Greenwashing in Advertising: Legal Implications and U.S. Framework

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AdobeStock_513700263-300x200As consumers increasingly seek eco-friendly products, some companies engage in “greenwashing” — misleading marketing that exaggerates or fabricates environmental benefits of its products or services, to appeal to environmentally conscious buyers. Greenwashing can include vague claims like “all-natural” or “eco-friendly” without providing evidence or proper certifications, undermining genuine sustainability efforts and eroding consumer trust.

While promoting green credentials become a central marketing strategy for many businesses, regulators respond with more rules to eliminate misleading and unsubstantiated green claims and increased enforcement activity against those guilty of such deceptive practices.

U.S. Legal Framework Against Greenwashing

  1. Federal Trade Commission (FTC) and the Green Guides

The FTC is the main federal agency responsible for regulating deceptive marketing, including greenwashing. The FTC’s Green Guides, first introduced in 1992 and last updated in 2012, provide businesses with guidelines on making truthful and substantiated environmental claims. While not binding law, the Green Guides demonstrates how the FTC evaluates whether an environmental marketing claim constitutes an unfair or deceptive practice under the Federal Trade Commission Act (FTCA).

Key provisions of the Green Guides include:

  • General Environmental Claims: Broad terms like “green” or “eco-friendly” are considered deceptive unless they can be substantiated by specific evidence.
  • Certifications: Companies must be transparent about any third-party certifications and what they signify.
  • Qualifications: Any qualifications or disclosures required to avoid misleading consumers must be clear, prominent, and understandable.
  • Recyclable/Biodegradable: Products labeled as such must meet strict guidelines, ensuring they break down or are accepted by most recycling facilities.
  • Carbon Offsets: Claims must be clearly substantiated, and companies should not imply immediate environmental benefits if they occur over a longer period.

If a company violates these guidelines, the FTC may pursue enforcement actions and  impose penalties, such as cease-and-desist orders, fines, injunctions or corrective advertising requirements.

  1. Lanham Act

The Lanham Act allows businesses to sue competitors for false or misleading advertising, including greenwashing. To succeed in a claim, a company must prove that:

  • The competitor’s environmental claim is false or misleading;
  • It influenced consumers’ purchasing decisions; and
  • The misleading claim caused harm, such as lost sales or reputational damage.

The Lanham Act serves as a powerful tool for companies to hold competitors accountable when regulatory enforcement is lacking.

  1. State-Level Consumer Protection Laws

In addition to federal oversight, many states have enacted laws to address deceptive environmental claims. California, for example, imposes strict standards through the California Environmental Marketing Claims Act, regulating terms like “biodegradable” and “recycled content.” California also enacted the Voluntary Carbon Market Disclosure Act (VCMDA) in 2023 to regulate carbon reduction claims (“carbon neutral,” “net zero emission”) by companies.

Other states, such as New York and Washington, also have robust consumer protection laws that demand accuracy in environmental marketing. Companies must comply with both federal and state regulations to avoid legal risks.

Enforcement and Legal Actions

In addition to enforcement actions by FTC, state attorneys general actively investigate and prosecute misleading environmental claims under state consumer protection laws. Businesses can also sue competitors under the Lanham Act, especially in industries like fashion and food, where eco-friendly branding can confer a competitive advantage. The Securities and Exchange Commission (SEC) also pursues enforcement actions against greenwashing by companies. In September, 2024, the SEC announced settled charges against a company that sold coffee pods, over inaccurate statement or claims in its public disclosures regarding the recyclability of its coffee pods. Shareholder suits alleging greenwashing by public companies often are brought as class actions under the Securities Act of 1933 and the Securities Exchange Act of 1934. Other federal agencies like the Food and Drug Administration (FDA) and US Department of Agriculture (USDA) also play an important role in regulating greenwashing for products or services that these agencies regulate.

Best Practices for Businesses

To avoid greenwashing claims:

  • Substantiate Claims: Ensure that all environmental claims are backed by credible evidence or certifications.
  • Use Specific Language and not overstate the environmental benefit: Avoid vague terms like “green” or “natural.” Instead, use clear, specific language, e.g., “50% recycled materials.”
  • Stay Updated: Regularly review the FTC Green Guides and state regulations.
  • Monitor Certifications: Ensure that third-party certifications are valid and up-to-date.

Conclusion

Greenwashing poses significant risks to businesses, from damaged reputations to legal penalties. As regulations around environmental claims become more stringent, companies must be diligent in ensuring their sustainability efforts are both genuine and clearly communicated. Navigating this legal landscape can be complex, especially with the interplay of federal guidelines and varying state regulations.

At Structure Law Group, LLP, we specialize in helping businesses manage the intricacies of advertising compliance, including environmental claims. Whether you need assistance with understanding FTC guidelines, avoiding deceptive advertising, or navigating state-specific regulations, our team is here to ensure your business remains compliant and protected from legal risks. Contact Structure Law Group, LLP at (503) 388-3000 or reach out to us online for expert legal support.