1. Introduction

Greenwashing in energy finance refers to the practice of presenting an energy company, project, financial product, bond, fund, loan or investment as environmentally sustainable when the underlying activities, financing arrangements or environmental performance do not justify that representation.

The problem is particularly important in the energy sector because enormous amounts of capital are being directed toward renewable energy, hydrogen, energy efficiency, carbon reduction, transition finance and other climate-related projects. A financial product may therefore attract investors by using terms such as “green,” “sustainable,” “clean energy,” “net zero,” “low carbon” or “climate-aligned” without providing sufficient evidence for those claims.

Modern regulation attempts to address this problem through:

mandatory sustainability disclosures;

taxonomy-based classification;

green-bond standards;

ESG fund requirements;

verification and assurance;

anti-misleading-advertising rules;

fiduciary and stewardship obligations;

securities-market fraud and disclosure provisions; and

regulatory enforcement and investor remedies.

The European Union, United Kingdom and India have developed particularly significant frameworks. The EU's SFDR requires financial-market participants to disclose how sustainability risks and environmental/social impacts are considered, while the UK FCA's anti-greenwashing rule requires sustainability claims to be fair, clear and not misleading. (Finance)

2. Meaning of Greenwashing in Energy Finance

Greenwashing has two interconnected dimensions.

A. Corporate/project-level greenwashing

An energy company may claim that a project:

substantially reduces greenhouse-gas emissions;

is renewable or low-carbon;

is aligned with net-zero objectives;

replaces fossil-fuel generation; or

produces environmentally beneficial outcomes,

while important information concerning emissions, methane leakage, lifecycle impacts, fossil-fuel dependence or transition risks is omitted.

B. Financial-product-level greenwashing

A bank, investment manager or issuer may market:

a green bond;

ESG fund;

sustainable investment fund;

green loan;

transition-finance product; or

climate-focused portfolio

as environmentally beneficial even though the actual allocation of capital does not correspond with the stated sustainability objective.

The second category is particularly important because investors are not merely purchasing electricity or energy infrastructure—they are purchasing financial claims based partly on environmental representations.

3. Why Greenwashing Is a Legal Problem

Greenwashing can create several legal problems.

3.1 Misrepresentation

If an issuer makes a materially false statement concerning the environmental characteristics of an investment, investors may have been induced to invest on the basis of inaccurate information.

3.2 Securities-market misconduct

Where environmental information is material to an investment decision, deliberately false or misleading sustainability information can potentially fall within existing securities-law concepts of:

fraud;

market manipulation;

misleading statements;

inadequate disclosure; or

deceptive conduct.

Indian securities jurisprudence has repeatedly emphasised the importance of truthful information and investor protection. (Sci API)

3.3 Consumer/investor protection

A retail investor may reasonably understand a product marketed as “green” or “sustainable” to have particular environmental characteristics. Regulators therefore increasingly regulate the overall impression, not merely the literal accuracy of individual sentences.

The FCA, for example, specifically states that visual presentation, imagery, logos and colours can contribute to the overall impression created by a sustainability claim. (FCA)

4. EU Regulation of Greenwashing

4.1 Sustainable Finance Disclosure Regulation

The EU Sustainable Finance Disclosure Regulation (SFDR) is one of the central instruments addressing sustainability-related claims in financial markets.

It requires financial-market participants and advisers to disclose sustainability information at both entity and product levels. This includes information about:

sustainability risks;

investment strategies;

environmental and social characteristics;

adverse sustainability impacts; and

the sustainability objectives of relevant products.

The regulation has applied since March 2021. (Finance)

An important point is that SFDR is fundamentally a disclosure regime. It does not simply require every investment product to be green. Instead, it requires firms to substantiate and explain the sustainability characteristics they attribute to financial products.

4.2 EU Taxonomy

The EU Taxonomy provides a classification system for determining which economic activities can qualify as environmentally sustainable under specified conditions.

For energy finance, this is particularly important because investors can compare claims concerning:

renewable electricity;

electricity generation;

energy efficiency;

hydrogen;

transmission and distribution infrastructure;

storage; and

other transition activities

against common technical criteria.

This reduces the ability of an issuer to define “green” entirely according to its own marketing terminology.

5. European Green Bond Standard

Green bonds are especially vulnerable to greenwashing because investors may assume that proceeds labelled “green” will finance environmentally beneficial projects.

The European Green Bond Standard (EuGB) establishes a voluntary EU-wide standard intended to provide greater transparency and address greenwashing. It relies substantially on the EU Taxonomy and includes transparency requirements and supervision of external reviewers by ESMA. (Finance)

A typical regulatory structure therefore involves:

Green bond issuance → use-of-proceeds requirements → project eligibility → reporting → external review → regulatory supervision.

This creates an evidentiary chain connecting the financial instrument with the environmental activity it claims to finance.

6. UK Anti-Greenwashing Regulation

The UK Financial Conduct Authority has developed one of the clearest direct anti-greenwashing rules for financial services.

The FCA's anti-greenwashing rule came into force on 31 May 2024 and applies to sustainability-related claims made by FCA-authorised firms concerning their products and services. Claims must be fair, clear and not misleading. (FCA)

The FCA's broader Sustainability Disclosure Requirements regime also introduced:

sustainability investment labels;

naming and marketing requirements;

consumer-facing disclosures;

pre-contractual disclosures; and

requirements concerning sustainability characteristics.

(FCA)

Example

Suppose a bank advertises:

“Your savings will finance a greener future.”

But only a small portion of deposits actually finances renewable-energy projects while the remaining funds finance conventional activities.

The legal problem is not necessarily solved by adding a technically correct footnote. The regulator may consider the overall impression communicated to consumers.

The FCA's guidance specifically warns against broad or vague sustainability terminology that creates an impression that a product has sustainability characteristics it does not actually possess. (FCA)

7. Greenwashing Regulation in India

India does not have a single comprehensive statute titled a “Greenwashing Act.” Instead, greenwashing in energy finance is addressed through several overlapping securities, disclosure, mutual-fund, ESG and environmental frameworks.

7.1 SEBI and ESG disclosures

SEBI has progressively strengthened ESG disclosure requirements through the Business Responsibility and Sustainability Reporting (BRSR) framework.

SEBI's policy documents expressly recognise that greenwashing can occur both:

at the investee-company level; and

at the investment-scheme level.

SEBI has therefore considered assurance and verification mechanisms for sustainability information as part of the response to greenwashing risks. (Securities and Exchange Board of India)

7.2 ESG mutual funds

SEBI introduced a specific framework for ESG-oriented mutual-fund schemes in 2023.

The framework establishes requirements concerning ESG investment strategies and disclosures, thereby reducing the possibility that an investment fund can use ESG terminology without explaining how its investment strategy actually incorporates ESG considerations. (Securities and Exchange Board of India)

SEBI-related fund disclosures also expressly identify greenwashing as the risk of conveying a false impression or misleading information concerning environmental characteristics. (Securities and Exchange Board of India)

7.3 ESG debt securities

SEBI has also developed a framework for ESG debt securities other than green debt securities, illustrating the expansion of sustainability-related regulation beyond conventional green bonds. (Securities and Exchange Board of India)

This is significant for energy finance because debt financing is fundamental to:

renewable-energy projects;

battery-storage facilities;

transmission infrastructure;

green hydrogen;

energy-efficiency projects; and

transition infrastructure.

8. Indian Securities Law as an Anti-Greenwashing Mechanism

Even where a particular sustainability representation is not governed by a dedicated greenwashing rule, existing securities law can be relevant.

The SEBI Act and PFUTP Regulations prohibit fraudulent and misleading conduct affecting investors.

The Supreme Court has repeatedly emphasised that securities regulation exists to protect investors and maintain market integrity. In SEBI v. Rakhi Trading Pvt. Ltd., the Supreme Court stressed that fraud, deceit and artificiality have no legitimate place in the securities market and highlighted disclosure and transparency as foundations of market integrity. (Sci API)

This principle can be applied conceptually to sustainability disclosures: if environmental claims are material to investment decisions, deliberately misleading investors about those claims can raise traditional securities-law concerns even though the misconduct is described using modern terminology such as “greenwashing.”

9. Important Case Law

Case 1: SEBI v. Rakhi Trading Pvt. Ltd.

Supreme Court of India

This case concerned market manipulation rather than greenwashing specifically. Its importance lies in the Supreme Court's broader approach to securities-market integrity.

The Court emphasised:

investor protection;

transparency;

disclosure;

prevention of deceptive devices; and

the duty of SEBI to maintain an orderly securities market.

(Sci API)

Relevance to greenwashing

The case establishes an important regulatory principle: investor confidence depends upon truthful and transparent information.

Consequently, where environmental claims materially influence investment decisions, sustainability misinformation can potentially be examined within the wider framework of securities-market integrity.

10. Durga Shankar Maity v. SEBI

The Securities Appellate Tribunal considered false and misleading statements in an IPO prospectus.

The case involved failure to disclose material information and inaccurate statements concerning project arrangements and financing. The Tribunal upheld findings that such misleading disclosures violated the applicable securities regulations. (Indian Kanoon)

Relevance

Although not an environmental case, its reasoning is highly relevant to green finance.

Imagine an energy company issuing a green bond while failing to disclose material facts about:

the actual use of proceeds;

fossil-fuel components of the project;

environmental liabilities;

emissions;

project delays; or

material sustainability risks.

The underlying legal principle is similar: material information cannot be deliberately concealed while presenting an investment opportunity in a misleading manner.

11. V.C.G. & Co. v. SEBI

In this matter, the securities regulator dealt with false information concerning utilisation of IPO proceeds.

The tribunal considered whether information certified for investors was false and whether its dissemination could influence investment decisions. (Indian Kanoon)

Relevance to green finance

This reasoning has an important application to green bonds.

If a bond prospectus says:

“100% of proceeds will finance renewable-energy projects,”

but the proceeds are actually diverted to unrelated activities, the issue involves more than merely inaccurate environmental marketing. It potentially concerns false disclosure concerning the use of investor capital.

12. SEBI v. Ajay Agarwal

This case involved alleged misstatements and non-disclosure of material information in a prospectus.

The Supreme Court dealt with the regulatory significance of misleading information provided to investors. (Indian Kanoon)

Green-finance significance

Environmental information can become material information where it affects:

project viability;

regulatory compliance;

carbon liabilities;

government subsidies;

environmental approvals;

financing costs;

stranded-asset risks; or

the investment strategy of an ESG fund.

Thus, greenwashing may become a conventional material-disclosure problem.

13. René Repasi v European Commission, Case T-628/22

This EU General Court case concerned challenges to the EU Taxonomy's treatment of economic activities relating to fossil gas and nuclear energy.

The Court dismissed the action as inadmissible because the applicant, a Member of the European Parliament, was not directly concerned in the required legal sense. (EUR-Lex)

Importance

Although it was not a greenwashing enforcement case, it illustrates the legal controversy surrounding what qualifies as environmentally sustainable activity.

This is crucial to energy finance because classification disputes can arise concerning:

natural gas;

nuclear power;

hydrogen;

bioenergy;

carbon capture;

transitional activities.

The case demonstrates that the legal question is not merely whether an activity sounds “green,” but whether it satisfies the legally prescribed sustainability criteria.

14. Greenwashing and Green Bonds

A green bond normally creates three major legal questions:

1. What qualifies as a green project?

The regulator or standard-setter needs objective eligibility criteria.

2. Where will the money go?

The issuer must identify the intended use of proceeds.

3. Did the issuer actually use the money as promised?

Post-issuance reporting and external verification are therefore essential.

A robust green-bond framework can be represented as:

Eligibility criteria → disclosure → issuance → allocation of proceeds → impact reporting → verification → regulatory oversight.

Failure at any stage can increase greenwashing risk.

15. Greenwashing in Energy Project Finance

Consider a hypothetical renewable-energy company seeking ₹1,000 crore of project finance.

It describes the project as:

“A 100% clean-energy transition project.”

However, suppose the project actually involves:

significant coal-generated electricity during operation;

substantial fossil-fuel backup;

inadequate disclosure of lifecycle emissions;

carbon offsets used instead of actual reductions; and

an environmental impact materially different from the investor's understanding.

The financing documents and offering materials could create several regulatory questions:

Was the sustainability claim accurate?

Was relevant environmental information material?

Were the claims sufficiently substantiated?

Was the investment strategy consistent with the stated objective?

Were proceeds used as represented?

Were third-party ESG ratings reliable?

Were investors given sufficient risk information?

16. Role of Third-Party ESG Ratings

Greenwashing does not necessarily originate from the issuer.

It can also arise from:

ESG rating agencies;

sustainability consultants;

verification providers;

external reviewers;

index providers; and

data vendors.

This creates a verification-chain problem.

If an energy company provides inaccurate environmental data and an ESG provider simply reproduces it without adequate verification, the financial market may generate a misleading sustainability signal.

SEBI materials specifically recognise risks associated with third-party ESG scores, including subjectivity and insufficient independent verification. (Securities and Exchange Board of India)

17. Fiduciary Duties and Greenwashing

Asset managers have responsibilities toward investors.

Where an investment fund promises to follow a particular ESG strategy, there can be questions concerning:

consistency between the mandate and actual investments;

monitoring of portfolio companies;

voting and stewardship;

conflicts of interest;

disclosure of exclusions;

engagement strategies; and

sustainability-risk management.

Greenwashing therefore potentially represents a governance failure, not simply an advertising failure.

18. Transition Finance and Greenwashing

The problem becomes especially difficult with transition finance.

A coal-intensive company might issue bonds to finance:

emissions-reduction technology;

efficiency improvements;

carbon capture;

renewable-energy expansion; or

eventual retirement of coal assets.

Calling such a bond “green” may create classification difficulties because the underlying company may still have significant emissions.

The legal solution increasingly involves distinguishing:

Green finance → financing activities already satisfying specified environmental criteria.

Transition finance → financing credible improvements toward a lower-carbon business model.

This distinction is important because otherwise transition claims can become a pathway for greenwashing.

19. Carbon Neutrality Claims

Energy-finance products may also make claims such as:

“carbon neutral”;

“net zero”;

“climate positive”; or

“zero-emission investment.”

Regulation increasingly focuses on whether such claims are supported by actual emissions reductions rather than simply purchasing offsets.

This broader regulatory direction is also visible in European consumer-protection measures addressing environmental claims. (Reuters)

For financial institutions, the implication is that a portfolio should not automatically be described as “net zero” merely because the institution purchases offsets while the underlying portfolio continues generating substantial emissions.

20. Major Regulatory Principles

Effective greenwashing regulation in energy finance should therefore rest on several principles.

A. Accuracy

Environmental claims must correspond with actual environmental characteristics.

B. Materiality

Material environmental information must not be omitted.

C. Comparability

Investors should be able to compare competing sustainability products.

D. Substantiation

Claims should be supported by reliable evidence.

E. Traceability

Capital should be traceable from the financial instrument to the underlying energy activity.

F. Verification

Independent verification should be used where appropriate.

G. Consistency

Marketing claims, investment strategy, portfolio composition and reporting should tell the same story.

H. Accountability

Issuers, fund managers, advisers and other relevant actors should have clearly defined responsibilities.

21. Challenges in Enforcement

Several difficulties remain.

21.1 Lack of a universal definition

“Green,” “sustainable,” “transition” and “net zero” can have different meanings under different regulatory frameworks.

21.2 Data problems

Energy companies may lack reliable information concerning:

Scope 3 emissions;

methane leakage;

lifecycle emissions;

supply-chain impacts; and

climate-related physical risks.

21.3 Different taxonomies

An activity may qualify as sustainable under one framework but not another.

21.4 Future-oriented claims

Statements concerning future carbon reductions are difficult to verify at the time of investment.

21.5 Enforcement gap

Rules may be stronger than enforcement practice. For example, the FCA reported in January 2025 that it had not yet contacted funds concerning breaches of its SDR anti-greenwashing or naming-and-marketing rules at that point. (FCA)

22. Comparative Position

23. Future Development of Greenwashing Law

Greenwashing regulation is likely to move from voluntary sustainability claims toward evidence-based financial regulation.

Future regulatory development is likely to emphasise:

mandatory ESG data assurance;

common environmental taxonomies;

machine-readable sustainability disclosures;

stronger regulation of ESG rating providers;

regulation of transition-finance claims;

lifecycle emissions accounting;

greater scrutiny of carbon-offset claims;

stronger green-bond verification;

liability for materially false sustainability statements; and

greater coordination between securities, banking and environmental regulators.

The EU itself has recognised that the SFDR has sometimes functioned as a de facto labelling system and proposed reforms aimed at reducing confusion and greenwashing risks. (Finance)

24. Conclusion

Greenwashing regulation in energy finance represents the convergence of environmental law, securities regulation, financial consumer protection and corporate disclosure law.

The central legal issue is not whether every investment must be environmentally sustainable. Rather, it is whether financial institutions, energy companies and investment products accurately represent their environmental characteristics and risks.

The EU has approached the problem through the SFDR, EU Taxonomy and European Green Bond Standard. The UK has introduced a particularly direct anti-greenwashing rule requiring sustainability claims to be fair, clear and not misleading. India has increasingly addressed the issue through SEBI's BRSR, ESG mutual-fund, ESG debt-security and securities-disclosure frameworks. (Finance)

The Indian cases such as SEBI v. Rakhi Trading, Durga Shankar Maity v. SEBI, V.C.G. & Co. v. SEBI and SEBI v. Ajay Agarwal are not “greenwashing cases” in the narrow sense. Their importance lies in the broader legal principles of truthful disclosure, prevention of deception, material information and investor protection, which can provide the legal foundation for addressing misleading sustainability claims in energy finance. (Sci API)

Ultimately, effective regulation requires that the chain “environmental claim → investment strategy → allocation of capital → actual environmental outcome” be demonstrable and verifiable. Where that chain breaks, greenwashing can undermine investor confidence, distort allocation of capital and weaken the credibility of the energy transition.