[Sugandha is an advocate practicing in New Delhi.]
Consumer spending on products and services marketed as sustainable has been on the rise. Investor preference for sustainable portfolios is increasing. Climate litigation against private actors has evolved from human rights based claims and is now increasingly taking recourse to company, securities, and consumer laws. Closer home, the area has seen rapid developments in enforced and upcoming domestic regulation. Mostly recently, the Securities and Exchange Board of India's Greenwashing Circular on Green Debt Securities, Ministry of Environment Ecomark Rules and announcement of the Climate Finance Taxonomy by the Finance Minister. The latest Central Consumer Protection Authority’s (CCPA) greenwashing guidelines emerge amidst these dynamic local and global trends in consumption, investment and litigation. In this context, how should manufacturers, service providers, and advertisers prepare to adapt to the latest guidelines? What can the regulator do to support them and achieve wider compliance?
A Regulatory Baseline
Misleading advertisements are defined and penalized under the Consumer Protection Act 2019. These provisions were strengthened by the 2022 notification of the Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisements, defining and prohibiting certain types of misleading advertisements. Arguably, greenwashing is just another type of misleading advertisement. The CCPA guidelines issued last month specifically identify and set out guidance to discourage this type of misleading advertisement. As a matter of fundamental principles, greenwashing is already covered by existing statute and regulations. Judicial guidance on misleading advertisements per se remains instructive. Manufacturers, service providers and advertisers grappling with the introduction of the guidelines should not view this as an entirely new set of parameters. To begin with, in scope entities are best placed to adapt to the greenwashing guidelines if communications regarding their products and services are compliant with and adequately risk assessed against the law on misleading advertisements prior to the introduction of the greenwashing guidelines.
In ideal circumstances, there would be no need for additional regulatory guidance on greenwashing, being another type of misleading advertisement. Absence of express guidance from regulators however has blurred the line between green marketing and greenwashing. Companies like Walmart in the United States sold products made with semi-synthetic rayon as “bamboo”, facing a penalty of USD 3 million by the Federal Trade Commission. On the other side of the Atlantic, a 2022 Bain & Company survey on consumer trends in Asia Pacific found consumers in fast growing markets like India more concerned about environmental and social factors in purchasing decisions. The report traces this preference to the higher likelihood of consumers personally facing environmental issues. Most commonly air and plastic pollution.
Sustainable goods and services, and those that are marketed to be so, create a dynamic regulatory environment. In this context, the CCPA guidelines set out the regulatory baseline for manufacturers, service providers and advertisers. While working to adapt to this domestic baseline, an eye on regulations in other jurisdictions and best practices of bigger actors in respective industries can prove instructive for robust risk assessment.
Trends in Other Jurisdictions and Developments in India
South Korea, the UK, Australia and the United States are jurisdictions where greenwashing specific regulatory guidance has been issued. The European Union (EU) in particular has been a jurisdiction that moves first to regulate emerging areas of law. The regulations introduced are nearly always the most onerous in their expectations of economic actors regarding activities that have human rights impacts and often carry implications beyond EU borders with several provisions applying extra-territorially to organisations that offer goods and services in the EU. One way or another, these regulations influence law makers and the law around the world. A phenomenon aptly termed the "Brussels Effect". For greenwashing, the relevant law is the Empowering Consumers Directive. Manufacturers, service providers and advertisers captured by the CCPA guidelines may consider conducting internal regulatory risk assessment exercises against EU regulations when creating best practices for adoption of the new guidelines.
Entities captured by the new guidelines should also be mindful that India can be a rights forward jurisdiction as far as dispute resolution in courts is concerned. Indian courts have been one of the first to recognize the right to a healthy environment and most recently the right to protection against the adverse effects of climate change. The Supreme Court clarified in a recent judgement that these rights are horizontally applicable against private parties and not just the state. Reflecting on the same legal values, Indian company law is the only legislation of its kind in the world that requires exercise of fiduciary duties by directors not just in the interest of shareholders but for the community and the environment. Domestic ESG regulations from SEBI also require reporting entities to have a ‘triple bottom line approach’, addressing stakeholders beyond shareholders. India is one of the few jurisdictions that makes it mandatory for companies of a certain net worth to report the impact of their operations on the environment and the risks emerging for the company from climate change.
These rights and regulations certainly do not operate as absolute standards. However, a marked difference between India and other jurisdictions referenced here is a strong Public Interest Litigation jurisdiction and a broad locus standi doctrine. Generally, in other jurisdictions certain laws can operate somewhat in silos (securities or company law for instance). Climate change related challenges in those jurisdictions will more than likely strictly be filed under these statutes irrespective of human rights implications for a better chance of success. This is not the case in India. With a strong PIL culture and low bar for locus standi, statutory remedies in other laws are not necessary for litigants in India who can easily approach the highest courts for relief. It follows therefore that human rights implications for new regulation in green laws are best not overlooked in any reliable risk assessment by an entity in India. This is particularly true in the present case, as consumer rights are directly impacted.
What Next for Regulation?
The CCPA guidelines impact communication related to the entire lifecycle of a product or service (paragraph 2(e)(i) and (ii)). Unlike regulations in some jurisdictions which are typically B2C, the CCPA guidelines would necessarily have B2B implications and a consequent positive trickle-down effect may be expected. For better penetration of the guidelines in supply and value chains, guidance tailored to the entity size, net worth and industry is important. GVA share of MSMEs in all India GDP is 30% and MSMEs contribute 40% of the national manufacturing GVA. Supporting MSMEs in absorbing the administrative and financial costs of new regulatory guidance better assures wider and proportionate compliance. Tailored guidance also allows consumers and regulators to expect more from the stronger actors in the market. This is happening already in other jurisdictions. UK’s Competition and Market Authority issued a compliance guide for fashion businesses to help them comply with the Green Claims Code. Industry specific guidance may come from the regulator ultimately but could be initiated by the industry in the near future through a body like the Advertising Standards Council of India.
From a consumer rights perspective expectations from the CCPA guidelines need to be tempered. The guidelines will not result in products and services becoming more environment friendly. The guidelines only affect what may be claimed in communications about the environment friendliness of these products and services. For in scope entities, the guidelines allow sufficient room to grow in to the regulatory expectations to come. For consumer rights, more substantive reform should be expected from the regulator.
India is moving fast to increase domestic investment and foreign investment in sustainable, climate positive products and services. Recently, India received its first blue-loan of USD 500 million (for eco-system restoration and sustainable water management). For legally robust operations and accessing greater financial support, companies stand to gain immensely by addressing emerging regulation without losing the context of the larger universe of laws in which these regulations operate, within and outside India.
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