Greta Thunberg, the poster girl of eco-activism, recently announced that she would not attend COP27 in Egypt, because, she said, it is a forum for “greenwashing”.
She went on to say that, “the COPs are mainly used as an opportunity for leaders and people in power to get attention, using many different kinds of greenwashing”. Accusations of greenwashing are not exclusive to world leaders. They also represent a legal and commercial challenge for many major brands and organisations around the world.
What is “greenwashing”? In a nutshell, it describes an organisation’s efforts to falsely suggest that its goods or services either benefit or are less harmful to the environment. Problems can arise where the rhetoric around green credentials does not reflect reality. In particular, where statements made are intentionally or unintentionally misleading or unsubstantiated.
In recent years, organisations have been forced to respond to increasing pressure from consumers, legislators, investors and other stakeholders to meet new “ESG” standards and expectations concerning environmental activity. It’s a challenging topic for businesses, not least because the demands which the new standards impose are wide-ranging.
What are the main issues for companies looking to make green claims?
In September 2021, the Competition & Markets Authority published a “Green Claims Code” with supporting guidance. The Code aims to help businesses when making environmental claims. The Code’s scope is actually broader than purely environmental claims because it also covers issues ranging from animal welfare to biodiversity.
The important thing to note about the Code is that it actually applies to most commercial practices and so could potentially affect green claims wherever they are made in the course of a business’ activities.
The Code contains a set of six principles, which are that claims must be: truthful and accurate; clear and unambiguous; not omit or hide important information; only make fair and meaningful comparisons; consider the full life cycle of the product; and, be substantiated.
The Code aims to protect consumers and to avoid businesses having an unfair advantage over their competitors by making incorrect green claims. The Code effectively reinforces existing consumer protection law, primarily the Consumer Protection from Unfair Trading Regulations 2008 and Business Protection from Misleading Marketing Regulations 2008, which prevent businesses from engaging in unfair commercial practices. The fact that the CMA is now getting involved in “green issues” obviously reflects the importance the topic has assumed in consumer spending habits and the focus of regulators. Regulatory involvement also serves to protect legitimate environmental claims and maintain consumer confidence in green goods and services.
Organisations which infringe the consumer protection regulations risk enforcement action by the CMA (such as demands that they undertake to change their conduct), criminal prosecution (which could result in fines or imprisonment), or civil action by consumers seeking compensation.
The Code is fairly broad in its scope. However, if a company wishes to include green claims in its advertising it should consider the advertising codes for broadcast and non-broadcast marketing, which contain specific requirements in respect of “environmental claims”. The majority of complaints which have arisen in this space relate to non-broadcast advertisements, and these are regulated by the Advertising Standards Agency via the “CAP Code”. Organisations making environmental claims should refer to the ASA’s guidance on the topic, which includes a helpful “checklist”.
Campaigners are increasingly using complaints to the ASA as an economic and quick means of drawing attention to questionable environmental claims and practices. For example, ante-fracking groups targeted claims made by Cuadrilla Resources Limited in one of its brochures about its fracking operations, and this resulted in six complaints being upheld by the ASA against Cuadrilla.
The ASA has a variety of powers to sanction organisations which do not comply with the advertising rules. The ASA has a mixed reputation in terms of its appetite to impose sanctions on organisations which do not comply with advertising rules, and its sanctions (excluding escalation to Ofcom or Trading Standards) are not especially punitive. However, in respect of green claims at least, when the ASA gets in touch regarding a non-compliant advert, most advertisers choose to amend or withdraw the offending advert before sanctions are required.
In reality, the risk of consumers and others being alerted to the use of potentially misleading or false environmental claims is arguably a greater danger to a business than an official sanction from the ASA. Publicity risks reputational harm and impact on consumer sales, thereby hitting the bottom line. Or, equally, it could trigger a regulatory investigation into the business’ conduct, the attention of NGOs or campaigners, or litigation from investors or customers, and expose the company to different harms. If a business has made a misleading green claim, it may also have breached employment law, health and safety law or other environmental law, amongst other things. It is possible that new domestic legislation may be introduced in the near future to further tighten the rules surrounding environmental claims, and organisations should keep an eye on relevant developments in this space.
Organisations can also find international guidance on environmental labelling within the voluntary ISO standards. In particular, “ISO 14021” provides guidance for organisations making claims about the environmental aspects of their services and products.
Organisations should also consider whether there is any sector or product specific rules or guidance regarding their particular intended claim. By way of example, specific rules apply to energy saving claims covering white goods.
A variant on the issue of “green claims” appearing in marketing is the issue of statements contained in a company’s ESG disclosure reports and corporate governance documentation. These are statements made by a company about its environmental activities. The obligation on companies to provide such ESG reports is increasing year on year. For example, such reports might include statements about a business’ green-house gas emissions or energy efficiency record. They might include the streamlined energy and carbon reporting (SECR) requirements under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (SI 2018/1155).
Of course, corporate reports may be relied upon by shareholders and other investors. If disclosures turn out to be incorrect, a company’s share price may fall, financial losses may be incurred and litigation could ensue.
Sections 90 and 90A of the Financial Services and Markets Act 2000 provide legal avenues for shareholders to bring claims against those issuing shares where problems have arisen with ESG statements or omissions. Claims brought under these statutory provisions may not be straightforward, but they are possible. Equally, depending on the facts, shareholders may turn to other causes of action to rely on the Misrepresentation Act 1967, fraudulent or negligent misstatement, or breach of directors duties complaints. Given the litigation risks in play, statements made in respect of environmental activities must be verified and accurate. The wording of disclosures should be carefully considered and appropriate insurance obtained.
There is a trend towards increased litigation regarding ESG and environmental disputes generally. The US has seen an explosion of claims concerning, in particular, climate change disputes. Companies would therefore be well advised to think carefully about the litigation risks posed by green claims and take appropriate steps to mitigate those risks wherever possible.
As The Body Shop demonstrated several decades ago, there is a growing market for eco-friendly products and services. ESG has introduced many checks and balances in efforts to ensure that green claims are accurate and fair. However, there are significant opportunities available for organisations which successfully embrace and work within the relevant guidance and obligations.
If you would like to discuss reputation management concerns regarding “green claims” or other ESG compliance issues, the team at Brabners are able to assist you. Please do not hesitate to contact us for a discussion in confidence. Please contact Nick McAleenan, Partner – Litigation, or Helena Davies, Partner, Head of Retail Sector - Litigation
