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Greenwashing enforcement is not going away

16 April 2024

For many years, companies have been selling or promoting products under claims that they have high ethical, social and governance (ESG) and/or sustainability credentials. In many cases, these claims are accurate and can help in the ongoing efforts to create a more sustainable society. In other cases, however, ESG claims can be overstated or even false – this is greenwashing.

The absence of universally recognised standards governing ESG-related claims and statements meant that for a considerable period of time potentially problematic ESG statements appeared to run unchecked, leading to increased scepticism. However, more recently, regulatory agencies worldwide have started to take notice of the risks around greenwashing, with actions ranging from public statements of intent to formal investigations and (notably in the US financial services sector) enforcement and penalties.

A number of key universal standards are now in place (such as the EU Sustainability Reporting Standards) or being developed (by bodies such as the United Nations Forum on Sustainability Standards and the IFRS’s International Sustainability Standards Board). In addition, greater powers are being granted to regulators. The clear trend is therefore towards an increase in enforcement action in the short- to medium-term.

This increased regulatory scrutiny, and the reputational risks it can bring, had led to reports of an emerging greenwashing backlash, with the term ‘greenhushing’ (the practice of playing down an organisation’s environmental and sustainability activities for fear of being labelled a ‘greenwasher’), entering the lexicon.

In the UK, although regulatory actions in this area are still at a relatively early stage, the Competition and Markets Authority (CMA) has grasped this as a consumer protection issue, and will be aided by a significant increase in its powers once the Digital Markets, Competition and Consumers Bill has been passed into law.

In September 2021, the CMA announced the launch of the Green Claims Code (the Code). It then gave companies a grace period of less than a year to get their houses in order before taking decisive action, choosing to launch investigations into eco-friendly and sustainability claims which had been made in the high-profile fashion sector.

On 29 July 2022, the CMA began an investigation into statements made by three brands, ASOS, Boohoo and George at Asda about their fashion products, including clothing, footwear, and accessories. As we described in detail in a blog at the time, the scope of the CMA’s investigation was wide, and included an examination of: whether the statements and language used by the three businesses were too broad and vague; the criteria used to decide which products to include in certain clothing collections; the information made available to customers about products included in the companies’ eco ranges; and whether statements made by the companies about fabric accreditation schemes and standards are potentially misleading.

Less than two years later, the CMA’s investigation has concluded. The authority has secured formal undertakings from the three brands which commit them to change the way they display, describe and promote their green credentials. ASOS, Boohoo and George at Asda have agreed to follow a detailed set of rules, to improve their internal processes, and to provide the CMA with regular reports on their compliance with the undertakings. 

The rules which the companies have agreed to follow cover seven main areas, broadly in line with the stated remit of the CMA’s investigation:

  • green claims, which must be accurate and not misleading, with key information expressed in plain language, easy to read, and clearly visible to shoppers;
  • statements regarding fabrics in ‘green’ ranges, which cannot be ambiguous;
  • criteria for green ranges (i.e. which products are included in environmental collections);
  • the use of imagery (‘natural’ imagery must not be used “in a way that suggests a product is more environmentally friendly than it actually is”);
  • search filters on websites, which “must be accurate, only showing items that meet the filter requirements”;
  • claims made to consumers about environmental targets, which must be supported by “a clear and verifiable strategy” with more details accessible to consumers who want them; and
  • information about accreditation schemes.

The result the CMA has achieved is notable. The investigation was concluded within a relatively short period of time, and the outcome not only impacts the companies in question but will have a broader, longer-term, impact on the fashion sector and beyond. The CMA did this without the need to resort to formal enforcement proceedings, and at a time when its powers to punish greenwashing were relatively modest.

A warning shot

As well as securing formal agreements form the three brands, the CMA has used the conclusion of its investigation as an opportunity to issue a warning to the rest of the sector, in the form of an open letter.

The letter highlights the need for businesses to consider their obligations under consumer protection law, reiterating the six key principles of the Code.

On behalf of the CMA, Cecilia Parker Aranha, Director of Consumer Protection, wrote: “Businesses should familiarise themselves with the Code and with the commitments in the undertakings, and take all necessary steps to ensure that any environmental claims they make comply with consumer protection law, including that their processes to ensure compliance are robust. The CMA intends to publish further guidance for the fashion industry in due course.”

Currently, the CMA is restricted in terms of the penalties it can directly impose on companies which breach the Code. There are no specific financial sanctions available, and the CMA essentially has to rely on reputational consequences for companies it investigates (these could of course be very significant for companies which rely on consumer goodwill in highly competitive markets).

However, in the open letter, Ms Parker pointed to the Digital Markets, Competition and Consumers Bill which is currently in its final stage, with amendments passing between the two Houses of Parliament. The Bill, if passed, will introduce new powers for the courts or the CMA to impose significant monetary penalties “where parties are found to be in breach of certain consumer protection legislation”; these could amount to up to 10% of an organisation’s worldwide turnover. The Bill also contains provisions which would allow the CMA to impose enhanced consumer measures on an infringing entity.

Given that it seems new laws are imminent, it is clear that greenwashing enforcement in the UK is only just beginning. With actions in other sectors also increasing (notably financial services, where the Financial Conduct Authority has recently introduced a package of measures aimed at reducing greenwashing in relation to sustainable investment products), companies must take their eco responsibilities – and the risk of enforcement – seriously.

One of the CMA’s other investigations is looking at potentially misleading green claims in relation to everyday essential items, including food and drink, cleaning products, toiletries, and personal care items in the fast moving consumer goods (FMCG) sector. The investigation is ongoing, and the CMA has not yet published any of its findings, although it has made public that it is focusing on Unilever UK as one of the businesses under investigation.

Although the outcome cannot be predicted, based on the approach taken by the CMA in its fashion investigation, it is likely that it will aim to produce impactful findings in relation to FMCG, too. The CMA will want other companies to take their anti-greenwashing compliance seriously before its new powers under the Digital Markets, Competition and Consumers Bill take effect.

More information 

For more information on any of the issues mentioned in this blog, please contact a member of our criminal litigation team.

 

About the Authors 

Louise Hodges represents individuals and companies embroiled in criminal and regulatory proceedings whether in the UK or internationally. She has acted in relation to high-profile Serious Fraud Office (SFO) investigations and Deferred Prosecution Agreement (DPA) negotiations.

 

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