South Korea has emerged as a regional pioneer in regulating corporate greenwashing as it becomes the first country in Asia to mull monetary punishment for deceptive environmental claims in advertising.
The fourth-largest Asian economy is proposing legislation to impose a fine of three million won ($2,270) on companies deemed misleading investors in their environmental credentials and commitment. The phenomenon is partially spurred by the rise of shareholder activism in businesses’ ESG considerations and practices, which are increasingly believed to be linked to the companies’ long-term resilience and core competitiveness.
Lawyers keeping track of the draft law agree the move is a step in the right direction in fulfilling South Korea’s pledge to climate change mitigation and bolstering oversight. But they have also noted criticisms, including the ambiguity in wording, effectiveness of enforcement, and perceived insufficient financial deterrence.
WHAT ARE THE KEY CHANGES AND CRITICISMS?
Currently, South Korea has existing rules to regulate companies’ unfair labelling or advertising practices, which may deceive or mislead consumers about their product’s environmental impacts and information.
The new regulations are proposed as part of the amendments to the current Environmental Technology and Industry Support Act, which has been implemented since 2011.
Soyoung Lee, a partner at Bae, Kim & Lee, points out that the proposed administrative fines make the draft law stand out from the existing regulatory regime as “forward-looking.”
“Under the new proposal, a company could be fined up to three million won for using greenwash-ing advertisement if it states ‘false, exaggerated, or deceptive labelling or advertising relating to the environmental performance of its products’,” says Lee.
“If the proposal is enacted, it signals a stricter rule compared to Article 37 of the current Act, under which administrative fines do not apply to greenwashing advertisement,” she adds.
The Ministry of Environment (MOE) will also be empowered to issue corrective measures, such as ordering a company to correct an advertisement found to contain a misrepresentation. But Lee is concerned that neither the level of monetary penalties nor the corrective measures can serve as an effective deterrence.
“It is not strong enough to prevent greenwashing advertisement, and calculations for fines are complicated, which could cause delays in procedures such as indictment and trial,” she says.
Apart from that, Lee also fears a proposed mandate for public disclosure of greenwashing doesn’t have enough teeth because of a lack of “specifics and thus implementation force”.
“Even if the MOE takes administrative measures against green-washing advertisement, their effectiveness is low if the details of the measures are not disclosed to the public,” she explains, noting that the MOE currently enjoys discretion to order any disclosure.
WHAT ADDITIONAL COMPLIANCE BURDEN WILL BE CREATED?
Lee believes that due to the relatively insignificant fines, companies will be more likely to be compliant due to concerns about their reputational risks or potential legal woes, as opposed to monetary damage.
“Unlike corrective orders or monetary penalties, administrative fines for negligence can be imposed without official hearings. When a company believes that the administrative decision was unfair or a sufficient opportunity to mount a defence was not available, the company may bring forth a legal action against the supervisory authority in court,” she explains.
In addition, the absence of clear, systematic definitions of “greenwashing” behaviours can risk creating an enforcement conundrum even though administrative fines can be imposed with relatively fewer hurdles.
“In the case of greenwashing, the standards the supervisory authority applies to reach a judgment require interpretation of keywords such as ‘false,’ ‘exaggeration’, and ‘deception.’ As such, both the supervisory authority and suspected companies may need legal assistance during the process of greenwashing-finding and penalty imposition,” says Lee.
HOW WILL THE GROWING ANTI-GREENWASHING REGULATIONS AFFECT LEGAL WORK IN KOREA?
Noting the continued efforts by the MOE to reinforce surveillance and monitoring of greenwashing and enhance consumer awareness by sharing more information on green and safe products, Lee is confident that demands for latest compliance know-how will rise as a result.
However, “it will no longer be relevant if lawyers provide advisory to their clients only with superficial understanding of ESG and its emerging directives, laws, and regulations. Lawyers shall acquire in-depth knowledge of the mechanism, the origins, progress, and requirements of each EGS factor,” says Lee.
“ESG requires a multifaceted approach. It spans various stakeholder issues where legal experts must be prepared to guide clients with specific, stage-based approach solutions for ESG-related matters given the long-time horizon of ESG and climate change transition,” she adds.