Greenwashing as a cause of legal responsibility is taking shape: between ESG statements, soft regulation, and international case law

Corporate ESG (environmental, social, and governance) statements have shifted from voluntary branding tools to increasingly binding legal representations. Regulators, courts, and civil actors now treat climate and sustainability claims as legally relevant, especially when gaps appear between public commitments and actual practices.

This shift is driving a reassessment of “soft law” standards as de facto legal benchmarks and expanding scrutiny of corporate governance, director duties, and legal risk management. The article focuses on greenwashing as an emerging basis for liability and explores its implications, including in the Israeli context.

Greenwashing can be grouped into three main categories: climate greenwashing (e.g., unsupported net-zero or carbon neutrality claims), financial greenwashing (ESG-labeled investment products lacking real screening or oversight), and consumer greenwashing (vague environmental marketing without scientific grounding). All share a common feature: a mismatch between public claims and the methodological or factual infrastructure behind them.

International case law shows a clear trend toward treating ESG commitments as legally meaningful. The Dutch Shell climate case established that corporate climate policy can be evaluated under a duty-of-care framework. Although the appellate outcome narrowed the remedy, the principle that climate risk management is part of reasonable corporate conduct remains influential. In the UK, the ClientEarth derivative action against Shell directors reinforced the idea that climate risk is embedded in directors’ fiduciary and care duties, even though the claim failed procedurally. Consumer cases such as the Dutch ruling against KLM confirmed that exaggerated environmental marketing can mislead the public, while the German DWS enforcement action demonstrated that ESG misrepresentations in financial products can trigger regulatory penalties. These cases collectively signal that ESG claims require measurable, documented backing.

A key development is the use of voluntary sustainability standards as legal reference points. EU initiatives like the CSRD and the proposed Green Claims Directive aim to formalize this by requiring verifiable methodologies behind environmental claims. At the same time, critics warn of over-deterrence, or “greenhushing,” where firms avoid making legitimate climate disclosures out of fear of litigation. Additional challenges include the technical complexity of climate metrics and debate over whether litigation meaningfully reduces emissions. The policy task, therefore, is to set evidentiary and governance standards that encourage transparency without suppressing innovation.

For Israeli companies, greenwashing is both a global and domestic legal risk. Firms active in international markets may already be exposed to foreign enforcement. Domestically, Israeli securities law, consumer protection law, and directors’ fiduciary duties provide a framework through which greenwashing claims could develop. Misleading ESG disclosures may trigger securities liability, vague environmental marketing may violate consumer law, and failure to align climate strategy with public commitments could be framed as a breach of director duties.

Overall, greenwashing is emerging as a gateway to ESG litigation and reflects a deeper structural shift in corporate accountability. The central challenge is crafting a balanced duty-of-care standard that enforces transparency and methodological rigor while preserving legitimate environmental initiatives. In Israel, careful adoption of these principles could strengthen both public protection and legal certainty in the business sector.

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