‘It’s not easy being green’: the CMA’s clampdown on greenwashing has arrived and businesses need to be ready
The growing consumer preference for sustainable products, and the mounting pressure on government and industry sectors to achieve a low carbon economy has seen many businesses making environmental (or ‘green’) claims in a bid to gain a market advantage and a share in the US$1 trillion in marketing opportunities afforded by being, or going, ‘green’.
Broadly speaking, ‘green’ claims are those which indicate or imply that a product (or service, brand or business) has a positive environmental impact and/or has no (or less of a) detrimental impact compared to other products, brands or services.
Without proper substantiation or safeguards in place, however, these claims can be misleading or confusing to consumers.
The practice of making unsubstantiated or misleading environmental claims, known as ‘greenwashing’, can lead to companies gaining an unfair competitive advantage and directing business (and profit) away from smaller - but legitimately eco-conscious - producers and retailers.
The increasing prevalence of ‘greenwashing’ in recent years prompted a review, and invitation for stakeholder feedback, of green claims by the UK Competition and Markets Authority (CMA), the regulator for product safety issues that impact the market as a whole. This review identified a need to:
- Provide guidance to UK businesses seeking to market their products responsibly within this rapidly evolving landscape.
- Crack down on businesses seeking to gain an unfair advantage through unjustified or unsubstantiated green claims.
These and other findings were the basis for the recently published Green Claims Code (the Code) which sets out core principles to help businesses navigate their existing legal obligations when making green claims and to ensure they limit any exposure to possible action by the CMA for breach of those obligations.
The existing legal framework and the CMA’s enforcement powers
The new Code will operate in tandem with the existing consumer protection framework and while not legally binding, a breach can be construed by the CMA as non-compliance with a company’s overriding legal obligations. The CMA’s enforcement powers, although currently under review, may extend to direct enforcement (obviating the need to pursue a company through civil or criminal action).
Other than the risk of legal action by the CMA, non-compliance can expose businesses to ‘enhanced consumer protection orders’ (such as orders for payment to consumers for a failure to comply with the rules), direct claims from consumers, and critically, the very real risk of reputational damage where green claims are found to be false or unsubstantiated.
The latter can have far reaching ramifications if consumer confidence is damaged, particularly as consumers are becoming increasingly discerning regarding the environmental footprints of the products they use and the businesses they engage with.
The new Code sets out six core principles, the aim of which is to help businesses making green claims ensure that they comply with existing consumer protection law:
- Claims must be truthful and accurate.
- Claims must be clear and unambiguous.
- Claims must not omit or hide the important relevant information.
- Comparisons must be fair and meaningful.
- Claims must consider the full life cycle of the product or service.
- Claims must be substantiated.
The overarching sentiment is that green claims must not only be truthful, but accurate and companies must be able to substantiate any environmental claims they intend to make or risk being subject to the CMA’s enforcement powers. The principles are intended to ensure the integrity of the information supplied to consumers regarding eco-friendly and sustainable products and to hold companies to account regarding their environmental claims.
These obligations extend to the entire supply chain and life cycle of the product. For example, businesses will need to consider whether claims of sustainability truly reflect the entire supply chain, or just one aspect of the product and how any green claims made about a product’s environmental footprint might be perceived by consumers. Merely ensuring a small percentage of a product’s footprint is sustainable will not be sufficient to justify marketing the product as eco-conscious and the onus is on businesses to interrogate all aspects of production, labelling, supply, marketing and external communications.
The overarching sentiment is that green claims must not only be truthful, but accurate and companies must be able to substantiate any environmental claims they intend to make or risk being subject to the CMA’s enforcement powers.
Being seen to be green: what the Code means for businesses
While instructive to businesses across all sectors, the Code is targeted towards those specialising in fast moving consumer goods (for example, cleaning products, food and beverages) as well as the fashion, textiles, travel and transport sectors. These industries have been identified as being at the greatest risk of greenwashing. The guidance impacts a broad range of commercial practices such as branding, labelling, advertising and product names and businesses wishing to include environmental claims as part of their marketing strategy should ensure compliance with the principles. This code supplements existing guidance in some specific sectors, such as the very well developed claims substantiation requirements for cosmetic products.
The Code is intended to be viewed as a tool for businesses to support their green initiatives while ensuring compliance with the overriding legal rules. Ultimately, through offering practical guidance to businesses the Code should reduce the instances of greenwashing that erode consumer confidence and divert business away from companies with legitimate and honest environmental intentions.
In practical terms, businesses that fail to adhere to the Code may find themselves the subject of the CMA’s attention come the new year as a full review of green claims is expected in early 2022. Businesses are running out of time to undertake a thorough review of their products, branding, communications and services to ensure they are compliant with the Code.
Businesses must also be prepared to consider the entire supply chain and take action where aspects of bringing a product to market are not consistent with their environmental claims and/or initiatives.
A green future
The guidance set out in the Code reflects the wider commitment to sustainable and eco-conscious practices, both in the UK and the EU. Expected later this year is the European Commission’s proposals for substantiating green claims through its Green Deal. The Green Deal requires any company seeking to make a green claim to substantiate the claim by way of a standardised and harmonised methodology assessing its environmental impact. The aim of the proposed framework is to ensure green claims are ‘reliable, comparable and verifiable across the EU’ and to tackle greenwashing. Much like the CMA’s Code, the objective is to tackle greenwashing and to support market actors to make informed and decisions about the products and services they are using.
UK businesses who market their products in the EU will need to consider whether any ‘green claims’ are not only compliant with the Code, but don’t fall foul of the proposed EU regulations.
With a recent report indicating that 40% of online green claims are potentially misleading, and over 200 (unregulated) environmental labels identified in use across the EU alone, the Code is welcome guidance to businesses wishing to responsibly market their products and services while taking advantage of consumers’ growing preference for sustainable and eco-friendly products. Further, the Code offers consumers the confidence that claims made by businesses regarding the sustainability of their products are genuine, in turn enabling consumers to make informed choices in an evolving environmentally friendly landscape.
The Code and the EU’s Green Plan are evidence that the tide on consumers’ environmental sensibilities is shifting toward a greener and more sustainable future and it can be expected that companies and businesses will increasingly come under pressure to commit to (at all levels of the supply chain), and be transparent about, their green claims and initiatives.