Greenwashing and Consumer Protection in Malaysia: A Legal Perspective

Greenwashing and Consumer Protection in Malaysia: A Legal Perspective

Kwan Kam Loong¹, Farahdilah Ghazali^1*, Afida Mastura Muhammad Arif²

¹School of Business and Economics, Universiti Putra Malaysia

²Faculty of Human Ecology, Universiti Putra Malaysia

*Corresponding Author

DOI: https://dx.doi.org/10.47772/IJRISS.2025.908000261

Received: 10 August 2025; Accepted: 18 August 2025; Published: 05 September 2025

ABSTRACT

This paper analyzes greenwashing, a deceptive marketing strategy that misleads consumers about environmental practices and product benefits, eroding trust and hindering informed decision-making. The practice leads to consumer confusion, skepticism, and a lack of trust in genuine green products, which can diminish their willingness to support environmentally friendly initiatives altogether. The paper highlights a critical problem in Malaysia: the absence of a specific law directly targeting greenwashing. While existing laws, such as the Contracts Act 1950 [Act 136] (CA 1950), the Consumer Protection Act 1999 (Act 599) (CPA 1999) and the Companies Act 2016 (Act 777) (CA 2016), can be used to address misleading claims, they do not offer a comprehensive and explicit framework for greenwashing. This forces consumers to navigate complex legal requirements, such as proving a contractual relationship and reliance on misleading statements. The analysis concludes that the current legal framework is insufficient to fully protect consumers, and a more robust regulatory approach is necessary. To effectively combat greenwashing, Malaysia needs to develop a comprehensive strategy that includes harmonizing regulations, enhancing disclosure standards, and strengthening enforcement to ensure corporate accountability and consumer protection.

Keywords: Consumer Protection, Green Practice, Misleading Claim, Sustainability, Corporate Accountability

INTRODUCTION

Greenwashing is a deceptive marketing strategy that undermines consumer trust and distorts the marketplace, making it difficult for consumers to make informed choices. Greenwashing is characterized as the act of misleading consumers about the environmental practices of a company or the environmental benefits of a product or service (Ha et al., 2022; Yang et al., 2020). This intentional deceit can lead to negative consequences for consumers, including confusion, skepticism and ultimately, a lack of trust in genuine green products (Mu, 2023; Szabo & Webster, 2020).

Greenwashing has been linked to a growing skepticism among consumers about corporate social responsibility (CSR) claims. As consumers become more aware of environmental issues, they increasingly seek out products that align with their values. However, when companies engage in greenwashing, they exploit this desire, presenting a façade of sustainability while failing to deliver on their promises (Lin et al., 2017; Delmas & Burbano, 2011). This not only misleads consumers but also creates a false sense of security regarding the environmental impact of their purchases, infringing upon their right to make informed decisions based on accurate information (Vries et al., 2013; Sun & Shi, 2022).

Moreover, greenwashing practices can lead to a ripple effect throughout the supply chain, where companies that engage in such deceptive practices may inadvertently encourage similar behaviors among their partners (Sun & Shi, 2022). This systemic issue can further erode consumer confidence in green branding, as consumers struggle to differentiate between genuinely sustainable products and those that are merely marketed as such (Urbanski & Haque, 2020). The result is a marketplace where consumers are increasingly distrustful, which can diminish their willingness to support environmentally friendly initiatives altogether (Volschenk et al., 2022; Wang et al., 2019).

In addition to eroding trust, greenwashing can also have detrimental effects on consumer behavior. Studies have shown that when consumers perceive a brand as engaging in greenwashing, their purchase intentions decline significantly (Sari, 2023; Mangini et al., 2020). This not only affects consumer choices but can also lead to broader implications for companies that genuinely strive for sustainability, as their efforts may be overshadowed by the negative perceptions created by greenwashing (Wang et al., 2020; Verma, 2023). Consequently, the practice of greenwashing infringes upon consumers’ rights to truthful information and undermines the overall progress toward sustainable consumption.

Thus, the objectives of this paper are:

• To provide a comprehensive legal perspective on greenwashing and its implications for consumer protection;
• To critically examine the legal landscape surrounding greenwashing and identify areas where regulatory interventions are necessary to safeguard consumer rights and promote corporate accountability

LITERATURE REVIEW

Greenwashing is commonly understood as the practice wherein companies exaggerate or misrepresent the environmental benefits of their products, services, or operations to project a misleading image of environmental responsibility (Netto et al., 2020). This practice is a strategy that companies adopt to engage in symbolic communications of environmental issues without substantially addressing them in actions (Zhen et al., 2024; Du et al., 2021).  Greenwashing manifests in various forms, from “empty green claims” to sophisticated strategies like selective disclosure, where companies highlight positive environmental attributes while omitting negative impacts (Li et al., 2022; Jog & Singhal, 2020).

These practices are seen across industries, including misleading claims about recyclability, use of unverified eco-labels, and overemphasis on minor green features. Motivation often stems from attempts to build a favorable public image and secure competitive advantages. Nevertheless, greenwashing typically leads to heightened consumer skepticism and diminished trust, undermining genuine sustainability efforts (Yu et al., 2020).

Contributing Factors to Greenwashing

Many factors contribute to greenwashing. Greenwashing is frequently driven by the pursuit of financial gain. Companies recognize and respond to the escalating consumer demand for environmentally friendly products and services, which creates a significant market incentive (Netto et al., 2020). This incentive often leads firms to cultivate an appearance of environmental responsibility even in the absence of substantial underlying sustainable practices. Moreover, organizations often engage in greenwashing as they lack a strong internal ethical framework, prioritizing financial gain over genuine environmental commitment. This leads to deceptive marketing practices instead of investing in costly but truly sustainable changes (Eyo-Udo et al., 2024).

Besides, greenwashing is also seen as a corporate strategy focused on managing public perception and enhancing corporate reputation. Companies create a favorable image of environmental responsibility by carefully crafting messages for stakeholders such as consumers, investors, and regulators. This often involves obscuring less sustainable realities with a facade of environmental consciousness (Jong et al., 2019; Akturan, 2018).

Environmental, Social and Governance (ESG) Reporting and Greenwashing

The Environmental, Social, and Governance (ESG) reporting has become a critical tool for corporations aiming to demonstrate their commitment to sustainable practices. However, this practice can inadvertently lead to greenwashing. Murphy and McGrath argue that while ESG reports may appear to enhance transparency, they can also reduce scrutiny and accountability, allowing firms to control the narrative surrounding their sustainability practices (Murphy & McGrath, 2013). This lack of regulatory oversight means that organizations may present their activities in a favorable light, omitting crucial performance metrics that would provide a more accurate picture of their ESG effectiveness. This deliberate tailoring of narratives has been identified as a primary mechanism by which greenwashing occurs (Murphy & McGrath, 2013).

Moreover, the current evolution of ESG reporting often emphasizes narrative-driven content over quantifiable, measurable results (Barbosa et al., 2023). As companies face pressure to demonstrate their commitment to sustainability, they might choose to highlight favorable aspects of their operations while downplaying negative impacts or failures. This behavior can create a false sense of corporate accountability, particularly when organizations prioritize ESG narratives that align with investor expectations over actual sustainability performance (Ferri et al., 2023). For instance, companies with strong ESG performance can leverage these disclosures to enhance stock prices, potentially incentivizing firms to engage in greenwashing to maintain or boost their market value, even when they do not substantively improve their practices (Quirós et al., 2019).

Additionally, financial constraints can play a critical role in cultivating greenwashing behaviors. Research indicates that firms under financial pressure are more prone to greenwash since they might leverage ESG reporting to attract investment while lacking the resources for genuine sustainability initiatives (Zhang, 2022). Zhang (2002) illustrates how the discrepancy between reported ESG data and actual performance can be indicative of greenwashing, especially among companies that seem transparent but deliver poor ESG outcomes (Zhang, 2022).

Ultimately, the implications of ESG reporting leading to greenwashing highlight a systemic issue within corporate governance. The push for ESG compliance often overlooks the need for rigorous verification processes, thereby failing to ensure the authenticity of the reported information (Yu et al., 2020). The current lack of regulatory frameworks to standardize ESG disclosures further empowers companies to engage in greenwashing without consequence (Yu et al., 2020). As firms continue to adopt ESG as a strategic priority, it is vital to establish robust mechanisms for accountability and transparency to curb greenwashing practices effectively.

Impacts of Greenwashing on Consumers

Greenwashing deeply compromises consumer trust, misguides stakeholder decisions and obstructs the advancement of sustainability initiatives (Tang, 2023). Previous research indicates that misleading advertising relies on a confluence of belief formation, falsity, and relevance, where consumers establish trust based on claims that are factually inaccurate and materially significant (Sharma & Chander, 2011). Moreover, misleading ESG claims have been shown not only to distort consumer perceptions but also to influence investor decisions, given the increasing reliance of stakeholders on ESG indicators for assessing corporate responsibility (Ahmed & Othman, 2024; Tang, 2023; Rosley et al., 2023).

The misrepresentation of environmental impact invariably results in stakeholder dissatisfaction among consumers, investors and employees. This practice correlates with decreased job performance and morale within sustainability management roles, suggesting violations of psychological contracts (Westerman et al., 2022). Consequently, consumer skepticism intensifies, significantly compromising the credibility of green marketing and hindering the promotion of sustainable consumption (Qayyum et al., 2022; Sun & Shi, 2022).

The perception of greenwashing directly diminishes consumer trust in brands. As noted by Mu and Lee (2023), increasing skepticism about the authenticity of corporate social responsibility (CSR) claims arises from greenwashing practices Mu & Lee (2023). When consumers perceive that a brand is engaging in greenwashing, their trust in that brand diminishes significantly. This skepticism alters consumer attitudes and adversely affects their willingness to engage with or support the brand (Hường et al., 2019). The erosion of trust leads to negative associations between the brand and consumers, fostering distrust that can be difficult to repair (Wang & Walker, 2023).

In addition, greenwashing has a detrimental effect on consumers’ purchasing intentions. The perceptions of greenwashing negatively impact brand satisfaction and consumer purchase intentions (Ha et al., 2022). When consumers become aware of misleading environmental claims, their intention to purchase products from such brands declines. consumer decision-making is significantly hindered by greenwashing, leading to lower purchase intentions (Mangini et al., 2020). some research suggests that while greenwashing typically harms brand perception, it may also provoke heightened consumer awareness and scrutiny towards environmental issues (Lopes et al., 2023). Moreover, Yuanitasari et al. (2024) claimed that greenwashing not only  undermine  consumer  trust  but also  weaken  the  competitiveness  of products   that   genuinely   meet   environmental   standards.

The Role of Law in Protecting Consumer Rights and Combating Greenwashing

Consumer protection laws are fundamentally structured to establish a legal framework that empowers consumers, prohibiting fraudulent or misleading practices, and ensuring they receive accurate information about products and services (Widiarty et al., 2024). Effective consumer protection laws address various aspects, such as the right to safe products, the right to accurate information, and the right to seek redress for grievances (Dewi et al., 2022; Widiarty & Tehupeiory, 2024). These rights serve as crucial foundations for addressing issues such as greenwashing, where companies may present an exaggerated or false impression of environmental stewardship to mislead consumers. For example, advertisements must not be deceptive; thus, any claims regarding a product’s ecological benefits must be substantiated (Valendia & Purwanegara, 2022). In instances where greenwashing is suspected, consumers can leverage these protections to challenge misleading claims, fostering a more accountable marketplace.

Furthermore, the laws regulating advertising and consumer rights play a vital role in combating this issue by mandating transparency and clarity in marketing communications (Valendia & Purwanegara, 2022; Syam et al., 2021). For instance, regulations may require companies to provide evidence supporting their sustainability claims, preventing them from misleading consumers through ambiguous or groundless assertions (Xu et al., 2023).

The legal implications of greenwashing are crucial as consumers become more aware of environmental issues. They increasingly expect companies to adhere to ethical marketing practices. When companies fail to meet these expectations, they risk not only consumer backlash but also legal sanctions under consumer protection frameworks (Irawati et al., 2023; Ma, 2024). This creates an environment where companies must ensure that their sustainability promises are genuine, thereby, promoting ethical business practices and enhancing consumer trust.

Therefore, to combat greenwashing effectively, regulators and courts play pivotal roles in enforcing consumer protection laws. Courts are an integral part in interpreting these laws and addressing cases of misleading advertising, which can include cases of greenwashing where companies are held accountable for false claims regarding environmental responsibility (Barnard & Mišćenić, 2019; Yu, 2024). Furthermore, regulatory bodies can implement mandatory disclosure requirements, encouraging companies to provide clear and accurate information about their environmental impact and practices (Zych et al., 2021; Netto et al., 2020).

Likewise, emerging mechanisms also can enhance enforcement regulations. For example, promoting independent audits and certifications for sustainability claims can further reduce instances of greenwashing (Zhang et al., 2024; Xu et al., 2023). Additionally, as legal frameworks evolve, they can adapt to new challenges presented by innovations in marketing strategies, ensuring that consumer rights are robustly protected in the face of evolving commercial practices (Pasaribu & Sirait, 2018).

Greenwashing in the Malaysian Context

Although awareness of greenwashing is increasing, it is still not universally well-known to consumers in Malaysia. While many consumers are interested in green and sustainable products, they often struggle to detect greenwashing. For example, a study by Isentia (n.d.) found that the term “greenwashing” is not widely used by consumers, even when they are discussing misleading environmental practices. Similarly, The Star (2024, March 14)  indicated that it is “tough for Malaysians to detect greenwashing,” as they often lack the tools to distinguish genuine claims from deceptive marketing. This highlights a gap in consumer education and the need for clearer labeling standards and stronger regulatory enforcement to protect consumers from misleading claims.

Moreover, Jamil and Wahyuni (2024) examined greenwashing practice in oil and gas companies’ sustainability reports, which contain elements that could be interpreted as greenwashing. Specifically, the study noted a scenario where a state-owned oil company’s ESG scores fell below the required threshold for an index, leading to its removal from the index. Public sources attributed the low score to issues such as human rights incidents, activities in “high-risk regions” as well as imprecise reporting on legal and financial risks (Jamil & Wahyuni, 2024).

Accordingly, this highlights a scenario where a company may present a positive sustainability narrative in its reports, but external parties or rating agencies can expose the gaps between the reported claims and the company’s actual performance, particularly regarding non-environmental factors like social and governance issues (Jamil & Wahyuni, 2024).  While a study by Kishan and Azhar (2025) study investigated two forms of greenwashing; readability and tone in a sustainability report by Malaysian public-listed companies.  However, their findings suggested that Malaysian public-listed companies are less likely to engage in these specific forms of greenwashing in their sustainability reports. The study found that companies with poor sustainability performance did not necessarily create reports that were more readable or misleadingly positive in tone (Kishan & Azhar, 2025).

In a different study, companies with boards that lack independence, diversity and expertise are more susceptible to greenwashing. These boards may fail to properly oversee and scrutinize management’s sustainability claims, allowing misleading information to be published (Jamil & Wahyuni, 2025). Moreover, the absence of a strong governance framework can enable managers to prioritize profit-driven motives over genuine sustainability efforts. In this scenario, sustainability reports and disclosures are used as a public relations tool rather than a true reflection of the company’s environmental and social commitment (Jamil & Wahyuni, 2025).

METHODOLOGY

This paper adopts doctrinal by analyzing available legislation, case law as well as relevant legal theories. Doctrinal research is a traditional method focused on the in-depth analysis of legal concepts and principles found in sources like cases and statutes. It aims to provide certainty in the legal system by examining how legal doctrines are formulated, interpreted and applied. This armchair research approach is dominant in legal scholarship, involving the systematic organization of legal propositions and the study of legal institutions (Bhaghamma, 2023). The analysis in this study extends to the legal provisions under Malaysian law, including the Contracts Act 1950, the Consumer Protection Act 1999 (CPA 1999), the Companies Act 2016 (CA 2016) and other guidelines such as Bursa Malaysia’s Main Market Listing Requirements and the Code of Advertising Practice. Since there are limited case laws on greenwashing in Malaysia, the study incorporates an analysis of key international case law to understand the judicial treatment and nature of greenwashing in other jurisdictions such as the Volkswagen Dieselgate case, ACCC v. De Longhi in Australia and others.

The research also uses content analysis to condense large amounts of text or other forms of data into fewer categories. This method is valuable for a variety of purposes, including determining authorship, identifying trends and patterns in documents and tracking changes in public opinion over time (Stemler, 2000). Therefore, the researchers could critically examine the legal landscape surrounding greenwashing. This approach allows for the identification of areas where regulatory interventions are needed to protect consumer rights and promote corporate accountability. The data used were secondary data with primary and secondary legal materials collected through a literature study including books, journal articles, proceedings, commentaries, newspapers and other relevant documents. All sources are accessible through printed and online materials. 

Analysis

As of now, there is no specific law that directly targets greenwashing practices in Malaysia. However, several regulations touch on aspects of corporate disclosures and marketing that can be interpreted as addressing greenwashing indirectly.

The analysis extends to the legal provisions under Malaysian law, including the Contracts Act 1950, the Consumer Protection Act 1999 (CPA 1999), the Companies Act 2016 (CA 2016) and other relevant guidelines such as Bursa Malaysia’s Main Market Listing Requirements.

The Contracts Act 1950 [Act 136] (CA 1950)

The Contracts Act 1950 (CA 1950) regulates contractual agreements by ensuring they are formed with genuine consent and based on accurate information. Section 14 of the Act specifies that consent is not free if it is caused by misrepresentation, among other factors, meaning a contract entered into under false pretenses can be voided. Section 18 then defines what constitutes misrepresentation, which includes an innocent but false statement of fact believed to be true, as well as a breach of duty that misleads another to their prejudice without the intent to deceive.

In the context of greenwashing, a consumer could argue they were induced to enter a contract by purchasing a product based on a company’s misleading environmental claims. To succeed in a claim under the CA 1950, the claimant must demonstrate a direct contractual relationship with the company and, critically, that they specifically relied on those greenwashing statements when making their purchase. The Malaysian Federal Court case of Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd [1999] 2 MLJ 500 is highly relevant here. The court ruled that a party who was induced into a contract by a fraudulent misrepresentation was entitled to have the contract rescinded and to be compensated for all losses directly flowing from that misrepresentation. This case highlights the necessity of proving reliance on the misrepresentation as a causal link to the contract and the subsequent loss, a principle that would be directly applicable to a consumer misled by greenwashing.

Without a valid contract and this element of reliance, a claim under the CA 1950 will not succeed. A claimant must have a contractual relationship with the company and must prove they relied on the greenwashing statements when entering the contract.

Consumer Protection Act 1999 (Act 599) (CPA 1999)

In Malaysia, consumer rights are primarily protected under the Consumer Protection Act 1999 (CPA 1999), which establishes a framework for safeguarding consumers against unfair trade practices and ensuring their right to safety, information, and redress. The Act empowers consumers to seek remedies for grievances through the Tribunal for Consumer Claims Malaysia (TTPM), which provides a platform for resolving disputes without the need for lengthy court proceedings (Zakaria et al., 2021). The legislation serves to safeguard consumers from unfair trading practices by upholding their fundamental rights to safety, accurate information, and effective redress.

In the context of greenwashing, the Act directly addresses misleading environmental claims through its core provisions on false or misleading representations. Specifically, Section 10(1) prohibits any form of representation that is deceptive regarding the “type, standard, quality, or quantity” of goods or services. Greenwashing claims, which often exaggerate or fabricate a product’s environmental benefits, fall squarely under this prohibition. This is further reinforced by Section 18, which creates a rebuttable presumption of liability for any supplier or publisher who makes such claims in an advertisement. This legal framework places the burden on businesses to substantiate their sustainability claims, ensuring that consumers are not misled by green marketing.

Making a false or misleading claim is not merely a civil matter but is also treated as a statutory offense under Section 25 of the CPA 1999. This provision imposes serious penalties, including fines and/or imprisonment, on businesses and individuals who engage in such deceptive practices. The case of Toh Shu Hua & Ors v Wawasan Rajawali Sdn Bhd [2023] 2 CLJ 310 provides a powerful example of the courts’ willingness to penalize misleading representations. the High Court awarded significant damages to apartment purchasers who were misled by a developer’s promises in a sales brochure. The court found that the developer’s phrase “Your world in one place” was a promise that had not been fulfilled, constituting a misrepresentation. This case demonstrates that the courts are prepared to enforce the CPA 1999 robustly, treating consumer protection as a serious legal obligation.

Furthermore, the CPA 1999 introduces implied guarantees that are highly relevant to greenwashing. If a product is described as “environmentally friendly,” the Act, under Sections 34 and 35, implies a guarantee that the goods will conform to that description. Should the goods fail to meet this promised standard, consumers are empowered to file a claim against the seller for the breach of this implied guarantee. Thus, this provision gives consumers a powerful tool for seeking redress against greenwashing. It transforms a vague marketing claim into a legally binding promise, ensuring that businesses are held accountable for their environmental declarations and providing a clear path for consumers to seek justice when they are misled.

Companies Act 2016 (Act 777) (CA 2016)

Directors are responsible for supervising the management of the company and ensuring they act in the best interests of the company and its shareholders. They are expected to hold management accountable for performance and ethical conduct. In fact, directors are bound by a duty of care, skill, and diligence, as stipulated under Section 213(2) of the Companies Act 2016 (CA 2016). This statutory obligation requires directors to act with the level of prudence and foresight expected of a reasonable person in their role. A director’s failure to prevent corporate greenwashing could constitute a breach of this duty.

By neglecting to scrutinize the accuracy of the company’s sustainability claims, a director may be deemed to have failed in their responsibility to exercise reasonable care. This breach not only jeopardizes the company’s reputation but also exposes the director to significant legal consequences. A director’s breach of duty can be challenged through various legal avenues, including a derivative action under Section 347 of the CA 2016, which allows shareholders to sue on the company’s behalf. This mechanism provides a powerful tool for holding directors accountable for their negligence.

A relevant Malaysian case is Tan Sri Dato’ Tajudin bin Ramli v Rego Multi-Trades Sdn Bhd [2018] 2 AMR 912, where a director was held personally liable for a company’s financial loss due to his failure to properly supervise and monitor a substantial investment. The Court of Appeal emphasized that a director’s duty extends to ensuring effective internal controls and active supervision of the company’s affairs. This precedent is highly applicable to greenwashing, as a director who fails to implement sufficient internal checks and balances to verify a company’s environmental claims could similarly be found to have breached their duty of care.

Similarly, in the case of Sime Darby Bhd v Dato’ Mohd Bakke Salleh & Ors [2012] 1 LNS 1599, which demonstrates the court’s strict interpretation of a director’s duty to act with due care and skill. The case involved a director’s failure to oversee a substantial investment and to ensure that a subsidiary’s transactions were conducted with proper due diligence, resulting in significant financial losses. The court emphasized that directors have an ongoing duty to be informed and to exercise independent judgment.

Furthermore, a breach of a director’s duties under Section 213(2) can attract criminal sanctions as outlined in Section 213(3) of the CA 2016. A director found guilty of such a breach may face imprisonment for up to five years, a fine of up to RM3 million, or both. These severe penalties underscore the high level of responsibility placed on directors to ensure their company’s operations are conducted lawfully and ethically.

Section 213(2) mandates that every director must exercise reasonable care, skill, and diligence. This duty includes an obligation to ensure the company’s public statements, including those about environmental sustainability, are accurate and not deceptive. A director who neglects to verify or challenge false environmental claims may be found to have breached this duty.

Other relevant Guidelines

Bursa Malaysia Main Market Listing Requirements

The Bursa Malaysia Main Market Listing Requirements (Listing Requirements) require all listed companies to include a Sustainability Statement in their annual reports. This statement must provide a narrative account of how the company manages significant economic, environmental, and social risks and opportunities. While Bursa Malaysia does not currently mandate external assurance for these statements, it encourages companies to prepare for future requirements by ensuring their sustainability claims and metrics are supported by auditable records and documented assumptions.

This proactive approach is intended to enhance the credibility of corporate sustainability reporting, combat greenwashing and align Malaysia with a growing global trend toward verified environmental, social, and governance (ESG) disclosures. Should a company breach these listing requirements, Bursa Malaysia can take enforcement actions to ensure compliance.

The Malaysian Code of Advertising Practice

The Malaysian Code of Advertising Practice, specifically Part 11 on Environmental Claims, serves as a self-regulatory framework to prevent greenwashing and protect consumers from deceptive marketing. The core purpose of this section is to ensure all environmental claims are clear, substantiated, and honest. Advertisers must avoid vague terms like “eco-friendly” and back up any absolute or comparative claims with verifiable data.

The code also mandates that claims consider a product’s full life cycle, preventing companies from cherry-picking data to create a false impression of sustainability. It further prohibits deceptive practices, such as presenting a divided scientific opinion as a universal fact or highlighting the absence of an ingredient that is not typically found in competitors’ products. This self-regulatory system, managed by the Advertising Standards Malaysia (ASA Malaysia) provides an accessible and efficient mechanism for the public to file complaints, allowing for the swift removal of misleading advertisements without the complexities of a formal court process.

National Sustainable Reporting Framework (NSRF)

This framework was developed by the Malaysian Securities Commission (SC) to standardize and enhance the reliability of sustainability disclosures. By adopting the International Sustainability Standards Board (ISSB) standards (IFRS S1 and S2), the NSRF ensures that companies provide consistent and comparable information, which makes it more difficult for businesses to exaggerate their environmental claims. This standardization promotes transparency and fosters a more trustworthy market environment.

Besides, the NSRF will eventually mandate external assurance for sustainability claims, beginning with a focus on greenhouse gas emissions. This phased-in approach to independent verification is a direct and powerful measure against greenwashing, as it ensures that reported data is based on genuine actions rather than just marketing rhetoric. To support this transition, the SC has also provided guidance for company directors, such as “Navigating the Transition: A Guide for Boards.” This proactive measure aims to integrate sustainability into corporate governance and decision-making from the top down, ultimately preventing deceptive environmental claims before they can be made.

International case law on Greenwashing

Volkswagen Dieselgate Case (United States)

The Dieselgate scandal, which became public in September 2015, severely damaged Volkswagen’s reputation and highlighted significant failures in corporate governance and ethical compliance. At the core of the scandal was the company’s use of “defeat devices” in its diesel engines which allowed vehicles to pass emissions tests by meeting regulatory standards, but which then produced much higher levels of nitrogen oxides (NOₓ) during normal driving. This systematic deception misled both regulators and the public (Barrett et al., 2015; Grange et al., 2020).

The implications of Dieselgate extend beyond simple legal violations, representing a fundamental breakdown in corporate accountability. This behavior has been identified by researchers as symptomatic of a broader problem in the automotive industry, where intense competition can pressure companies into unethical marketing practices to appear more environmentally friendly (Zhang et al., 2021). The scandal serves as a stark example of how corporate governance failures, rooted in an organization’s culture can enable such widespread and prolonged deception, resulting in a breach of consumer trust and corporate social responsibility (Poier, 2020; Zhang et al., 2021).

Australian Competition and Consumer Commission v. De Longhi Australia Pty. Ltd (Australia)

The Australian Competition and Consumer Commission (ACCC) took action against De Longhi for deceptive advertising regarding the energy efficiency and consumption of its products. The ACCC alleged that De Longhi’s claims of superior energy performance, which suggested lower energy costs for consumers, were not supported by adequate or real-world evidence (Carey et al., 2017; Kemp, 2022).

The court’s decision highlighted the critical importance of truthful marketing and corporate integrity, especially as consumer interest in sustainability grows. The case exposed De Longhi’s testing methods as insufficient to back its advertising claims, bringing to light a form of greenwashing. The outcome underscored the crucial role of regulatory bodies like the ACCC in protecting consumers from deceptive practices and ensuring that environmental claims are verifiable and accurate (Santos et al., 2022). This ruling has become a significant benchmark for corporate responsibility and transparent marketing in the realm of environmental performance.

Fossielvrij NL v KLM (Netherland)

The Amsterdam District Court ruled that KLM’s “Fly Responsibly” campaign was misleading. The court found that the campaign gave a false impression that flying with KLM was a sustainable choice, without accurately representing the significant environmental impact of the airline’s operations.

The ruling was based on Dutch consumer protection laws, which forbid false advertising. The court stated that KLM’s campaign didn’t sufficiently disclose the environmental burden of air travel, which accounts for about 2.5% of global carbon emissions and is expected to increase (Dolšak & Prakash, 2022). By implying a level of sustainability that was not supported by its actual practices, the airline misled consumers who are becoming more environmentally conscious.

This case sets a precedent for how companies can market sustainability. The decision highlights the growing trend of holding businesses accountable for their environmental claims, forcing corporations and other airlines to be more truthful in their advertising (Ekasari et al., 2024). The ruling emphasizes the need for honest communication that aligns with a company’s actual practices, reinforcing consumer rights and corporate responsibility.

Australian Securities & Investments Commission v. LGSS Pty Ltd (Australia)

An Australian federal court fined superannuation fund trustee LGSS (Active Super) A$10.5 million for greenwashing. Australia’s regulator, the Australian Securities & Investments Commission (ASIC), sued the company, alleging that it made misleading claims from 2021 to 2023. Active Super had marketed itself as an ethical fund that had eliminated investments in areas like gambling, coal mining and oil tar sands. However, ASIC found that the fund held investments in companies from those very sectors, including Russian investments, after it claimed to have restricted them (Taylor, 2024).

The court’s judgment found that the company’s breaches were serious and that LGSS benefited by attracting investors who were seeking ethical investment options. The judge stated that as a result of the greenwashing, these investors lost the opportunity to invest in accordance with their investment values. This ruling sends a strong message to other financial firms that they must have evidence to back their claims about environmental, social, and governance (ESG) investments (Taylor, 2024).

Australian Securities and Investments Commission v. Vanguard Investments Australia Ltd. (Australia)

The ASIC sued Vanguard Investments Australia Ltd. for greenwashing in relation to its Ethically Conscious Global Aggregate Bond Index Fund. ASIC alleged that Vanguard misled investors by claiming the fund screened out investments in companies involved in fossil fuels, tobacco, alcohol, and other controversial industries (Ashurst, n.d.).

The court found Vanguard’s claims were misleading because a significant portion of the fund’s securities were not actually screened against the stated ESG criteria. Moreover, the screening process had substantial limitations, as it did not cover all companies in the fund or certain industries like fossil fuel transportation. Besides, Vanguard’s public statements, including in its Product Disclosure Statements and on its website, were not accurate (Ashurst, n.d.).

DISCUSSION

The primary legal framework governing company disclosures in Malaysia is the CA 2016, which mandates that companies provide accurate information in their financial reports. While this Act does not specifically mention greenwashing, any misleading information regarding a company’s environmental practices could be construed as a violation of these disclosure requirements (Ramaiah & Hussein, 2022). Moreover, while there are no laws targeting greenwashing per se, efforts are underway to enhance corporate governance and sustainability reporting in Malaysia. For instance, the Malaysian Code on Corporate Governance encourages companies to adopt sustainable practices and transparency in their reporting, which implicitly pushes firms to avoid greenwashing. However, some experts argue that the existing frameworks lack the rigor needed to enforce meaningful compliance and deter greenwashing (Li et al., 2024).

The regulatory bodies, such as the Securities Commission Malaysia, have also started to emphasize the importance of ESG disclosures within the capital markets, which could lead to more stringent scrutiny of corporate behaviors surrounding greenwashing. However, the absence of explicit laws leaves a gap that companies can exploit, whereby they may engage in misleading practices without facing direct legal repercussions.

Additionally, external pressures such as consumer advocacy and investor scrutiny could serve as informal checks against greenwashing behavior. The increasing awareness among investors about the authenticity of ESG disclosures reflects a growing expectation for corporate honesty regarding environmental impacts. While there is no specific law addressing greenwashing in Malaysia, existing regulations regarding corporate disclosures imply that misleading environmental claims could be subject to legal challenges. Furthermore, ongoing developments in corporate governance and investor sentiment regarding ESG disclosures suggest a potential shift toward enhanced accountability for companies engaging in greenwashing practices.

In particular, the current Malaysian framework is not sufficient to fully protect consumers from greenwashing. While several laws and guidelines can be used to address deceptive environmental claims, there is no specific law that directly targets greenwashing. The existing regulations have limitations and a more comprehensive approach is needed to effectively safeguard consumer rights and promote corporate accountability.

The most significant gap is the absence of a dedicated law against greenwashing. This leaves room for companies to exploit the gray areas and engage in misleading practices without facing direct legal repercussions. The legal framework relies on applying general laws such as the Contracts Act 1950 and the Consumer Protection Act 1999 (CPA 1999), to greenwashing cases. Consequently, this can be challenging for consumers, as they must prove specific elements like a contractual relationship and reliance on the misleading statements which may not always be straightforward.

While the Companies Act 2016 (CA 2016) imposes a duty of care on directors, some experts argue that the existing frameworks lack the necessary rigor to enforce meaningful compliance and deter greenwashing effectively. The current push for ESG reporting often overlooks the need for rigorous verification processes, which allows for the possibility of companies presenting favorable narratives while downplaying negative impacts.

Meanwhile, the Malaysian Code of Advertising Practice is a self-regulatory framework and Bursa Malaysia does not currently mandate external assurance for sustainability statements. Although this is changing, the absence of mandatory, third-party verification reduces the credibility of corporate claims and allows companies to engage in greenwashing.

CONCLUSIONS

The absence of a robust legal framework in Malaysia allows greenwashing to persist, affecting both consumer trust and sustainability initiatives. A more comprehensive regulatory approach is needed to penalize deceptive claims while promoting transparency and corporate accountability. Strengthening legal provisions, aligning with global best practices, and fostering consumer awareness are essential steps to mitigate greenwashing and uphold consumer protection in Malaysia.

While the current laws have provisions that could potentially address misleading practices via CA 1950, CPA 1999 and CA 2016, they lack a comprehensive and explicit framework specifically targeting greenwashing. The existing legal structures do not adequately encompass the complexities and nuances of greenwashing, which can lead to consumer deception and undermine genuine sustainability efforts. Therefore, there is a pressing need for Malaysian authorities to develop more robust regulations that specifically address greenwashing, ensuring that both corporate claims and consumer protections are effectively managed.

Hence, future research should focus on a comparative analysis of greenwashing regulations in Malaysia and the European Union (EU). This would involve a detailed examination of the EU’s recently adopted Directive on Empowering Consumers for the Green Transition, also known as the EU Greenwashing Directive. By comparing the two frameworks, we can identify key differences and opportunities for Malaysia to strengthen its own legal provisions. The EU Greenwashing Directive is a critical benchmark because it provides a clear, robust, and legally binding framework. It aims to empower consumers by ensuring that environmental claims are substantiated, transparent, and verifiable.

Additionally, the imperative for regulatory reform in Malaysia is particularly urgent to curb greenwashing practices and protect consumers’ rights. Existing regulations often lack rigorous enforcement, allowing misrepresentation without substantial repercussions, which raises concerns about genuine corporate commitment to sustainability. Instead, stronger enforcement strategies can deter non-compliance and promote accountability. By fostering transparency, accountability and consumer empowerment, legal interventions can mitigate the adverse effects of greenwashing, bolstering consumer confidence and advancing sustainable economic development.

ACKNOWLEDGMENT

The authors would like to acknowledge and express their sincere gratitude to School of Business and Economics, Universiti Putra Malaysia for providing the research grant (Grant No. GPSPE/2024/6303862) that made this study possible.

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