Greenwashing risk arises when organizations overstate environmental credentials, leading to stakeholder distrust, regulatory penalties, and investor backlash. Increased scrutiny from regulators, activists, and sophisticated investors makes unsubstantiated sustainability marketing particularly dangerous. A major European automaker faced billions in fines and reputational damage after emissions testing fraud revealed environmental claims were deliberately false. Clear documentation, third-party verification, and conservative communication about sustainability progress help mitigate this risk. New regulations like EU CSRD and SEC climate disclosure rules create legal liability for misrepresented environmental performance.