Sustainability claims and greenwashing in China

• The legal and regulatory systems related to environmental protection are improving, but regulation against greenwashing lags behind
• Public opinion monitoring is improving, as the Chinese media steps into a “public watchdog” role
• Consumer awareness of environmental protection is improving

What are the top 3 developments in your territory concerning green claims and the associated risks of greenwashing? 

Environmental issues have been discussed in China for many years. Despite this, compared to the world average, Chinese companies and consumers exhibit a relatively low level of concern for environmental protection. In recent years, however, there has been a marked improvement in China in both the strength of government regulation and in companies taking responsibility for environmental protection. The central government’s 14th Five-Year Plan sets out the ecological goal that “eco-friendly work and lifestyle will be advanced to cover all areas of society”. In parallel, Chinese consumers are becoming increasingly concerned about green products. However, as a result of the long-standing neglect of eco-efficiency, there is still a long way to go in terms of building an orderly environment-friendly market system, with the reasonable enforcement of government regulations and the ability of consumers to identify, and differentiate between, green products and greenwashing in advertising. 

We identify below three important trends to watch out for in Chinese companies’ operations, including in relation to institutional development, public opinion monitoring and consumer awareness. 

1. The legal and regulatory systems related to environmental protection are improving, but regulation against greenwashing lags behind 

A system of disclosure of relevant environmental information is being gradually established in China. For example, the Ministry of Ecology and Environment is taking the lead in formulating administrative measures for the legal disclosure of environmental information. Meanwhile, the People's Bank of China issued the Guidelines on Environmental Information Disclosure for Financial Institutions on 22 July 2021. The China Securities Investment Fund Association issued the Guidelines on Green Investment (for trial implementation) in 2018, and recommendations on the framework for self-assessment reports on green investment by fund managers. These guidelines relate to “whether there is regular disclosure of the greenness of green investment products”, and will provide a more complete standard against which to assess compliance in relation to greenwashing. 

In addition to nationwide legislation, some cities and provinces with a higher level of economic development are leading the way in putting in place comprehensive legislation on ecological protection. Shenzhen took the lead in implementing the Shenzhen Special Economic Zone Ecological Environmental Protection Regulation in September 2021. The Regulation incorporates carbon peaking and carbon neutrality into the overall layout of ecological environment protection and authorises the Shenzhen government to set carbon emission intensity standards for key industries. It also extends to construction projects whose carbon emissions intensity exceeds the standards in the Negative List for industry access. 

Although the legal system on environmental protection is improving, legislation on greenwashing in China is still largely absent, and currently illegal greenwashing can only be regulated by other laws. For example, the behaviour of companies that deceive consumers through greenwashing advertisements can constitute false propaganda and violate the Advertising Law, the Anti-Unfair Competition Law and the Law on the Protection of Consumer Rights and Interests. Meanwhile, businesses that are not only unhelpful to the environment but also cause pollution may give rise to corresponding environmental non-compliance issues and be subject to administrative penalties. Overall, however, the scope of activities amounting to greenwashing that can be regulated is currently very limited. Moreover, at the investment level, many financial institutions issue investment products such as funds that are labelled as “green” and “ESG” (Environmental, Social and Governance), but few are actually used for projects or enterprises that generate environmental benefits, or relate to funds which may not conduct their activities according to their promised environmental benefits. 

2. Public opinion monitoring is improving, as the Chinese media steps into a “public watchdog” role 

Given the above, the current environmental legislation system and regulatory system in China is currently inadequate. On the other hand, the Chinese media is contributing to environmental monitoring, urging companies to take responsibility for environmental protection. 

In 2009, the newspaper “Southern Weekend” started publishing the “China Greenwashing List”. Entries in this list are based on 10 criteria including blatant deception, deliberate concealment and double standards. The list “names and shames” the top 10 companies that have made promises about their environmental responsibilities but not actually fulfilled those responsibilities. Among those listed are prominent central enterprises such as PetroChina, and well-known foreign companies such as Apple and Adidas. In addition, the central television in China (CCTV) has also exposed some of the more typical environmentally unfriendly corporate practices at its annual 315 Consumer Protection Day Gala. 

Objectively, this increased media attention does urge exposed companies to carry out self-examination and rectification, and the monitoring of public opinion and desire to preserve goodwill has to some extent encouraged well-known companies to be more proactive in fulfilling their environmental responsibilities. However, compared to government regulation and supervision, the media is still a weak form of regulation. 

3. Consumer awareness of environmental protection is improving 

Since the worldwide outbreak of COVID-19, there has been a marked increase in public awareness of green, clean, low-carbon and energy-efficient consumption, due in part to an increased focus on public health in China. There has been a gradual increase in the proportion of people of all ages and from all walks of life buying green products. However, the public's poor ability to recognise green products in the marketplace and a lack of information have limited the success of green products in the market. The results of a Public Green Consumption Survey conducted by the China Environmental Labeling Product Certification Committee in Shanghai in 2019 showed that only 25 percent of consumers said they could tell the authenticity of green products, and 58 percent of consumers were completely confused about green products. The lack of publicity about environmental protection in society and people's lack of knowledge about the safety of green food has allowed more companies to take advantage of the situation by engaging in greenwashing. Consumers will tend to place more trust in large companies' brands and products, ignoring the fact that, in the absence of regulation, companies may make false green claims in order to maximise their profits. 

For example, the Opinions on Further Strengthening the Control of Plastic Pollution guidelines issued by the National Development and Reform Commission and the Ministry of Ecology and Environment, which came into effect in early 2021, stipulated that the use of non-biodegradable single-use plastic straws in the nation's food and beverage industry would be banned. Major beverage merchants then switched to biodegradable straws. Among them, the polylactic acid (PLA) straws are used by most beverage outlets because they are harder than paper straws and do not soften easily after absorbing water. On World Earth Day 2022, the famous coffee brand “Luckin Coffee” even created a poster with PLA straws, using the slogan "Protect the Earth, PLA straws apply for war", to promote its efforts to protect the environment. In terms of effectiveness, it was noted that consumers do prefer this type of environmental campaign and would judge the environmental friendliness of the PLA straws they use based on their trust in well-known brands. In fact, however, studies showed that PLA currently has no significant environmental advantage over the polyethylene terephthalate (PET) plastic, and is even slightly inferior to it. More notably, PLA has a higher permeability to water and oxygen, which makes it more likely to cause oxidation and spoilage of food when used in food packaging. As a result, products packaged in PLA have a shorter shelf life and are more likely to result in food waste. 

This shows that there is still a lot more to be done to improve social awareness of environmental protection in China. Chinese consumers should also be encouraged to gradually break away from placing too much trust in big brands and their sense of distrust in the safety of green products. Instead they should be guided to take the initiative to seek better knowledge and gain a common sense understanding about environmental protection to enable them to play a more central role in urging companies to be environmentally responsible. 

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