Companies that use misleading environmental claims could face fines of up to tens of millions of pounds under proposals to strengthen the enforcement of consumer laws.
The Digital Markets, Competition and Consumer Bill was finally published on 25 April 2023 and could become law later this year. The Bill proposes a raft of reforms to strengthen the enforcement of consumer protection laws by, for example, handing the Competition and Markets Authority (CMA) the ability to decide when consumer law has been infringed and to then directly fine companies up to 10% of their global turnover. This would replace going through a court process that can take years.
The ability of the CMA to impose fines would extend to so-called "greenwashing". This is the label given to the practice of companies aiming to boost sales by making misleading environmental claims about their business, products or services. Examples include claims regarding how sustainable, eco-friendly or better for the environment a product is, or relating to its impact on net zero efforts.
Indeed, a more robust enforcement regime would be an unsurprising next step as wide-ranging efforts to crack down on greenwashing gather pace.
In February 2023, the organisation responsible for UK advertising rules, the Committee of Advertising Practice, updated its guidance on making environmental claims to include, for example, specific sections on claims relating to being "carbon neutral" or "net zero".
The Advertising Standards Agency, meanwhile, has shown itself in recent years to be increasingly willing to rule against a growing number of household name brands for greenwashing. In April 2023, for example, it ruled against Etihad Airways for making misleading, unsubstantiated claims relating to "sustainable aviation".
This builds on an escalation of action by the CMA. In January 2023, the CMA expanded its industry review of green claims to include household essentials such as food, drink, cleaning products and toiletries, with other sectors expected to follow. This investigation had been launched in January 2022, initially concentrating only on the fashion retail sector. The CMA's investigations followed the publication of the CMA's Green Claims Code, in September 2021, which remains the key guidance setting out six principles that businesses must follow when making environmental claims.
In the world of investment products, meanwhile, the Financial Conduct Authority, in October 2022, announced its own greenwashing clamp down, launching a strategy to combat the misleading use of terms such as "green", "sustainable" and "ESG".
The UK is not alone in tightening the net on greenwashing practices. The European Commission, for example, in March 2023 published its proposed Green Claims Directive, after an EU study in 2020 found that 53.3% of the green claims examined were vague, misleading or unfounded, while 40% were completely unsubstantiated. The draft Directive proposes stiff penalties for non-compliance, including fines of up to 4% of turnover, a confiscation of breach-related profits and a 12-month ban from public procurement processes. The Commission has also proposed amending the Unfair Consumer Practices Directive to expressly include greenwashing on its blacklist of unfair commercial practices.
"The direction of travel is clear," explains Ashley Borthwick:
"The rules around making green claims are tightening and those falling foul of the rules could soon be faced with huge fines in line with competition law infringements, not to mention the significant reputational fallout that would accompany such a sanction."
Andrew Westbrook adds:
"Regulators have increasingly scrutinised potential greenwashing in recent years, but have largely been limited to offering guidance, or naming and shaming. That looks set to change. Companies making any sort of environmental claim must think very carefully about exactly what they are saying and how they can back it up."
If you would like to learn more about making environmental claims or consumer protection investigations, please get in touch with Andrij Jurkiw, Ashley Borthwick or Andrew Westbrook, who would be happy to assist you.