Can companies be held accountable for greenwashing?
Good news for the ethically-minded consumer: Beginning January 2022, companies face finding themselves in breach of the law if they are found to have made misleading environmental claims that could constitute ‘greenwashing’. The Green Claims Code, published by the Competition and Markets Authority (CMA) in September 2021, comes as a response to a finding that 40% of green claims made online were potentially misleading (1).
Greenwashing refers to the dissemination of false information regarding a company’s environmental aims, actions and impact, in order to persuade consumers that the product or service offered is more environmentally friendly than in reality (2). Although greenwashing is not new and has been a problem since the 1980s, there has been a significant increase in consumer awareness and commitment to making sustainable purchases: 85% of consumers worldwide have shifted their purchasing behaviour towards being more sustainable in the past 5 years (3). Changing attitudes towards sustainable purchases have compelled many businesses to follow suit, adapting their marketing strategies to engage consumers in their sustainability efforts, even as their core business model remains environmentally unsustainable (4).
As consumers become more aware of greenwashing, they have taken companies to task through litigation and other enforcement approaches. One of the latest brands facing a lawsuit is $1-billion American footwear brand Allbirds, whose business model primarily revolves around selling eco-friendly footwear and apparel (5). They are alleged by the plaintiff to have made deceptive and misleading claims regarding the environmental impact of manufacturing and its commitment to transparency – crucial because the brand’s sustainability-focused marketing and eco-minded consumers is a significant contribution to its billion-dollar valuation. In other words, if consumers had known about the reality of Allbirds’ business model, they would not have purchased the products or paid the same amount. Clearly, there is hence an acute need to regulate this area of law, for the purposes of protecting the rights of a growing number of eco-consumers. Green investors are also part of the wider group affected by companies’ misleading green claims.
Prior to the Green Claims Code, no specific legislation on greenwashing existed in the UK. Previously, the tort, contract and consumer law approaches to greenwashing cases did not properly define a misleading green claim, or how it could be better substantiated or qualified (6). Cases that fell under this category were typically based on common law principles of contract, tort and consumer law. For example, misrepresentation is the basis for a class action lawsuit against Volkswagen, in which claimants alleged that cars produced by the company emitted more pollutants than was originally claimed (7). Other than civil litigation, authorities typically also oversee and hand out punitive measures against firms. In 2019, RyanAir’s ad campaign claiming that it had the lowest carbon emissions of any European airline was banned by the Advertising Standards Authority, when it was unable to fully substantiate its claims accurately (8). In the US, the Federal Trade Commission has been publishing Green Guides since 1992, issuing guidance for marketers to avoid making misleading environmental claims (9). Though the Green Guides are not legally enforceable, they are helpful in providing a framework for businesses to work with, so marketers know the extent to which businesses have to qualify or substantiate their green claims and hence avoid greenwashing allegations.
Similarly, the introduction of the Green Claims Code will mean a more comprehensive set of guidelines that will provide much-needed clarity and structure to an area of law that greatly requires regulation. Unlike the Green Guides, the Green Claims Code may be enforced via civil litigation by the CMA, or even direct legal action from consumers. The binding nature of these principles significantly develop UK environmental law, providing tighter regulation.
The Code sets out 6 key principles for businesses to follow:
1. Claims must be truthful and accurate.
2. Claims must be clear and unambiguous.
3. Claims must not omit or hide important relevant information.
4. Comparisons must be fair and meaningful.
5. Claims must consider the full life cycle of the product or service.
6. Claims must be substantiated.
Businesses can be more clear about the standards they are expected to adhere to by referring to a single set of guidelines. Crucially, this also levels the playing field for firms whose products and services actually bring about a more positive environmental impact.
However, this also indicates a clear message from the CMA: that greenwashing by businesses will be more strictly regulated and be taken more seriously. Sectors prioritized for review are industries where consumers are the most concerned about misleading green claims, including textiles and fashion, transport and travel, and fast-moving consumer goods (FMCG). It is expected that authorities will keep a keen lookout on these aforementioned industries.
Consumers and future litigants will also surely benefit from having legislation to rely on in building their cases against companies, rather than drawing from different areas of law to come up with a patchwork approach that is not cohesively applied to all cases.
It is suggested that businesses should review the Code and conduct an audit of existing claims, to ensure compliance (10). Current claims should be expected to be substantiated with up-to-date, hard data. Companies should also be advised to avoid being overly broad or generalized with marketing. This will require greater coordination between marketing and in-house legal teams. In light of the recently-concluded COP26, large corporations such as BP, Nestle and British Airways have also made public net zero commitments, which both corporates and consumers should carefully scrutinize and weigh against current actions, to ensure accurate information is being reflected (11).
Now more than ever, consumer awareness is heightened and leaving a much more tangible impact on the retail industry, with nearly 1 in 3 consumers claiming to have stopped purchasing brands or products that had raised ethical or environmental concerns (12). We cannot blame brands for adapting to fit the ever-changing needs of consumers, but the law also has a duty of care to ensure the protection of consumers’ rights. By stemming the spread of misinformation surrounding the climate crisis, the Green Claims Code will hence make it better for consumers to invest in solutions that actually work, and will be one of many key legal solutions that contribute to addressing this global crisis.