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Greenwashing: Businesses urged to clean up their act in relation to green claims

Print publication

04/10/2021

Greenwashing and the new legal and regulatory landscape

Back in June 2021 we explained that greenwashing (that is, the practice of making exaggerated claims about a business’ environmental credentials and the sustainability of its products, services and environmental impact) could expose businesses to breaches of consumer protection legislation.  We reported on guidance published by the Competition and Markets Authority (CMA), then still in draft, intended to help businesses to ensure that their environmental claims are genuine.

The CMA has now published finalised guidance, in the form of the Green Claims Code, which centres on the following 6 principles:

  • Green claims made must be truthful and accurate
  • Claims should be clear and unambiguous
  • Claims should not omit or hide important information
  • Any comparative claims made should be fair and meaningful (that is, comparisons with other businesses/products/services must compare like with like, and the basis and measure/metrics of any comparison should be made clear)
  • Claims made should consider the full life cycle of a product/service/business (that is, a complete picture of the total environmental impact must be given: taking into account, for example, supply chain issues, business processes and waste/disposal; and, crucially, not focusing on only one or ‘cherry-picked’ aspect[s] of a product/service/business)
  • Claims must be substantiated.

The CMA has also confirmed that, as of the start of 2022, it will carry out a full review of misleading claims, made both on- and off-line, and will take action against offending businesses [1].  The CMA is considering which sectors to prioritise, but these could include textiles and fashion, travel and transport and fast-moving consumer goods (such as products within the food, drink, beauty and cleaning markets).

Consumer protection from greenwashing is, however, also a priority for financial services regulators.

Sustainable investment is currently one of the fastest growing areas within the European funds market, with more than half of the money invested in Europe last year reportedly [2] going into ‘sustainable’ funds totalling some £1trillion.  Whilst Europe’s Sustainable Finance Disclosure Regulation has not been transposed into UK law post-Brexit, the Financial Conduct Authority (FCA) has, in its 2021-22 Business Plan; in its findings following the consumer study on sustainable investing; and in guidance annexed to the FCA’s July 2021 letter to authorised fund managers [3], made clear its sustainability focus and its commitment to the provision of clear and accurate information to consumers when it comes to green claims.

As well as the demonstrable shift in regulatory focus, pressure is mounting on businesses in all sectors to clean up their act by virtue of the trend towards ‘green litigation’ – that is, complaints and claims brought for a whole host of environmental/climate-related reasons (see our earlier briefing).  Walker Morris has, in just the last few months, highlighted claims that have been prosecuted as a result of sustainability target failings, insufficient climate-related disclosures, misleading green credentials and inaccuracies in environmental warranties [4].  In addition, commentators are now suggesting that the recent high profile instances of greenwashing whistleblowing at investment management firms DWS Group and BlackRock are likely to prompt a wave of financial services miss-selling claims based on exaggerated green credentials.

For a whole host of reasons, therefore, businesses in all sectors are urged to take action to ensure that green claims made in any and all sales, marketing, promotional, pre-contractual and contractual materials and communications are accurate and can be substantiated.

What practical advice arises?

Businesses should now urgently familiarise themselves with the CMA’s Green Claims Code and the FCA’s July 2021 guidance.  In addition, there are some practical pointers which should help businesses to minimise the risk of greenwashing or committing consumer protection breaches generally:

  • Take care that all information, online and in all other forms, that is gathered and presented to consumers (potential and actual) is accurate, fair, not deceptive or misleading and does not leave out material facts. Introduce/implement specific safeguarding procedures as to the currency, accuracy and security of all such information.
  • Note that broad-brush green claims are more likely to be misleading, inaccurate or unsubstantiated than narrow, product- or service-specific assertions.
  • Tell the truth, the whole truth and nothing but the truth! Ensure that green claims do not contain partially correct or incorrect aspects, and ensure that any applicable conditions or caveats are clearly and prominently explained.
  • Ensure that any claims accurately represent the entire life-cycle of a product or service. That is likely to involve businesses proactively and regularly undertaking appropriate enquiries of other parties throughout the supply chain, as well as keeping their own house in order.
  • Remember that features or benefits that are necessary standards or legal requirements of that product or service type should not be claimed as environmental benefits.
  • Remember that green claims can be made via visual graphics, not just through the written word. In fact, recent FCA findings suggest that logos, medals or other visual ‘rating’ assertions carry significant weight with consumers, and can therefore carry a particularly significant risk of greenwashing where apparent quality/credibility cannot be substantiated.
  • Ensure that both written green claims and any visual graphics or symbols used are critically assessed from the perspective of what a consumer will take them to mean.
  • Signpost consumers to any additional information which might affect their decision to purchase. For example, where green claims are made, say, on packaging or within media with limited space, include additional, comprehensive information via website links or QR codes.
  • Provide greenwashing training to all staff involved, directly or indirectly, with the sales and marketing (including production of hard and soft copy materials) of the business’ services/products/brand. Retain records and evidence of such training.
  • Introduce/implement policies and procedures regarding the review/maintenance/correction and updating of marketing material and other consumer-facing information.
  • Maintain an audit trail of all these efforts.
  • Finally, if/when any greenwashing complaint or allegation is made, seek immediate specialist legal advice. Depending on the circumstances, there are usually a number of dispute resolution tools that specialists may be able to deploy in defence or settlement of any complaint.

How we can help

Walker Morris’ Regulatory and Commercial Dispute Resolution teams can help businesses with the drafting or updating of appropriate policies and procedures to guard against greenwashing; with the provision of staff training on consumer protection, misrepresentation and/or specific greenwashing issues; with the strategic dispute resolution response to any greenwashing or other consumer protection complaint or allegation made against a business; or with wider commercial or dispute resolution advice in the context of the environmental, social, governance (ESG) agenda.  We will also continue to monitor and report on any further legal and regulatory developments in this key area.

Please do not hesitate to contact us for further advice or assistance.

 

[1] Enforcement action can include civil and criminal liability (including unlimited fines and even imprisonment in some cases), as well as consumer redress scheme remedies.  Reputational consequences can also, of course, be devastating.

[2] Daily Telegraph, 18 September 2021, Association of the Luxembourg Fund Industry

[3] The principles addressed in this guidance are likely to be of value across a variety of roles and sectors, i.e. not only to authorised fund managers

[4] Walker Morris has published briefings just within the last few months on recent cases involving of all of these types of green claim.

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