Greenwashing: implications of recent amendment to KFTC guidelines
By Kim Sung-woo
Greenwashing, a portmanteau of the words “green” and “whitewashing,” refers to the act of making false, deceptive or misleading statements about non-eco-friendly products as if they are eco-friendly.
As the importance of ESG principles has been emphasized all around the world, greenwashing issues have been also continuously raised. Maybe you have not noticed it, but greenwashing is more prevalent than ever due to the fact that the number of products with eco-friendly characteristics has significantly increased over the past few years. In fact, companies have stepped up their marketing efforts to promote eco-friendly products as a way to attract an ever-increasing number of consumers who are willing and able to pay higher prices for green or greener products.
Predominantly led by activist groups, there has been a trend in South Korea to vocalize increasing concerns over environmental disclosures and marketing tactics executed by companies, which are possibly misleading consumers. According to data that Rep. Jin Sung-joon of the National Assembly obtained from the Ministry of Environment, the number of greenwashing cases in South Korea has reached 4,940 over the past three years. In 2022 alone, the number reached 4,558, 16.7 times the level of 2021 (272 cases).
The situation is also well reflected in a report released by Greenpeace on Aug. 29. Among 2,886 companies that were required to make public disclosures by the Korea Fair Trade Commission (KFTC) last year, Greenpeace reviewed the Instagram accounts of 399 Korean companies. It appears that 165 companies (41.4 percent) of those companies uploaded at least one posting that was suspected of greenwashing for the period between April 2022 and March 2023. More than half of them misused images from nature, followed by postings that called for eco-friendly efforts by consumers or overstated the level of green innovation achieved by the company, according to the report. Interestingly, such suspected greenwashing examples were posted mainly by companies in the industries known to produce a significant volume of greenhouse gas emissions (e.g., petrochemicals, chemicals, energy, etc.)
As an effort to address these concerns, the KFTC amended the review guidelines on environment-related labeling and advertising, which went into effect on Sept. 1. In overhauling the guidelines that had not been changed since 2016, the KFTC explained that the amendment reflected not only the Ministry of Environment's relevant notifications but also greenwashing guidelines adopted in other countries.
The amendment also incorporated certain labeling and advertising terms that are being used more recently, from a wide variety of case studies on green marketing to establish specific standards for evaluating potential greenwashing claims, and a simplified self-checklist to help companies assess the illegality of their environment-related labeling and advertisements. With these detailed guidelines, the amendment is expected to aid regulators in drawing a clear line between products that have been greenwashed and truly green products.
Some of the key features of the amended guidelines are as follows. The amended guidelines require any green marketing to be clear, complete and concrete, and demand eco-friendliness throughout the entire lifecycle of the product at issue. For example, if a company advertises only the fact that carbon emissions are low at the product production stage even though more carbon would be emitted at the distribution or disposal stage, compared to other products of the same type, such advertisements may constitute being labeled as deceptive advertising.
Further, the amended guidelines increased the predictability of regulatory enforcement by providing examples of unfair labeling and advertising activities related to the environment, such as providing false, exaggerated or deceptive information, unfair comparisons and disparagement. In addition, a product's life cycle is now divided into three stages in order to make it more specific: (i) raw materials, (ii) production and use and (iii) disposal and recycling.
Any company seeking to engage in labeling or advertising of any environmental targets should also have a detailed implementation plan, including how to secure relevant staff and resources, and should disclose measurable targets with associated deadlines. In the future, greenwashing by using images of nature such as forests and trees or letters colored green may be sanctioned, even if the term "eco-friendliness" is not explicitly used. Similarly, it can run afoul if a company advertises how many eco-friendly materials its product uses by stating that the eco-friendly materials “doubled” in quantity when, in fact, the product only had an increase in eco-friendly materials from 1 percent to 2 percent compared to the total product mass. Advertising a whole bed to be “eco-friendly” when the mattress was the only part certified to be eco-friendly, will be scrutinized for greenwashing claims as well.
For these reasons, companies are strongly advised to review the KFTC's amended guidelines closely and self-assess if they are engaging in any of the greenwashing examples provided under the amended guidelines.
It is also important to monitor how regulators apply these amended guidelines to greenwashing claims in practice. After all, the key to the mitigation of regulatory risks is for companies to ensure that their labeling and advertisements concerning the eco-friendliness of their products are clear and verifiable, supported by data, not misleading to ordinary consumers and without exaggeration in light of the entire product lifecycle.
Avoiding potential greenwashing claims will also be crucial in ESG risk management as it adds reputational risks to the company. Considering that regulations on greenwashing increasingly become more specific, companies need to be mindful that the risks of greenwashing may expand from a mere reputational risk to a law violation risk.
Kim Sung-woo is head of Environment & Energy Research Institute at Kim & Chang.