Sustainability has become one of the most influential forces in modern business. Whether in fashion, food, technology, or finance, companies increasingly present themselves as environmentally responsible. Yet behind many of these claims lies a practice that has grown just as quickly as the demand for eco-friendly products: greenwashing.
“Greenwashing” refers to the act of presenting a product, service, or company as more sustainable than it truly is. Sometimes this means exaggerating a small improvement, sometimes it involves vague marketing language, and in more severe cases, it can amount to misleading or fabricated claims. The result is the same: consumers, investors, and regulators are given a distorted picture of a company’s environmental impact.
Why Greenwashing Has Become So Widespread
The rise of greenwashing mirrors the rise of sustainability as a market force. Consumers want environmentally friendly products, and companies know that a “green” label can increase sales. Investors are funneling capital into ESG strategies, and firms that appear climate-conscious may enjoy better financing conditions. In highly competitive sectors, looking green becomes almost as important as being green.
For many companies, the temptation to enhance their environmental image has become hard to resist, especially in regions where regulation of sustainability claims remains weak. The sustainability transition is expensive, and it can be easier for firms to adjust their messaging than to overhaul their operations.
How Companies Engage in Greenwashing
Greenwashing takes many forms. In consumer goods, brands may advertise packaging as “eco-friendly” without clarifying what that means. Some companies highlight the use of recycled materials in one part of a product while ignoring pollution elsewhere in their supply chain. Airlines and travel companies in Europe have also faced scrutiny for promoting “carbon-neutral” flights based mainly on offset schemes, prompting regulators to warn that such claims must be backed by robust and transparent carbon accounting. Several major fashion brands, including H&M, have faced investigations and legal challenges in Europe over whether their sustainability labels and collection marketing could mislead consumers about environmental performance.
These examples differ across industries, but the pattern is consistent: selective information replaces transparent reporting.
The Regulatory Pushback: A Global Shift
Regulators around the world have responded with sharper rules and greater scrutiny.
In the European Union, the proposed Green Claims Directive requires companies to substantiate any environmental claims with scientific evidence and, in many cases, third-party verification. Under the proposal, repeated violations could lead to penalties amounting to a percentage of annual turnover.
In the United Kingdom, the Competition and Markets Authority (CMA) has issued its Green Claims Code and launched multiple investigations into fashion, FMCG, and travel brands. The CMA stresses that environmental claims must be accurate, clear, and backed by proof.
In the United States, the Federal Trade Commission (FTC) is updating its Green Guides, which set standards for how companies can advertise environmental benefits. The FTC already has authority to act against deceptive environmental marketing, and it has taken enforcement actions against firms overstating recyclability, renewable content, or carbon performance.
The regulatory trend is clear: environmental messaging is moving from a marketing choice to a compliance obligation.
How Greenwashing Distorts Markets
Greenwashing carries consequences far beyond false advertising. It distorts markets by rewarding appearance over real sustainability. For consumers, it erodes the ability to make informed choices. When almost every product presents itself as eco-friendly, distinguishing genuine progress from strategic positioning becomes difficult.
For investors, greenwashing misallocates capital. ESG funds may unwittingly channel money toward companies with limited real impact, undermining the objective of sustainable finance. For innovators, it creates unfair competition. Companies investing in cleaner materials, renewable energy, or circular supply chains compete against rivals that achieve similar reputational benefits with minimal real change.
At a global level, greenwashing slows progress toward environmental goals by masking harmful practices under a layer of positive branding.
Building Trust Through Real Transparency
Avoiding greenwashing does not require perfection; companies can build credibility by publishing verified environmental data, using recognized certifications, and communicating both strengths and shortcomings in their sustainability strategy. Many firms are beginning to adopt this more transparent approach, reflecting a broader market shift from aspirational slogans to measurable progress.
As consumers, investors, and regulators become more sophisticated, greenwashing has shifted from an easy shortcut to a high-risk strategy. Companies that rely on broad or ambiguous environmental messaging may find themselves out of step with market expectations, while those that prioritize transparency and genuine environmental action are better positioned to build long-term trust and value.
The Bottom Line
Greenwashing thrives when sustainability becomes a branding exercise rather than a business transformation. As scrutiny intensifies, companies that exaggerate or misrepresent their environmental efforts face growing legal, financial, and reputational risks. Those that invest in transparency and real progress, even if imperfect, will be better placed to earn credibility and lead in a market where environmental performance increasingly shapes consumer loyalty, investor confidence, and regulatory outcomes.