Brazil - Sustainability claims and greenwashing

• A complex legislative and regulatory framework controlling the use of green claims in Brazil
• Legal consequences: From fines to counter advertising
• Decisions on greenwashing issued by Brazilian courts

What are the top three developments in Brazil concerning green claims and the associated risk of greenwashing? 

 In recent years, sustainability has gained increasing prominence, becoming a central topic in discussions that urge society to critically examine the interaction between humanity and existing natural resources. In practice, more consumers no longer purchase products solely based on their specifications and qualities. Product quality, of course, is still an essential attribute in the purchase-decision factor. However, a change has been noticed amongst Brazilian consumers, especially the younger generation, that they have a different mindset when making their choices. Research shows that increasing numbers of consumers seek products from companies with a higher social purpose which goes beyond profit. Companies whose goals and efforts focused more on environmental respect stand out from their competitors. In this scenario, any sustainability marketing used by companies is a legitimate tool. However, when making sustainability claims (green claims) companies must ensure they can technically and verifiably substantiate these advertised claims, as failing to do so could lead to greenwashing. 

1. A complex legislative and regulatory framework controlling the use of green claims in Brazil  

The use of green claims is not prohibited within the Brazilian legislative framework, provided the information advertised by companies is trustworthy, reliable, and can be verified, which in turn allows consumers to exercise their freedom of choice clearly and consciously. 

The Brazilian legislative landscape aims to prevent the practice of greenwashing as it recognizes that such claims, when lacking verifiable technical substantiation, constitute the practice of deceptive advertising, which can be either affirmative, omissive or abusive. The use of green claims itself is not prohibited. What is forbidden is deceitfulness or abusiveness in the advertising that accompanies the product promotion. 

Deceptive advertising is advertising that, through an action or the omission of relevant information, distorts the consumer's decision-making power. In other words, it is advertising that, as presented, misleads the consumer. On the other hand, abusive advertising can incite violence, exploit fear or superstition, take advantage of children's lack of judgement and experience, disrespect environmental values, or can induce a consumer to behave in a manner which is harmful or dangerous to their health or safety. 

Greenwashing is present when a company makes a green claim without concrete proof of what it advertises or makes a vague and imprecise assertion about a product's (sustainability) characteristics without providing any details or factual information, among other practices. Green claims should be evaluated taking into consideration the principles of transparency and truthfulness, as already outlined in the Brazilian Consumer Protection Code. 

 In addition, the National Council for Self-Regulation in Advertising (CONAR) has its Brazilian Code of Self-Regulation in Advertising (CBAP), which defines “socioenvironmental advertising” and “cause-related marketing”. Within its sphere of operation, if CONAR considers that certain advertising violates the CBAP, administrative sanctions, such as fines and removing the relevant advertisement, may be applied. 

As a supporting regulation of best practices to prevent greenwashing, it is worth mentioning the “Global Guidance on Environmental Claims” issued by the World Federation of Advertisers (WFA), an organization of which the Brazilian Advertisers Association (ABA) is a member. CONAR has contributed to this guide. The six principles listed in the Global Guidance on Environmental Claims are aligned with CONAR’s rules, as they emphasize clarity, accuracy, and the adequate substantiation of green claims. 

Brazil has already established a legal framework to oversee green advertising and counteract its misuses, including greenwashing. This recognition was reaffirmed by the Federal Supreme Court (STF) in 2013, when confronted with the absence of legislation governing deceptive advertising practices (greenwashing). In response to this constitutional challenge, the STF dismissed the petition, asserting that the existing Brazilian Consumer Protection Code comprehensively addresses regulations about commercial advertising, including those involving environmental claims. 

Nevertheless, a significant legislative proposal is being considered in the Brazilian House of Representatives. Bill 2838/22, currently in its initial processing phase, aims to establish a national classification of economic activities based on their social, environmental, and climate impacts and prevent greenwashing by discouraging the use of green claims without a genuine commitment to sustainable practices. 

In addition, greenwashing in financial and capital markets has received attention from the Central Bank of Brazil (BCB), the National Monetary Council (CMN), the Brazilian Securities and Exchanges Commission (CVM), and various other self-regulation entities. 

Regarding capital markets, CVM's concerns are closely related to its role in ensuring the principles of full disclosure are adhered to in the Brazilian capital markets. In brief, full disclosure is based on the premise that, for the market to function equitably, its participants (investors, issuers, and intermediaries) must be able to rely on accurate and concise public information. 

In this regard, CVM issued Resolution No. 59/2021, which modified specific reporting metrics for Brazilian companies listed on the stock market, requiring them to describe specific ESG aspects in their reference forms. The regulatory technique used was “comply or explain,” meaning that even if the company does not have ESG practices in the addressed topics, it is still required to explain the reasons for not having them. 

ANBIMA, one of the leading self-regulatory bodies in the capital market, followed a similar path as CVM. Since January 2022, investment funds that invest 100 % of their assets in sustainable assets must carry the suffix “IS” (an abbreviation for “Sustainable Investment” in Portuguese) in their names. Funds with some ESG assets under their management but not the entirety of their portfolio cannot use this suffix. They can only indicate that “this fund integrates ESG issues into its management.” 

Regarding financial markets, CMN has issued Resolution No. 4,945/2021, which establishes requirements to be observed by financial institutions when establishing their "Social, Environmental, and Climate Responsibility Policy" (PRSAC in Portuguese) and ensuring the effectiveness of such policy. Such requirements focus on setting forth principles and guidelines on social, environmental, and climate-related issues to be observed in its business, activities, processes, and relationship with stakeholders. Compliance with such requirements is subject to the supervision of the BCB. 

In addition, since 2008, the BCB and the CMN have established, social, environmental, and climate guidelines for the granting of credit by financial institutions, which include specific regulations applicable to rural credit, which has special conditions and can only finance projects that comply with certain sustainability parameters. 

2. Legal consequences: From fines to counter advertising 

When it comes to defining greenwashing, it is not a company's intention to make a deceptive green claim that is relevant ; rather, it is solely a matter of whether the message conveyed has the potential to mislead the consumer, even in a hypothetical manner. 

In this scenario, consumer protection agencies, the Public Prosecutor's Office, and the National Consumer Secretariat (linked to the Ministry of Justice and Public Security) may initiate administrative proceedings to investigate whether the green claims made by a company would violate the right to information or even constitute deceptive advertising. 

If they determine that greenwashing has occurred, the company that made the claim may be subject to administrative sanctions provided for in the Consumer Protection Code, including: 

• fines; 
• product confiscation; 
• destruction of the product; 
• cancellation of product registration with the relevant authorities; 
• prohibition on product manufacturing; 
• suspension of product or service supply; 
• temporary suspension of activities; 
• revocation of concessions or permits for use; 
• cancellation of licenses for establishment or activities; 
• total or partial closure of the establishment, work, or activity; 
• administrative intervention; and 
• imposition of counter-advertising. 

In addition to administrative consequences, the Public Prosecutor's Office and consumer defense associations can bring collective legal proceedings against companies engaged in greenwashing, aiming, among other things, at providing compensation for individual homogeneous or diffuse damages. Similarly, consumers can seek compensation for injuries suffered individually if they prove that they were harmed because of greenwashing. 

Criminal proceedings are also possible. Deceptive advertising and providing information that may mislead consumers constitute crimes against consumer relations, as provided for in the Brazilian Consumer Protection Code and Law No. 8,137/1990. The penalty may include imprisonment or detention, as well as fines. 

Greenwashing can also be seen as a mechanism of unfair competition. False green claims can be considered fraudulent means capable of deceiving the consumer to attract a specific audience to the detriment of companies whose claims are accurate and verifiable. In this scenario, if the practice of greenwashing is proven, the company can be held responsible for the crime of unfair competition without prejudice to facing civil liability based on the Brazilian Industrial Property Law (Law No. 9,279/1996). 

In terms of the corporate environmental sphere regarding green claims, administrative sanctions are provided in the Brazilian National Environmental Policy (Law No. 6,938/1981) and may include the following: 

• Simple or daily fines. 
• Loss or restriction of tax incentives and benefits granted by the government. 
• Loss or suspension of participation in financing lines from official credit institutions. 
• Suspension of the company's activities. 

In addition to administrative sanctions in the environmental sphere, the company may also be required to, regardless of fault, compensate or repair the damage caused to the environment and third parties affected by its activities. The Brazilian Federal and State Public Prosecutors have the right to file civil and criminal actions for damage caused to the environment. 

Under Brazilian criminal law, the company may also be subject to penalties under the Environmental Crimes Law (Law No. 9,605/1998). 

Regarding capital markets, disclosure to the market or delivery to the CVM of false, incomplete, inaccurate, or misleading information constitutes a serious breach (Law No. 6,385/1976). This means that the possible sanctions for such misconduct are: 

• Warning; 
• Fine; 
• Temporary disqualification; 
• Suspension of authorization or registration; 
• Temporary ban. 

 Regarding financial markets, non-compliance with relevant regulations may subject the regulated entity and its officers to the following sanctions (Law No. 13,506/2017): 

• Public admonishment; 
• Fine; 
• Ban on providing certain services to the institutions; 
• Ban on carrying out certain activities or types of operation; 
• Disqualification from acting as a director and from holding office in a body provided for in the bylaws or articles of association of entities licensed by the BCB to operate; 
• Revocation of authorization to operate. 

3. Decisions on greenwashing issued by Brazilian courts 

Companies have increasingly used social and environmental concerns as an argument to modify their businesses and sell products and services. However, some of the initiatives implemented were not supported by the Brazilian courts. 

In 2020, some mobile phone manufacturers began selling electronic devices without their respective chargers, which consumers considered essential. They justified this by stating it was a market practice that would encourage conscious consumption. 

This commercial policy adopted by the companies sparked heated legal debates. Consumer protection authorities, the Public Prosecutor's Office, and the National Consumer Secretariat initiated administrative proceedings against the mobile phone manufacturers. One of these companies revised its commercial policy and, specifically in Brazil, started offering free chargers again. 

However, administrative procedures continued against another company, which, in the second half of 2022, was fined an amount exceeding R$ 12 million in just one administrative case (approximately EUR 2.3 million). There are hundreds of similar administrative sanction proceedings in Brazil because, according to the Federal Constitution, the regulatory and punitive authority regarding consumer rights is concurrent among the Union, the States, and municipalities. 

Aside from the impacts in the administrative sphere, thousands of consumers filed individual legal proceedings alleging they felt disadvantaged by companies’ new commercial policies. Consumers argued that by removing an essential item, those companies were engaged in the tied selling of their products, which is prohibited under Brazilian law. Collective actions were also filed by associations designed for the consumers’ defense.  

The measure was deemed illegal by the Brazilian courts, not on the grounds of tied selling but due to the belief that the implemented commercial practice was not connected to a genuine sustainability plan, meaning these policies constituted a form of greenwashing. Courts have awarded individual consumers compensation equivalent to the price of a mobile phone charger (for material damages) and moral damages compensation not exceeding EUR 1,000. 

Such court decisions mirror what had already been put into practice by CONAR to restrain greenwashing since 2010. While CONAR is an administrative body that oversees advertising campaigns, it has issued rulings acknowledging that some claims made by companies in their advertisements lack technical substantiation or are false. In such cases, CONAR ordered modifications to be made to the publicity to prevent consumer deception. 

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