What Companies and Investors Need to Know

For years, “greenwashing” was a term reserved for the communications department. If a company overpromised on its environmental credentials, the worst-case scenario was a “Twitter storm” or a temporary dip in brand sentiment.

That era is over. Greenwashing has transitioned from a public relations headache into a high-stakes litigation risk. With regulators in the US and Europe moving from guidance to enforcement, and plaintiffs’ attorneys creatively framing environmental claims as securities fraud or consumer deception, climatetech companies and their investors must treat sustainability claims with the same rigor as financial reporting.

In the last year alone, we have seen major consumer goods giants fined millions of dollars for misleading recycling labels, and financial institutions targeted by regulators for “ESG-washing” their investment portfolios. The message is clear: the “green” premium is now accompanied by potential “green” liability.

What Counts as Greenwashing in 2026?

The primary challenge for companies is the lack of a single, harmonized definition of greenwashing. While the landscape remains fragmented, we have seen several key regulatory trends crystallize:

• The State and Federal Patchwork: In the US, the federal landscape is anchored by the FTC’s Green Guides (still under revision) and the SEC’s climate disclosure mandates. However, state-level rules require more. California’s climate reporting laws (SB 253 and SB 261) now mandate rigorous Scope 1-3 emissions reporting and climate-risk disclosure for large entities doing business in the state, with reports for Scope 1 and 2 emissions due in August 2026 for FY 2025 data. New York has advanced its own Climate Corporate Data Accountability Act, which, if passed, will require mandatory Scope-3 emissions reporting and verification similar to financial audits.

• Net-Zero Skepticism: Regulators are no longer accepting “Net-Zero by 2050” as a harmless aspirational statement. If a company lacks a concrete, science-based transition plan with interim milestones, that claim is increasingly viewed as a material misstatement.

• The "Eco-Friendly" Trap: Vague terms like “sustainable,” “green,” or “renewable” are being phased out by enforcement agencies. For example, in the EU, the Green Transition Directive takes full effect September 27, 2026, banning the use of specific claims such as “eco-friendly,” “green,” and “sustainable,” and prohibiting offset-only claims of carbon neutrality. Unless a claim is specific, prominent, and substantiated by lifecycle analysis (LCA) data, it is a litigation magnet.

• Carbon Credit Scrutiny: The “wild west” of voluntary carbon markets has faced a reckoning. Under laws like California’s AB 1305 (Voluntary Carbon Market Disclosures Act)—which feeds into SB 253’s emissions reporting enforced by CARB—companies using carbon offsets towards carbon-neutral claims must provide granular, website-hosted project evidence. Failure to provide and update this information will result in fines up to $500,000/year.

Specific Risks for Greentech Companies

While legacy industries are often the most visible targets, climatetech and greentech companies face unique, “high-tech” greenwashing risks.

Overstating Technology Readiness and Performance

Investors and customers are increasingly litigating the “Lab-to-Market” gap. For example, if a carbon capture startup claims a 90% capture rate but has only achieved that rate in a pilot, the startup risks accusations of misleading investors. Overstated energy density or “round-trip efficiency” in storage in pitch decks can lead to fraud claims if commercial performance fails to match the claims made to investors in the decks.

Supply Chain Blind Spots and Scope 3 Emissions

A growing frontier for litigation involves companies that market a “clean” end-product while ignoring the environmental footprint of its creation. In 2026, regulators are looking past the tailpipe or the plug. If a greentech company claims its hardware is “carbon neutral” but fails to account for high-impact mineral mining or carbon-intensive manufacturing, it faces significant exposure. Plaintiffs are regularly arguing that “green” branding is deceptive if the supply chain remains a black box of emissions.

Litigation and Enforcement Trends

We are seeing a marked shift in who is suing and how they are framing their arguments. The legal landscape is moving away from false advertising claims toward sophisticated investor-led litigation that targets the financial core of a business.

1. Plaintiff Creativity
   Beyond traditional consumer protection laws, plaintiffs’ attorneys are using securities fraud theories. They argue that greenwashing is a material misrepresentation that artificially inflates stock prices. Regulators too are finding success in court under securities fraud theories, such as the Australian securities regulator in ASIC v. Vanguard (Federal Court of Australia, 2024), where the court found that Vanguard misled investors about its ethically marketed funds.

2. Director Liability
   Shareholders are suing boards of directors for breaches of fiduciary duty, claiming that boards failed to oversee the company’s climate risks, allowed the company to engage in deceptive marketing that damaged its long-term value, or misrepresented claims about costs, supply chains, and manufacturing.

3. Transatlantic Enforcement & Coordinated Investigations
   What happens in Vegas does not stay in Vegas when it comes to enforcement and investigations. Regulators are coordinating to run joint greenwashing investigations. This cross-border cooperation ensures that a company can no longer hide behind jurisdictional silos. For example, two years after DWS paid $25 million in settlement with the US SEC for greenwashing violations, it paid €25 million to settle the Frankfurt Public Prosecutor’s office’s investigation into the same overstated ESG claims.

How Outside General Counsel Can Mitigate Risk

In this aggressive enforcement environment, the era of checking with marketing is officially over. Climatetech companies and their legal advisors must treat environmental claims as material financial disclosures. Outside general counsel (OGC) can play a pivotal role by transitioning from a reactive approval posture to an active risk-mitigation framework.

Build a Repeatable Review Process

Every sustainability claim—whether in a LinkedIn post, a 10-K, or a pitch deck for a Series A, B, or C—must pass through a formal substantiation process. OGC should lead the implementation of a rigorous internal workflow that must include:

• Data Trail—Ensure that a technical file exists for every environmental claim. For example, if a company claims a 30% reduction in emissions, the legal team must be able to point to raw data, a third-party analysis, or a certified audit.

• Internal Controls—Sustainability data should be subject to the same internal controls and chains of custody as financial reporting. This includes formal sign-offs from technical leads, engineers, and the Chief Sustainability Officer before any claim reaches the public.

• Jurisdictional Mapping—Given the divergence between the EU’s Green Claims Directive and California’s SB 253, legal teams must verify that “one-size-fits-all” disclaimers are legally sufficient in every market where the company operates or recruits investors.

 Integrate Risk into Transaction Documents

For investors and acquirers in the greentech space, due diligence must go deeper than checking for an ESG policy. OGC should update standard transaction documents to reflect the 2026 reality:

• Reps and Warranties: Today’s investment docs must include specific representations regarding the accuracy of past ESG claims, the scientific validity of “Net Zero” transition plans, and the quality of any carbon credits used to claim neutrality.

• Indemnification: Given the high cost of regulatory probes, investors should seek specific indemnification for losses arising from greenwashing investigations or class-action suits targeting the company’s environmental branding.

• Covenants: Post-closing, transaction documents should mandate periodic “Environmental Health Checks” to ensure that the company’s scaling technology continues to meet the performance benchmarks advertised during the fundraise.

Conclusion

In 2026, greenwashing is a balance sheet risk. For climatetech companies, the goal is to ensure that the technology is as robust as the marketing. By treating greenwashing as a litigation risk today, companies can build the “defensive moat” necessary to survive the regulatory scrutiny of tomorrow.