Criminal liability for greenwashing: an industry perspective involving a Luxembourg fund

Jean-Luc Putz
Arendt & Medernach, Luxembourg

jean-luc.putz@arendt.com

‘Invest in our fund and support the transition to a carbon-neutral economy.’ ‘Join us in building a greener future. Our fund invests only in environmentally responsible companies.’ ‘We exclude all fossil fuels and controversial industries.’

Would such statements influence your investment decision? Would you trust them or would you view them with suspicion? Do these promises matter more to you than financial returns?

Greenwashing entails making false or exaggerated sustainability claims to appear more environmentally responsible than the reality. 

Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), defines greenwashing as a ‘deceptive practice whereby certain companies present themselves as more sustainable than they actually are’. This misleads investors into believing their capital supports environmentally friendly purposes when, in reality, it may not.[1] The practice erodes trust and undermines the positive impact genuine sustainable finance aims to achieve.The CSSF has established a financial literacy website (letzfin.lu), with a dedicated section on sustainable investments, including alerts on greenwashing risks through the provision of frequently asked questions (FAQs), videos and promotional materials, such this one (‘Make sure your financial products are truly green’):

Promotional material highlighting the risks of greenwashing. Courtesy of the CSSF.

Luxembourg’s green finance leadership

Luxembourg holds a commanding position on green finance, leveraging its status as a leading global financial centre. The country has emerged as a major hub for sustainable investment funds and green securities, supported by government strategy and market demand.

Luxembourg domiciles thousands of investment funds, many with environmental or social mandates. Environmental, social and governance (ESG) assets represent 73.3 per cent of Luxembourg undertakings for collective investment in transferable securities (UCITS) assets under management (€4.4tn).[2]

In recent years, alternative investment funds (AIFs) have experienced sustained growth, progressively increasing their share of assets under management compared to UCITS. Although official data is unavailable, an estimated one-third of AIF assets are ESG-related,[3] with growth rates reflecting strong investor appetite. Luxembourg also hosts the majority of European long-term investment funds (ELTIFs), designed to channel capital into long-horizon projects, including green infrastructure.

Meanwhile, the Luxembourg Stock Exchange (LuxSE) has become a global focal point for green finance. In 2016, LuxSE launched the Luxembourg Green Exchange (LGX), the world’s first platform dedicated exclusively to sustainable securities. LGX has issued over €1.3tn across more than 2,400 labelled bonds and 3,400 securities.[4] The exchange imposes stringent reporting and transparency requirements, helping establish market standards.

The regulatory framework and anti-greenwashing measures

The rapid growth of green finance has prompted European and Luxembourg regulators to introduce frameworks to combat greenwashing and protect investors. Key EU regulations include the Sustainable Finance Disclosure Regulation (SFDR)[5] (imposing standardised sustainability disclosure obligations on asset managers and investment funds) and the EU Taxonomy Regulation[6] (defining which economic activities qualify as environmentally sustainable). Luxembourg’s financial regulator, the CSSF,[7] has proactively implemented and supplemented this EU framework through the issuance of various circulars, including Circular 24/863,[8] which aligns with the European Securities and Markets Authority’s (ESMA) guidance on fund naming practices.

This overview merely scratches the surface of the complex regulatory framework governing green finance. These rules fall under the supervision of the regulator, and any breach may give rise to substantial administrative measures and sanctions. Enforcement is underway: one fund manager was fined for failing to implement sufficient processes ensuring that ESG characteristics and sustainability claims were effectively supported and accurately reflected in investment documentation and the firm’s internal procedures.[9] Our focus, however, is criminal law, less detailed and granular than regulatory rules, but no less consequential.

Ancient laws for modern realities

‘Greenwashing’ comes directly from the English language. Although criminal law in Luxembourg is anchored in French, we observe (as in France and Germany) a growing tendency in public discourse to adopt Anglicisms for new offences: doxing, phishing, grooming, spoofing…and greenwashing. French offers alternatives (here, ‘éco-blanchiment’), but such terms prove far less appealing.

Greenwashing is not an offence as such. And rightly so. Too often, legislatures react to new phenomena by creating additional offences without considering existing frameworks or internal coherence.

Once we criminalise greenwashing specifically, we lag behind a reality that has spawned numerous related concepts: bluewashing (sustainability claims), socialwashing (social responsibility), genderwashing, pinkwashing (LGBTQ+), purplewashing (feminism), whitewashing and others. And there are still colours available, for example, yellow, grey and orange have not yet inspired creative minds.

The suffix ‘-washing’ originates from ‘whitewashing’, meaning to cover something up in order to make it appear cleaner or better than it is. All these terms describe presenting a reality as more ethical, sustainable, inclusive or responsible than it truly is: appearance over substance. Behind the variety of colour-coded labels lies the same mechanism: false or misleading representations made to secure an economic, reputational or regulatory advantage at the expense of consumers, investors or authorities. Legally, it is reduced to classic notions of fraud and deception.

Criminal law must evolve with society, but not hastily, lest it becomes quickly obsolete. Moreover, the underlying criminal behaviours and motivations remain constant. Within the limits of strict interpretation of criminal law, case law can accompany this evolution. Where necessary, the legislature may fine tune existing definitions without reinventing the wheel. Relying on established offences preserves the legal certainty that has been built over decades of jurisprudence and scholarship.

Traditional economic offences, thus, frequently capture new forms of misconduct, including cyber-related and financial crimes.

In practice, greenwashing can take many forms, from misleading marketing and fund names to selective disclosures and outright fraud. Some schemes raise capital under the guise of sustainable projects but divert funds elsewhere, including through fraudulent carbon credit markets that have been heavily abused. Other risks include deliberate misrepresentation or forged documentation that misleads investors: fake sustainability reports, manipulated ESG classifications or fabricated certifications. Criminals may also use green projects as fronts for money laundering or to siphon off public subsidies intended for environmental initiatives. Finally, corruption can enter the picture when firms obtain ‘green’ licences, labels or clearances through bribery.

Thus, many of the ‘ancient’ criminal offences may apply. Fraud (escroquerie; Article 496 of the Criminal Code (Code Pénal or CP)) covers situations where investors are induced to subscribe through fraudulent manoeuvres or false ESG claims that determine their investment decision. Breach of trust (abus de confiance; Article of the 491 of the CP) could arise where investors entrust money for a stated sustainable purpose and the manager knowingly deviates from these commitments. Forgery (faux et usage de faux;  Articles. 196–197 of the CP) may be triggered when ESG-related reports or data (eg, carbon reduction figures in annual reports) are intentionally falsified to present a greener profile than the reality.

Beyond the CP, other offences may also apply. Misleading commercial practices (pratiques commerciales trompeuses[10]) penalise ESG-related advertising that deceives investors or competitors and affects their economic behaviour, even outside consumer contexts. For listed funds, market manipulation (manipulation de marché[11]) may be relevant when false or misleading ESG disclosures impact UCITS listed unit prices and provide a financial advantage, for example by overstating an asset’s ‘carbon neutrality’ to boost subscriptions.

Investors who qualify as consumers may additionally rely on the misleading practice provisions set out in the Consumer Code.

Greenwashing as a consumer law offence

We have just seen that greenwashing can be prosecuted under criminal law without the need for a standalone offence. Nevertheless, a new provision has now entered the scene, driven by developments in European consumer protection law.

Indeed, in 2024, Europe adopted the so-called ‘Green Transition’ Directive (or ‘EmpCo’, the Empowering Consumers Directive), adapting the existing framework of consumer protection rules.[12] This Directive seeks to empower consumers in regard to the green transition by ensuring they can make informed, sustainable purchasing decisions, thereby contributing to more environmentally responsible consumption patterns. To that end, it aims to strengthen consumer and environmental protection in the internal market by closing a regulatory gap: many existing consumer protection rules did not sufficiently address misleading environmental or social claims; a lack of transparency around durability, repairability or product longevity, nor practices that encourage premature obsolescence. The Directive, thus, has a broader scope than ‘greenwashing’ alone.

The Directive rests on the principle that for the internal market to function effectively, consumers must receive clear, accurate and reliable information about the social, environmental or circular attributes of products and services. Simultaneously, it advances environmental policy objectives.

To accomplish these objectives, the Directive amends two existing pillars of EU consumer law (the Unfair Commercial Practices Directive[13] and the Consumer Rights Directive[14]) through several mechanisms: (1) a broadening of the definition of ‘misleading commercial practices’; (2) expressly prohibiting a range of practices associated with so-called ‘greenwashing’, including the use of generic environmental claims or unverified sustainability labels; and (3) mandating that traders furnish prospective purchasers, before a purchase is made, with specific, reliable information on the durability, repairability, availability and duration of software updates.

Its scope extends beyond the financial sector; instead adopting a broader approach grounded in consumer protection law. It encompasses all products, both goods and services, offered to consumers. The Consumer Code defines a consumer as any natural person acting for purposes unrelated to commercial, industrial, craft or professional activities.

This personal scope limitation excludes a substantial portion of investment fund distribution activities that fall outside of the scope of the regime. This notably affects the rapidly growing sector of AIFs, which, as a rule, are not intended for retail or non-sophisticated investors.

This limitation should not preclude an examination of the content and scope of these new rules, as their underlying principles may be useful to guide relationships between professionals (for example, with respect to misleading commercial practices or unfair competition, as mentioned above).

A bill has been submitted to implement the Green Transition Directive in Luxembourg.[15] Concerning greenwashing, multiple forms of conduct will be expressly criminalised.

Misleading commercial practices

The definition of misleading practices (comprising false or deceptive information) is broadened to include product characteristics relating to ‘environmental or social features’ and circularity (durability, reparability and recyclability). Environmental claims regarding prospective environmental performance shall be deemed misleading if absent of clear, objective, publicly accessible and verifiable commitments set out in a detailed and realistic implementation plan, including measurable, time-bound targets. The legislation defines an environmental claim expansively as any ‘message or representation which is not mandatory […] in any form […] in the context of a commercial communication, and which states or implies that a product, product category, brand or trader has a positive or zero impact on the environment or is less damaging to the environment than other products, product categories, brands or traders, or has improved its impact over time’.

Generic environmental claims lacking certification (such as the use of ‘climate friendly’) are prohibited.

Commercial practices that are in all circumstances considered unfair

The existing catalogue of inherently unfair commercial practices (presently comprising 27 items) will be augmented by 11 additional prohibitions, including:

• displaying a sustainability label that is not based on a certification scheme or is not established by public authorities;
• claiming, based on the offsetting of greenhouse gas emissions, that a product has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions; and
• falsely claiming that under normal conditions of use a product has a certain durability in terms of usage time or intensity, etc.

The Directive provides consumer protection authorities, consumer and environmental associations and consumers themselves with legal instruments to combat greenwashing and promote genuine sustainable consumption throughout the EU. The Directive requires Member States to establish effective enforcement mechanisms.

The Consumer Code provides various enforcement instruments (injunctions, compliance orders, etc). Notably, the transposition of a recent European Directive[16] has introduced collective actions in consumer matters[17] into Luxembourg law. This procedural innovation remains untested; its efficacy will emerge as courts develop the requisite jurisprudence

Given the focus on criminal law, it is worth emphasising that most of the rules set out on the Consumer Code come with criminal sanctions. Violations of these provisions incur a fine ranging from €251 to €120,000 (Article L.122-8 of the Consumer Code) or up to €240,000 for legal persons. When imposing fines, the authorities will weigh up multiple factors, including the gravity and duration of the offence, any mitigation actions adopted, any previous infringements, the financial benefits gained and any penalties imposed in other Member States.

Beyond monetary sanctions, criminal proceedings entail their customary consequences. Consumers and authorised associations may join proceedings as civil parties. Infringing goods are subject to seizure and confiscation, together with any proceeds or benefits derived from the violation.

These offences additionally constitute predicate offences for money laundering purposes. Put differently: greenwashing may itself generate money laundering liability, greenwashing–whitewashing, as it were.

Conclusion

Fraudsters may exploit public enthusiasm and political support for ‘green’ investment projects through the use of various schemes. Luxembourg’s jurisdiction faces heightened exposure given the magnitude of the assets under management and its green focus. While criminal convictions remain absent to date, both public awareness and the prosecutorial focus are nascent. A robust criminal enforcement framework, even if infrequently invoked, remains indispensable for preserving investor confidence and ensuring capital flows towards genuinely beneficial projects.