By K Yatish Rajawat
If a company were to underreport its losses or inflate its profits and it was detected, action would be taken against its auditors and key management personnel. Heads would roll, and institutional investors would demand a change in management. Unfortunately, when a company misreports data on its sustainability report, which is also part of the annual report, it is ignored by shareholders and regulators. It is assumed sustainability is just an irrelevant addendum. Independent directors also don’t take it seriously. Regulators treat it as a must-have, but best not to waste time on. It is mislabelled as greenwashing.
Greenwashing seems like a minor misdemeanour, but it is a fraud as it involves deliberate misreporting of data and should be labelled and treated as such. This fraud has become rampant in India, where corporations cleverly manipulate sustainability reports and balance sheets. These manipulations obscure environmental impacts, creating false perceptions of corporate responsibility. The tactics to misrepresent have become common among companies and the regulators are turning a blind eye to it.
One prominent tactic involves omitting suppliers’ environmental impacts from balance sheets. Energy companies, for instance, frequently fail to account for suppliers’ coal emissions, thus underreporting their operations’ carbon footprint. Similarly, real estate developers rarely include emissions associated with cement and steel production, which form a significant proportion of their total emissions.
Another widely adopted strategy is the selective reporting of emissions. Developers frequently report data only for buildings under construction during a financial year, ignoring completed structures that are operational and emitting greenhouse gases. This selective scope is also evident in industries such as steel manufacturing, where firms report only emissions from primary plants and omit minor yet cumulatively significant secondary units. Automotive firms report emissions only from manufacturing processes, conveniently ignoring the lifecycle emissions from their vehicles on the road. Fast-moving consumer goods (FMCG) firms report the manufacturing plants’ emissions but not the plastic wrapper of their product that clogs every drain, landfill, and water reservoir in the country. The worst part is that FMCG firms also use vague symbols on their packaging to project that somehow the plastic packing, which never decomposes, is environmentally-friendly.
Third, companies engage in external assurance practices with agencies they financially compensate, leading to biased certifications. These agencies typically base their assessments on limited data samples, often cherry-picked to show reduced environmental impacts. Consequently, a cement manufacturer might receive certification based on emissions data from just one plant rather than an assessment of all plants.
Ambiguity in language is another pervasive form of greenwashing fraud. Companies use vague terminology like “significant reductions” without providing exact figures or clear comparisons with past emissions. This lack of clarity allows corporations substantial flexibility to interpret environmental data favourably. For example, automobile manufacturers often tout vague reductions in plant emissions without clarifying if the improvements are absolute or relative to production volumes, effectively obscuring actual performance. The Central Consumer Protection Authority (CCPA) issued guidelines late last year to prevent the use of misleading language in advertising. The food safety regulator has been levying minor fines on food firms that label their products “organic” and green. However, such guidelines and penalties are so minor that they do not impact companies’ behaviour.
Finally, inconsistent reporting frauds further misrepresent environmental impacts. Companies frequently alter reporting metrics or selectively omit data from previous years, complicating year-on-year comparisons. For instance, a significant steel producer might change emission categories in successive sustainability reports, making it nearly impossible to accurately track improvements or deteriorations.
The Institute of Chartered Accountants of India has introduced the Standard on Sustainability Assurance Engagements (SSAE) 3000, establishing a benchmark for attestation engagements related to non-financial information, including sustainability reports. It aims to assure reliability and consistency in reporting, but does not do much against greenwashing frauds. Sebi has mandated the top 1,000 listed entities by market capitalisation to disclose their performance against the nine principles of the National Guidelines on Responsible Business Conduct through the Business Responsibility and Sustainability Report. This framework standardises disclosures on ESG parameters, but neither SEBI nor the auditing firms follow these principles as there is no oversight or penalty on firms that do not follow it.
Most of these regulatory efforts, are perfunctory and perpetuate misreporting frauds. Companies often highlight their receipt of “green” awards in their balance sheets, which can be based on selective or misleading sustainability data. For example, they may report receiving prestigious environmental awards without transparently disclosing that the awards might be based on partial or skewed data. Such recognitions exacerbate greenwashing by creating an illusion of superior environmental responsibility.
While CFOs and CEOs are responsible for accurate reporting under corporate governance frameworks, explicit liabilities for misrepresentation in ESG reports still lack clarity. Independent directors tasked with ensuring ethical standards and legal compliance also face ambiguity over their liabilities for sustainability misreporting. Consequently, accountability remains diluted, contributing further to the greenwashing fraud.
Until stricter regulations, more straightforward guidelines, substantial penalties, and auditing responsibilities are not established, companies will continue to pass frauds as an illusion of environmental consciousness, undermining genuine efforts toward sustainability in India.
The writer is founder, Centre for Innovation in Public Policy.
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