Greenwashing – a Minute to Midnight?

On 1^st November, inside Glasgow’s SEC Centre hosting COP26, PM Boris Johnson highlighted the urgent need to embrace a green industrial revolution to tackle climate change and meet a target of net carbon neutrality by 2050:

“It’s one minute to midnight and we need to act now…it will be too late for our children to do so tomorrow.”

Later, outside on the streets, the activist Greta Thunberg took a different view:

“This is now a global greenwashing festival… blah, blah, blah.”

Whichever side of the political debate you stand, one thing is for certain; green credentials are at the top of the business agenda. With that comes increasing scrutiny by the UK enforcement authorities on the practice of ‘greenwashing’, the falsifying or overstating of environmental claims of a product, service, or process.

Back in November 2007, a published Study of environmental claims in North American consumer markets sought to identify “the six sins of greenwashing”: –

1. The sin of hidden trade-off (where a claim is based on a green attribute without considering other impacts such as those involved in the manufacture of the product).
2. The sin of no proof (where a claim cannot be substantiated).
3. The sin of vagueness (for example, where a claim fails to identify its recycled content).
4. The sin of irrelevance (where a claim is truthful but of no importance to the environment).
5. The sin of lesser of two evils (where a claim may be true but distracts the consumer from the greater adverse impacts of a product’s entire category e.g., organic cigarettes).
6. The sin of fibbing (where claims are false).

Recently in November 2020, the Competition and Markets Authority (CMA) undertook a global sweep of randomly selected websites. They discovered that 40% of green claims made online were potentially misleading. Consumers were faced with vague and unclear claims made in advertisements, branding and packaging suggesting that products were less harmful or more beneficial to the environment. The rewards are huge. Pre pandemic, the UK ethical market annual spend was more than £60billion.

Then on 20^th September 2021, and following extensive consultation, the CMA published a new guidance, the Green Claims Code. The guidance is based on consumer protection rules under the Consumer Protection from Unfair Trading Regulations 2008 (the CPR’s) and Business Protection from Misleading Marketing Regulations 2008. It focuses on six principles:-

1. Claims must be truthful and accurate.
2. Claims must be clear and unambiguous.
3. Claims must not omit or hide important and relevant information.
4. Claims must be fair and meaningful.
5. Claims must consider the full cycle of the product or service.
6. Claims must be substantiated.

The guidance identifies such terms as ‘green,’ ‘sustainable’, ‘eco-friendly’, or ‘natural products’ as being unclear, particularly absent an/any explanation as to their positive environmental impact. It notes that broader, general, or absolute claims are more likely to be inaccurate or mislead. Claims, therefore, must be supported with robust, credible, relevant, and up to date evidence. The overall presentation of such claims is to be assessed to avoid ‘cherry-picking’ beneficial aspects. A strong indicator for the inclusion of supporting information, suggests the CMA, would be where such claims would make consumers think twice before purchase. Businesses should check their green claims against the Code’s 13-point checklist and seek legal advice if they are unsure whether their claims comply with the law. The guidance is for all businesses – manufacturers, wholesalers, distributors, and retailers.

Other regulators have also made greenwashing a priority. These include the FCA and those who monitor Trading Standards and Advertising Practice, such as the ASA (Advertising Standards Authority) which administers the requirements for advertising in the UK Code of Non-Broadcast Advertising and Direct and Promotional Marketing and the UK Code of Broadcast Advertising (the CAP and BCAP Codes). Last month, the Environmental Agency launched a project to standardise metrics for environmental performance of the food and drink sector, particularly in greenhouse gas reduction and resource efficiency, thereby minimising the opportunity for greenwashing.

The above scrutiny is not restricted to UK enforcement agencies. Ever increasing investor and shareholder activism is driving corporates and their financiers to set environmentally compliant targets and to stick to them. In November 2020, the UK government published a Roadmap towards mandatory climate-related disclosures across the UK economy by 2025, aligned with the recommendations of Taskforce on Climate-related Financial Disclosures (TFCD). In December 2020, the FCA introduced a new disclosure rule for UK premium listed commercial companies with further proposals awaited following two consultation papers on extending mandatory requirements to a wider scope of listed issuers. Last month, a cross department report by the UK government set out a Roadmap to Sustainable Investing. In three phases, businesses must start disclosing their environmental impact so that investors can evaluate net-zero pledges. Breaches of the requirements may put directors and companies at risk of committing different regulatory, civil, and criminal offences.

Certain commentators have suggested, for assorted reasons, that these requirements will conversely lead to more greenwashing and an increase in sustainability fraud and misconduct by companies and individuals who seek to exploit sustainability efforts for their own advantage. A state of unreadiness was evident from a recent observation by Carbon Tracker:

“Over 70% of some of the world’s biggest corporate emitters failed to disclose the effects of climate risk in 2020 financial statements. 80% of their auditors showed no evidence of assessing climate risk when reporting”.

From 1^st January 2022, the CMA will conduct a full review of misleading green statements, both on and offline (such as those in store or on labelling), and act against those who offend the guidance. Andrea Coscelli, Chief Executive of the CMA, said:

“Any business that fails to comply with the law risks damaging its reputation with customers and could face action from the CMA”

Those industries said to be in the CMA’s crosshairs are, but not limited to, textiles and fashion, travel and transport, and fast-moving consumer goods (food and beverages, beauty products and cleaning products). Any sector where the CMA finds significant concerns could become a priority. The CMA may act before the formal review begins where there is clear evidence of breaches of consumer law. A variety of different measures including civil action and criminal enforcement are available. Consumer protection offences under the current legislation attract unlimited fines and terms of imprisonment up to 2 years.

The message is clear. Businesses need to urgently heed the above warnings or run the risk of CMA enforcement, regulatory or criminal prosecution, reputational damage, and loss of financial investment.

Martin Hicks QC