Greenwash? Environmental claims, regulatory action and legal risks

Posted: 16/11/2020

As the popularity and, therefore, demand for sustainable goods and services grow, the accuracy and reliability of businesses’ ‘green’ claims is coming under increasing scrutiny. To ensure conscientious consumers are protected, the UK’s Competition and Markets Authority (CMA) has launched an investigation.

What is the (potential) problem?

Businesses are coming under increased commercial and regulatory pressure to produce goods and services with strong eco credentials.

Such pressures, on top of the usual competitive strains, are suspected of increasing the temptation to ‘greenwash’: where a business focuses on green PR and marketing, without truly dealing with the environmental impact of its products.

Whilst there are egregious examples of deliberate greenwashing, businesses more often face the risk of inadvertently over-stating or misleading in respect to offerings with some sustainability credentials.

At the same time, supply chain contracts, industry code accreditation and sector specific regulatory obligations also increasingly carry actual and implied commitments by businesses to heightened environmental standards.

Who does this affect?

Consumer goods claiming to be green risk claims of misleading advertising and marketing. In addition, allegations of greenwashing are particularly potent in sectors perceived to have historically poor environmental performance, but new green PR strategies (think aviation and transport or food and farming, for example).

However, all businesses (and consumers) need to be mindful of the actual or implied sustainability claims being made for a product or service.

What law and regulation is involved?

General consumer protection law, in particular the Consumer Protection from Unfair Trading Regulations 2008 (as amended), prohibits misleading actions, omissions and practices that contravene the requirements of professional due diligence and are likely to (or do) distort consumer behaviour.

Unsubstantiated, exaggerated or misleading claims about the environmental credentials of a product or service are likely to fall foul, as are omissions that have the effect of misleading consumers into thinking that what is supplied is greener/more sustainable than is the case; for example, misleading comparative advertising and falsely claiming to be a member of an industry code.

The Business Protection from Misleading Marketing Regulations 2009 provide protection for business consumers.

Who can take enforcement action?

The Advertising Standards Authority can investigate misleading advertising that breaches the UK codes of non-broadcast advertising and of broadcast advertising, with Ofcom also having powers to act on misleading broadcasting. Trading Standards and the CMA can take action on misleading marketing generally.

Businesses also need to consider sector specific regulation. For example, energy suppliers are required by Ofgem to provide accurate information on the fuel mix and environmental impact of the electricity supplied to consumers.

Breaches of general consumer law or sector-specific regulation may lead to the unwinding of contracts, refunds, compensation, fines, stopped sales and reputational damage.

Voluntary industry codes increasingly come with additional environmental obligations that a business holds itself as meeting; not doing so can lead to fines, public censure and ultimately expulsion.

Supply chain contracts will be breached where businesses do not meet eco standards and obligations that they have committed to.

Reputation management is a potential sword and shield. As environmental credentials increase in importance, what a business says about competitors, and what third parties say about it, could become the subject of defamation actions.

CMA investigation

On 2 November 2020 the CMA began an investigation into whether ‘eco-friendly’ claims made in respect to products and services could be misleading consumers and breaching consumer protection law.

As a first step, the CMA is carrying out surveys of consumers, businesses and other stakeholders, closing on 14 December.

The CMA’s non-exclusive focus is, for now, on fashion, travel, and FMCG.

CMA guidance on eco-claims is expected in summer 2021 and, ultimately, businesses should take this as a warning that environmental claims are in the regulator’s sights for potential future enforcement action.

The CMA investigation homepage is linked here.

What can you do?

Businesses should engage with this issue now. Key questions to ask include:

• What sustainability claims are being made for your goods and services through advertising and marketing, product labelling, contractual commitments or accession to voluntary codes, and are you operating in sectors with binding regulatory obligations?
• Do the goods and services meet these claims?
• Do you have visibility and control over the claims and commitments made, for example by sales teams, in commissioned advertising and in business-to-business dealings?
• Do you need to act now, to manage processes, mitigate risks, or even perhaps to make more of the environmental credentials you do have?

Penningtons Manches Cooper’s commercial and regulatory teams are well equipped to help you understand and manage these issues.

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