Greenwashing or Governance? Legal Risks of Fake ESG Claims
Greenwashing or Governance? Legal Risks of Fake ESG Claims
What’s Happening in the West? 3
Case Study:DWS Group (Deutsche Bank): Investigated for overstating ESG assets under management 3
Case Study - 2: Fast Fashion and Oil Industries: The Illusion of Sustainability 4
Fast Fashion’s Contradictions 4
Oil & Gas Sector's Green Facade 5
Bharat’s Opportunity Amid the Crisis 5
Legal Risks and Regulatory Framework in Bharat 6
1. SEBI’s ESG Reporting Norms 6
3. Consumer Protection Act, 2019 6
Governance Reforms to Prevent Greenwashing 6
Introduction:
Greenwashing is a term used in the ESG sector for those companies or organizations who give fake ESG compliance documents to portray them as they are following the ESG criteria but in reality either they lack behind or they do nothing. Its reports are framed in such a way that it shows they are ESG compliant but in reality they are very far from it.
Greenwashing refers to misleading or false claims made by companies about their environmental or social performance to appear more sustainable or ethical than they truly are. It includes:
Exaggerating ESG efforts in advertisements or reports
Providing vague or unverifiable ESG metrics
Hiding harmful practices behind selective disclosures
Background:
In Bharat Greenwashing of ESG is not reported till date.While ESG investing has grown to over $40 trillion globally, a surge in superficial sustainability efforts, particularly in the Western world, is putting the entire movement at risk.
What’s Happening in the West?
Asset managers and corporations in the US and Europe have been accused of misrepresenting ESG credentials, either by:
Classifying non-ESG-compliant funds as sustainable
Using vague or unaudited ESG metrics
Highlighting token environmental initiatives while ignoring core business impacts
Examples include:
DWS Group (Deutsche Bank): Investigated for overstating ESG assets under management
Fast fashion and oil companies: Promoting limited green initiatives while continuing unsustainable practices
Case Study:DWS Group (Deutsche Bank): Investigated for overstating ESG assets under management
In 2021, Desiree Fixler, DWS’s former head of sustainability, filed a whistleblower complaint asserting DWS had overstated the percentage of assets under ESG integration—claiming €459 billion of ESG-integrated assets that did not reflect on-the-ground practice (investmentnews.com).
In May 2022, German authorities (BaFin and Frankfurt prosecutors) and the German federal police raided DWS’s Frankfurt offices to probe potential capital investment fraud and greenwashing, citing internal concerns that ESG factors weren’t meaningfully integrated into investment decisions (ft.com).
Penalties & Settlements
September 2023: DWS agreed to pay $19 million to the U.S. Securities and Exchange Commission. The SEC found DWS had made “materially misleading statements” about the extent to which ESG factors were integrated into investment research and marketing materials .
April 2025: Frankfurt prosecutors imposed a €25 million fine for negligent greenwashing, stating DWS had exaggerated claims (e.g., “ESG in our DNA”, “ESG leader”) from mid‑2020 to January 2023 (wsj.com).
June 2025: Prosecutors dropped criminal charges against former CEO Asoka Wöhrmann, citing his lack of criminal history and acknowledgment of internal reform efforts. However, Wöhrmann resigned amid the scandal (ft.com).
Key Findings
DWS overstated its ESG assets under management, misleading investors about the level of ESG integration (investmentnews.com).
Marketing materials lacked substantiating internal documentation or control support for their ESG qualifications (wsj.com).
DWS formally acknowledged its past “marketing was sometimes exuberant”, and has since revamped its ESG processes and controls (fnlondon.com).
Case Study - 2: Fast Fashion and Oil Industries: The Illusion of Sustainability
In recent years, entire sectors like fast fashion and oil & gas have come under scrutiny for projecting a sustainable image while continuing practices that contradict ESG (Environmental, Social, and Governance) principles.
Fast Fashion’s Contradictions
The fast fashion industry frequently promotes “eco-conscious” or “sustainable” collections, often marketed with terms like organic, recycled, or green. However, these lines typically represent only a small fraction of their overall production. Meanwhile, their core business model—which depends on mass production, rapid turnover, and disposable clothing—remains environmentally harmful.
This disconnect between marketing and actual environmental impact reflects a broader concern: greenwashing, where sustainability is used as a branding tool rather than a genuine commitment.
Oil & Gas Sector's Green Facade
Similarly, the oil and gas industry has made visible efforts to showcase investments in renewable energy, carbon capture, and biodiversity initiatives. While such steps are positive, a closer look often reveals that a significant majority of capital expenditure still flows into fossil fuel exploration and infrastructure.
By heavily advertising their low-carbon efforts while continuing high-emission operations, these companies contribute to a credibility gap—one that undermines trust in ESG commitments.
Why It Matters Globally
Loss of Investor Trust
Greenwashing erodes confidence in ESG-labelled instruments. Investors seeking impact are left skeptical about whether their capital is making a difference.ESG Fatigue and Backlash
As skepticism grows, ESG gets wrongly labelled as "marketing fluff" or "political agenda," affecting even genuine efforts by responsible companies.Spillover to Emerging Markets
Western greenwashing makes ESG compliance harder for emerging economies like Bharat, as:Stricter scrutiny is applied to all ESG instruments
Increased cost of compliance due to global doubts
Reduced market appetite for ESG bonds from developing countries, despite strong impact
Bharat’s Opportunity Amid the Crisis
Bharat, through SEBI’s green bond and ESG disclosure frameworks, is now positioned to offer a more credible, transparent model of ESG finance:
Clear use-of-proceed rules for green bonds
Third-party verifications and post-issuance impact reports
Classification of ESG ratings and mutual fund categories
By avoiding the mistakes of the West, Bharat and other emerging markets can build authentic ESG ecosystems, rooted in real-world impact rather than perception.
Legal Risks and Regulatory Framework in Bharat
1. SEBI’s ESG Reporting Norms
SEBI (Securities and Exchange Board of India) mandates the Business Responsibility and Sustainability Report (BRSR) for the top 1,000 listed companies by market cap.
BRSR requires companies to disclose quantitative and qualitative ESG data.
False or misleading disclosures may attract penal action under SEBI Act or Securities Contracts Regulation Act.
2. Companies Act, 2013
Misleading ESG claims may amount to fraudulent business practices.
Directors and officers can be held liable under Section 447 (Fraud) and Section 166 (duties of directors).
3. Consumer Protection Act, 2019
If greenwashed claims influence customer buying decisions, they may be seen as unfair trade practices.
Companies can be sued for misleading advertising or deceptive labeling.
4. Environmental Laws
Companies falsely claiming compliance with environmental norms may be penalized under:
Environment Protection Act, 1986
Air and Water Acts
E-Waste and Plastic Waste Management Rules
Governance Reforms to Prevent Greenwashing
To reduce risk and improve trust, Bharatiya companies should:
Establish robust ESG governance structures
Use third-party ESG assurance or audit
Be transparent about ESG goals, KPIs, and limitations
Avoid vague jargon like “eco-friendly” without proof
Conclusion
As ESG becomes central to investment strategies and regulatory frameworks across the globe, greenwashing is no longer just unethical—it is a legal and reputational risk. Around the world, regulators and investors are increasingly scrutinizing ESG claims, demanding not just promises, but evidence, transparency, and measurable impact.
In this context, Indian companies must walk the talk. It is not enough to issue ESG reports or publish sustainability goals—there must be a genuine alignment of business models with long-term environmental, social, and governance outcomes. Credible disclosures, independent audits, and real governance reforms are critical to ensure compliance and maintain stakeholder trust.
Fortunately, India (Bharat) has taken a strong, proactive stance. The Securities and Exchange Board of India (SEBI) has introduced robust ESG and green bond disclosure frameworks, including the Business Responsibility and Sustainability Report (BRSR). These guidelines, when implemented sincerely, can place Indian firms ahead of the global curve.
At the same time, the rise of ESG bonds in India—especially from institutions like REC Ltd., Adani Green Energy, and JSW Steel—signals growing corporate readiness to fund the green transition. These instruments not only attract global capital but also build confidence in India’s commitment to a sustainable future.
However, we must learn from the West’s mistakes. The proliferation of greenwashing in mature markets has eroded public trust and invited regulatory crackdowns. India must remain vigilant, ensuring that ESG remains a movement of substance, not symbolism.
Key Takeaways
Greenwashing is a global risk, with real legal and reputational consequences—India must be proactive in preventing it.
SEBI’s ESG and green bond frameworks provide a solid regulatory foundation for transparency and accountability.
Indian companies have a golden opportunity to integrate ESG into their core strategy and lead with authenticity.
ESG bonds are reshaping corporate finance in Bharat, showing that sustainable growth and economic strength can go hand-in-hand.
Bharat has the chance to become a global example of credible, impact-driven ESG adoption—combining ancient environmental wisdom with modern regulatory foresight.
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