A 2020 EU survey found that 53% of environmental product claims by businesses were ‘vague, misleading or unfounded’. In response, The Guardian recently reported that draft EU and UK guidelines may trigger a crackdown on greenwashing claims. This piece of proposed legislation would require businesses to substantiate green claims about their products within 10 days or risk financial penalties.
Although severe financial penalties may be imposed, reputational damage will be what really harms a business in the long term. As a result, major financial institutions and manufacturers alike are quickly adding greenwashing into their risk calculations, demonstrating that adherence to ESG mandates is business-critical.
The new framework will require legal and non-legal teams across all verticals to ensure that they fulfil their ESG compliance responsibilities and prevent breaches of these new mandates. Organisations must be prepared to tackle this new challenge with modern technology. Without innovative technology like AI, important legal and enterprise data risks being siloed or lost across a business, making it difficult to respond to greenwashing claims in a timely manner. Businesses simply cannot take the risk of key information slipping through the cracks, particularly as stronger penalties are introduced.
Luminance’s AI-powered conceptual search and filtering capabilities allow users to rapidly analyse their entire contractual landscape. For instance, if a user was to search for the word ‘coal’ , Luminance’s AI would not only surface the exact word match, but also all relevant documents mentioning conceptually similar words, such as ‘emissions’ or ‘mines’. Areas of potential risk areas can also be identified during the contract negotiation process, with AI automatically flagging where key provisions, such as a counterparty’s commitment towards Net Zero, are missing.
Of course, ensuring compliance doesn’t just rest on the shoulders of the legal department – it should be a commitment made across all parts of the business. Procurement teams, for example, play a key role in assessing suppliers and analysing potential risks across supply chains. With Luminance, non-legal teams like Procurement can create ‘Gold Standard’ agreements via the self-service contract generation tool, ensuring that all internal standards and external regulations relating to ESG are met.
The new anti-greenwashing mandates are sure to cause strain on legal teams and non-legal teams alike. However, AI like Luminance will play a critical role in helping businesses maintain compliance with these new laws and ensure that companies can rapidly respond to greenwashing claims.
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