ensure companies ethically create positive environmental and social outcomes in their operations will have plenty of public information to review for future potential legal action. In-house legal teams need to be equally ready.

However, are these incidents considered fraudulent? It depends on whom you ask.

, CEO of Kona AI and聽FRAUD Magazine聽columnist, says maybe. In his view, fraud is fraud regardless of context, and he references the Association of Certified Fraud Examiners鈥� definition of fraud as being any activity that relies on deception in order to achieve a gain.

Fraud becomes a crime when it is a 鈥渒nowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment,鈥� according to Black鈥檚 Law Dictionary. In other words, if a person lies in order to deprive another individual or organization of their money or property, it is fraud.

From a legal point of view, greenwashing involves聽allegations聽of fraud related to environmental, social & governance (ESG) matters around misconduct or misstatements. Yet, while claims of greenwashing get the most attention, allegations involving environmental fraud are potentially very expansive. For example, if a company 鈥� while claiming publicly and in its required reporting to be socially responsible 鈥� is found to have been covertly taking steps to cover up harms to the environment it may have had a hand in causing, then this is an example of how vast the definition of environmental fraud could be. Similarly, bribing officials to allow illegal dumping or unauthorized permits, or misrepresenting or flat out lying about certain environmental controls or initiatives on a company鈥檚 public disclosures when indeed those statements are false or exaggerated is another example of this type of fraud, according to Walden.

In the social category, examples of fraud cut across multiple areas. For example, paying off or bribing certain influencers or political officials to take gain an unfair advantage or certain advantageous position is an example of this type of social fraud. And while strictly not fraud, when company executives act in a way that is counter to the company鈥檚 code of conduct or social norms, it can cause significant financial harm to the company and its stock price, and thus significantly increase pressure to cover up or misstate certain facts.

Yet, despite all the attention now being paid to ESG and greenwashing allegations, there are issues on the horizon that could hinder further adoption for good practices. For example, with inflation, Russia sanctions, and the looming threat of a recession on the minds of corporate executives, companies around the world are proactively looking for ways to drive operational efficiency, reduce risk, increase transparency into their supply chains, and align with their regulators鈥� expectations related to anti-fraud, sanctions, and anti-corruption compliance.

Mitigations to ESG fraud

Most of the required work by corporations to mitigate ESG fraud is in the areas of governance and acquiring the right tools. Indeed, cash disbursements areas and purchasing departments are the risk areas in which organizations are most commonly seeking to upgrade their data analytics and fraud-monitoring tools, says Walden.

Other ways companies can sharpen their protection against allegations of greenwashing or other types of ESG fraud include:

Create strong corporate governance 鈥� Having a strong corporate compliance program in place with proper governance and controls is paramount to demonstrating an effective ESG program, especially in the eyes of the regulators. In the governance context, if an organization does not have proper risk assessment, training, reporting, monitoring, and investigation protocols in place, the company鈥檚 corporate culture could suffer which could open it up to a variety of fraud schemes, including asset misappropriation, corruption, or financial misstatements.

To create strong governance, corporate executives needing to understand and seek transparency into their data as a strong first step. Indeed, the US Department of Justice (DOJ) has emphasized the use of data analytics in their prosecutions and in compliance; and in May 2020, the DOJ issued a statement that corporate compliance officers have a responsibility to understand their data landscapes. Falling victim to previously undiscovered or siloed data is no longer an excuse. Establishing and securing access to relevant data sources can effectively prevent and detect fraud risks, particularly in ESG-related matters 鈥� and that is becoming the expectation in compliance, not just a nice-to-have feature.

Employ data analytics tools and technology 鈥� To help understand and gain transparency into their data, companies need to employ tools and technologies. And, using analytics to increase transparency of commercial activity across organizations at scale enables better corporate governance than does traditional process-oriented compliance activities.

For example, a partnership among , the Massachusetts Institute of Technology (MIT), and several law firms established , a not-for-profit shared technology platform that allows organizations all over the world to contribute their anti-fraud, ESG, and corruption intelligence to power stronger, data-driven ESG compliance.

The law firms are functioning as advisors to the initiative, troubleshooting issues around workflow and privilege as the system gets off the ground. The platform will allow organizations to train algorithms that detect patterns of fraud and corruption in their respective industries with a goal of predicting improper or corrupt payments with up to 90% statistical accuracy.

Through this unique model of collaboration in data analytics, all of the participating organizations benefit, and the learning is continual throughout the Integrity Distributed network, according to , Research Fellow at Harvard Business School. 鈥淯sing leading blockchain technology, all of this can be done securely, without sharing any proprietary company data between the participants,鈥� he explains.

Clearly, no matter how ESG fraud is defined, the end state is the same for corporations; and there is much work to be done to respond to the onslaught of upcoming regulations in this space.