Greenwatch: Issue 6

Ashurst's regular briefing on the evolving risk of greenwashing and how to manage it.

Welcome to the sixth issue of Greenwatch, where we look at the risk of greenwashing – and how companies can mitigate it.

In this issue we explore the impact of the EU Omnibus on greenwashing risk, developments in securities regulation and voluntary carbon markets, and a novel complaint against an advertising company.

What's been happening?

EU: Reflections on the Omnibus proposals

"The proposed removal of the requirement to put climate Transition Plans into effect may introduce greenwashing risk. If a plan is not adopted with a view to being put into effect, it runs the risk of becoming a reporting, rather than an action-oriented requirement.”

Authors: Becky Clissmann & Giovanna Ventura

On 26 February 2025, the European Commission introduced the first Omnibus Package to simplify the Corporate Sustainability Due Diligence Directive (CS3D), the Corporate Sustainability Reporting Directive (CSRD), and the EU Taxonomy Regulation.

Key changes include aligning the CSRD thresholds, which determine which companies are obliged to report, with those under the CS3D and removing 80% of companies from CSRD scope. The package also postpones CSRD reporting requirements.

The changes proposed regarding the EU Taxonomy focus on reducing reporting obligations through an “opt-in” regime that allows large undertakings claiming alignment or partial alignment with the Taxonomy to choose to disclose their OpEx KPI. Other proposals are to reduce reporting templates, simplify the “Do no significant harm” criteria and adjust the Green Asset Ratio, which is the main Taxonomy-based KPI for banks.

The CS3D changes include limiting due diligence to tier 1 suppliers and reducing monitoring frequency. The package also proposes eliminating EU-level civil liability and the obligation to “put into effect” any climate transition plan.

The European Parliament and Council must agree on the proposed directives, which could undergo further changes. The simplification aims to enhance EU competitiveness while balancing growth and sustainability but has been seen by some as part of a global “greenlash” against pro-sustainability policies. Read Ashurst's full article on the changes.

What does this mean for you?

• From a greenwashing perspective, companies which no longer have mandatory reporting obligations under the CSRD may be at greater risk of making inaccurate or misleading sustainability claims. They will no longer have to undergo the rigorous process of verifying information for the purposes of CSRD disclosures. Companies that may fall out of scope owing to the proposals may still decide to report on a voluntary basis, however they may do this without obtaining assurance, which removes a check on the accuracy of the reported information and may introduce greenwashing risks.
• Similarly, the changes concerning the Taxonomy Regulation (which is a key EU law defining what constitutes sustainable economic activity within the bloc) may make it easier for companies to pass off as sustainable activities which have questionable green credentials.
• The changes to the CS3D in relation to transition plans are seen as particularly ripe for greenwashing risk. In scope companies will still have to produce transition plans but will no longer have to put them into effect. That may provoke allegations that their transition plans are not worth the paper they are written on.

EU: ESMA Guidelines

"The Italian Securities and Exchange Commission (CONSOB) and the Bank of Italy implemented new ESMA guidelines on funds' names using ESG related terms. This move significantly supports the ESG agenda by offering asset managers clear and measurable criteria to determine the appropriate use of ESG terminology."

Author: Loris Bovo

On 21 August 2024, the European Securities and Markets Authority (ESMA) issued guidelines regarding the use of ESG or sustainability-related terms in the names of investment funds. These guidelines are designed to prevent the misleading, ambiguous, or unfair use of such terms.

ESMA has stipulated that these guidelines shall apply to the following entities:

• Undertakings for Collective Investment in Transferable Securities (UCITS) management companies, including any UCITS that has not designated a UCITS management company;
• Alternative Investment Fund Managers (AIFMs), including internally managed AIFs;
• Managers of European Venture Capital Funds, European Social Entrepreneurship Funds, European Long Term Investment Funds and Money Market Funds; and
• Competent Authorities.

To use ESG-related terminology, at least 80% of investments must meet environmental or social characteristics or sustainable investment objectives.

In accordance with the CONSOB's Notice of 29 October 2024 and the Bank of Italy's Note No. 43 of 30 October 2024, both the CONSOB and the Bank of Italy have informed ESMA of their intention to comply with these guidelines. They have clarified that the guidelines were effective from 21 November 2024.

What does this mean for you?

For managers of Collective Investment Schemes that were already in existence as of 21 November 2024, the following provisions apply:

• Transitional Period: A transitional period of six months is granted, concluding on 21 May 2025.
• Immediate Compliance: Managers must adhere to the guidelines that are effective immediately.

The Italian authorities have clarified that these guidelines should be regarded as supervisory guidelines. This means they are non-binding provisions intended to explain how recipients can comply with legal or regulatory requirements. If recipients choose to use alternative methods, they must be able to demonstrate to the Bank of Italy, upon request, that these alternative methods still fulfil the requirements established by the implemented regulations.

UK: Principles for voluntary carbon and nature market integrity

"The UK Government has stepped up by proposing six principles for voluntary carbon and nature market integrity coupled with a public consultation on raising integrity in 2025."

Author: Alex Hansby

Voluntary carbon and nature markets could be effective mechanisms to support domestic and global climate and nature goals, however, integrity remains a key challenge. An earlier response to this challenge has come from supply and demand side stakeholders collaborating on a joint framework - the Voluntary Carbon Markets Integrity Initiative (VCMI) Claims Code of Practice (see Greenwatch Issue 3).

Now the UK Government has stepped up by proposing six principles for voluntary carbon and nature market integrity. Broadly, the principles hold that credits should only be used in addition to climate action, be verified, support wider social objectives and be publicly reported on. The principles also relate to credit holders, stating that they should make accurate claims (by using appropriate and accurate terminology) involving credit use and co-operate with other market actors to support standardisation.

Consultation on the principles was signalled for early 2025 (awaited at the time of this update).

What does this mean for you?

• While the principles are voluntary, the UK Government's introductory document states that the principles are intended to "enable stakeholders and potentially UK regulators to monitor and act where good practice is not adhered to in the context of existing and future regulatory codes."
• This raises the possibility that the principles at least become 'good practice', and in the consultation notice the UK Government said it intends to invite views on whether endorsement of outputs "could be reflected in guidance, policy and potentially regulation."
• In any case, the principles indicate the UK Government's view of proper and improper use of these credits. It would be prudent to consider the use of voluntary credits, including claims made about their value and use, align with the proposed principles.

UK: Complaint against advertising company submitted to responsible business body

"The complaint against WPP is notable because although climate-related claims have been referred to NCPs before, this is the first known complaint that has targeted an advertising company."

Author: Tom Cummins

The UK's Advertising Standards Authority has been one of the most active regulators of greenwashing. It has banned advertisements by airlines, energy companies, banks and clothing retailers, amongst others.

In February 2025 two NGOs (The New Weather Institute and Adfree Cities) submitted a complaint against WPP, one of the world's largest advertising companies, under the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct. The complaint alleges that WPP has breached the guidelines by contributing to adverse human rights and environmental impacts through its advertising work.

The OECD Guidelines are government- backed recommendations on how businesses can conduct themselves responsibly. They cover a range of areas from human rights and the environment through to financial crime and consumer interests. As we've covered before, the Guidelines were updated in 2023 expressly to address climate change.

Complaints under the Guidelines are not brought before national courts; rather they are referred to national contact points (NCPs) established in all countries that support the Guidelines. NCPs are tasked with resolving disputes – they cannot impose any remedy on the subject of a complaint, but they may publish recommendations.

The complaint against WPP involves allegations that the advertising company's work increases demand for carbon-intensive products and undermines the fight against global emissions. Specifically, the complaint criticises WPP for allegedly failing to disclose its "advertised emissions" (i.e. the emissions arising from extra consumption driven by its advertising); failing to carry out appropriate stakeholder engagement and due diligence; failing to prevent, mitigate, or remediate adverse impacts from its business relationships; and including misleading statements in its sustainability reporting, including regarding how its activities align with the Paris Climate Agreement.

The complainants have made clear that the complaint is not confined to misleading advertising but encompasses advertising of the products of high emitters more broadly.

What does this mean for you?

• The complaint against WPP is notable because although climate-related claims have been referred to NCPs before, this is the first known complaint that has targeted an advertising company, rather than a high-emitter or financial services company.
• It illustrates that NGOs are creatively looking for ways in which they can challenge businesses they consider contribute indirectly to climate change.
• A wide range of businesses should therefore consider their exposure to greenwashing claims.

Read our previous issue

Greenwatch Issue 5