Greenwashing is under increased scrutiny at the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC). Greenwashing is clearly damaging to consumers and investors as it imbues purchasing decisions with disinformation. It “harms innovation, since it makes it more difficult for legitimate, environmentally friendly products to compete with sellers who engage in deception.”As investors and consumers become increasingly sophisticated in environmental issues, it is easier for them to detect greenwash and discount companies that make misleading environmental claims, thereby undermining that company’s public integrity.
In light of increasing investor interest and reliance on Environmental, Social, and Governance (ESG) related disclosures the SEC is pursuing multiple ESG efforts. For example, the SEC created the Climate and ESG Task Force in its Division of Enforcement. The Climate and ESG Task Force was created to “develop initiatives to proactively identify ESG-related misconduct.” The SEC’s Division of Examinations published a Risk Alert on ESG offerings, which states that “rapid growth in [ESG] demand, increasing number of ESG products and services, and lack of standardized and precise ESG definitions present certain risks.” Additionally, the SEC invited public comments on climate change disclosures.
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