Environmental, social and governance (ESG) commitments have become important in corporate decision making, investment and commercial contracting.

As businesses compete to demonstrate sustainability, greenwashing, or the use of false, misleading, exaggerated or unsubstantiated environmental claims, has become a legal concern.

In the Philippines, such practices raise questions about corporate accountability, consumer protection, regulatory compliance and commercial dispute resolution.

This article focuses on commercial disputes arising from greenwashing in financial products and financing transactions. Accountability depends on linking the ESG claim to an applicable legal duty, the remedy sought and the forum authorised to grant it.

Greenwashing liability under Philippine law

Although Philippine law does not establish a statutory cause of action specifically designated as greenwashing, misleading environmental claims may attract liability under existing consumer protection, securities and contractual rules.

Republic Act No.11765, or the Financial Products and Services Consumer Protection Act (FCPA), governs covered providers’ dealings with financial consumers. Section 8(c) of the FCPA requires sufficient disclosure before contracting and makes providers legally responsible for statements in marketing and sales materials.

Republic Act No.8799, or the Securities Regulation Code (SRC), addresses securities disclosures and fraudulent transactions. Section 26 of the SRC prohibits specified fraudulent conduct, while sections 56 to 58 provide civil remedies for misstatements, omissions and fraudulent transactions.

Bangko Sentral ng Pilipinas (BSP) Circular No.1149 integrates sustainability considerations into covered bank investments and prohibits greenwashing by banks issuing sustainable bonds. Its definition includes misleading environmental information disseminated intentionally or unintentionally.

Securities and Exchange Commission (SEC) Memorandum Circular No.11 of 2022 establishes the Rules on Sustainable and Responsible Investment Funds. These regulate fund names, ESG strategies, disclosures and marketing, requiring sustainability claims to remain consistent with the fund’s disclosed investment approach and supporting information.

The Philippine Sustainable Finance Taxonomy Guidelines, adopted through BSP Circular No.1187 and SEC Memorandum Circular No.5 of 2024, provide a framework for classifying sustainable economic activities.

The Civil Code governs contractual ESG commitments and remedies for breach.

Contractual disputes over ESG commitments

Greenwashing may generate contractual disputes where sustainability representations influence investment decisions, supply agreements, financing arrangements or project commitments. Under the Civil Code, article 1159 requires performance in good faith, while article 1170 supports damages for contravening contractual obligations, subject to requirements governing the claim and loss.

For example, a borrower may covenant to use proceeds exclusively for projects meeting defined environmental criteria. Diversion to ineligible activities can breach that covenant. However, in a sustainability-linked loan, failure to meet an emissions target may trigger a pricing adjustment without constituting an event of default.

A misleading ESG statement inducing consent may support annulment in the Civil Code, particularly under articles 1330, 1338 and 1344 where serious fraud is established. Damages, acceleration, termination and indemnification likewise depend on applicable law and contractual terms.

Four inquiries guide actionability. First, identify the representation, omission or commitment. Second, determine whether it was false, unsupported, incomplete or misleading. Third, assess its materiality where required by the applicable cause of action. Fourth, establish the relevant statutory, regulatory or contractual duty, including any requirements concerning causation and loss.

Selecting the appropriate ESG dispute forum

The proper forum depends on the claim and relief sought. Complaints about regulated market conduct may be brought before the competent financial regulator. The FCPA also authorises the BSP and SEC to adjudicate certain financial consumer claims that are purely civil and seek only payment or reimbursement of up to PHP10 million (USD157,000), subject to jurisdictional and procedural requirements.

Private claims may proceed before courts or arbitral tribunals, subject to applicable jurisdictional rules. Republic Act No.9285, or the Alternative Dispute Resolution Act of 2004, supports arbitration where the dispute falls within a valid arbitration agreement.

An arbitral tribunal may have jurisdiction but may dismiss the claim for lack of contractual liability. Sustainability standards and regulatory findings may serve as evidence, but liability must ultimately be established under the governing law and agreement.

Conclusion

Greenwashing describes potentially misleading ESG conduct, but existing causes of action determine its legal consequences. Statutory requirements govern financial consumer and securities disputes. Civil claims require a recognised legal duty.

Arbitration requires a dispute within a valid arbitration agreement, while relief depends on establishing the substantive claim.

For sustainable finance transactions, drafting precision matters. ESG commitments should identify the promise, applicable standard, compliance measures, verification procedures and consequences of breach.

Clear obligations help courts and tribunals separate unfulfilled sustainability expectations from enforceable legal claims.

Jose A Linsangan is a senior partner and head of litigation and alternative dispute resolution, Emil L Samaniego is a senior associate and William Paul R Salle is a junior associate at Sarmiento Loriega Law Office in Metro Manila