Definition, Causes and Solution Approach of Greenwash in ESG Regulation
DOI:
https://doi.org/10.54097/8axw3j49Keywords:
Greenwash, REGULATORY framework, Legal liability, Cross-border recourseAbstract
The rapid growth of ESG has generated substantial green premiums, incentivizing policy support and capital flows, yet greenwashing risks undermine market integrity. Causes include two key issues. First, regulatory frameworks are flawed: global disclosure standards vary widely, industry-specific criteria conflict, rating systems are fragmented, and enforcement lacks rigor (e.g., low third-party audit rates and unbalanced penalties). Second, legal liabilities are inadequately designed: civil compensation faces high proof barriers and absent class-action mechanisms; administrative penalties are insufficient; and criminal liability thresholds remain too high. Solutions require a multi-layered approach: strengthening civil liability via reverse burden of proof and class-action funds; enhancing administrative deterrence through higher fines and dynamic penalty tracking; and exploring criminal liability for severe violations. Internationally, efforts should focus on harmonizing regulatory frameworks under ISSB guidelines as a global minimum standard, establishing cross-border accountability via information-sharing and joint enforcement, and using economic leverage to encourage compliance. This integrated strategy aims to address regulatory arbitrage and foster genuine ESG practices.
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[1] https://finance.sina.cn/hy/2024-10-18/detail-incsymyt8605681.d.html, last accessed 2025 January 23.
[2] Lingling Mao, Challenges and target consensus of ESG localization, Jianghan Forum, Vol. 9 2024
[3] Xiong Jing, Mandatory Disclosure of ESG Information for Listed Companies: Institutional Advantages, Jurisprudential Basis and Realization Path, Journal of Hunan University (Social Science Edition), No. 3, 2024
[4] Article 85 of the Securities Law of the People's Republic of China stipulates that if the information disclosure obligor fails to disclose information in accordance with the regulations, or if there are false records, misleading statements or material omissions in the securities issuance documents, periodical reports, interim reports and other information disclosure materials, resulting in the investor's loss in securities transactions, the information disclosure obligor shall bear the responsibility for compensation; and the issuer's controlling shareholders, actual controllers, directors, supervisors, senior management and other directly responsible persons of the issuer, as well as the sponsor, the underwriting securities company and its directly responsible persons, shall be jointly and severally liable with the issuer, unless they can prove that they are not at fault.
[5] Article 45 of the SFDR (Administrative sanctions) only authorizes EU member state regulators to impose administrative sanctions for non-compliance, but does not directly set the percentage of fines. The French AMF fines financial institutions up to €15 million or 1.5% of the previous year's global turnover, whichever is higher, for SFDR violations; the German BaFin fines are capped at €5 million (as the SFDR does not oblige member states to adopt a turnover ratio).
[6] In accordance with Article 83 of the General Data Protection Regulation (GDPR), administrative fines are divided into two tiers of infringement, with clear ceilings linked to the company's global turnover, up to a maximum of 2% of turnover or €10 million for a Tier 1 infringement, and up to a maximum of 4% of turnover or €20 million for a Tier 2 infringement.
[7] Peng Yuchen, Jurisprudential Evidence and Rule Construction of Mandatory ESG Information Disclosure System, Oriental Law, No. 4, 2023
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