UK ‘green’ claims probe should spur governance rethink, says expert

Out-Law News | 26 Jan 2023 | 5:09 pm | 3 min. read

Businesses should review their governance and risk management in relation to ‘greenwashing’ risk amidst growing regulatory scrutiny of how they are marketing the environmental credentials of their products, an expert has said.

Michael Watson, climate and sustainability expert at Pinsent Masons, was commenting after a UK regulator opened a wide-ranging probe into whether claims being made about the environmental credentials of food and drinks products and other ‘household essentials’ are misleading.

In a statement, the Competition and Markets Authority (CMA) said its review would scrutinise the ‘green’ claims made about ‘fast-moving consumer goods’ (FMCG) – a term that covers a wide range of products consumers use daily, from food and drink to cleaning products, toiletries, and personal care items. The CMA said the FMCG sector is worth more than £130 billion annually.

“The CMA will analyse environmental claims made about such products – both online and in store – to consider whether companies are complying with UK consumer protection law,” the regulator said.

“Concerning practices could include the use of vague and broad eco-statements for example packaging or marketing a product as ‘sustainable’ or ‘better for the environment’ with no evidence; misleading claims about the use of recycled or natural materials in a product and how recyclable it is; and entire ranges being incorrectly branded as ‘sustainable’,” it said.

Copy clearance experts Tom Nener and Gill Dennis of Pinsent Masons said the announcement of the new review signals a significant expansion of the CMA’s crackdown on so-called ‘greenwashing’, which has otherwise been limited to more specialised sectors to-date. They said the probe also highlights the need for all businesses engaging in product promotions to undertake robust due diligence over the environmental credentials of their products to verify that what they claim publicly on packaging and in marketing materials can be substantiated.

Nener said: “Businesses should pay particular attention to the precise wording used in claims. The ASA highlighted last year that consumers are becoming increasing confused by words such as ‘carbon neutral’ and ‘net zero’. Using any such broad language in claims will require significant substantiation in the future and therefore represents a risk to businesses”.

Michael Fenn, an expert in dispute resolution at Pinsent Masons, said that the risks of not doing robust due diligence include being found to have misled consumers under UK advertising rules and consumer protection legislation, as well as potential reputational damage and being subject to climate-related litigation.

Watson said the ESG agenda, and climate in particular, has developed into arguably the defining business issue of this age and said many businesses need to rethink how greenwashing risk is managed in their organisation.

“Many businesses have identified being ‘green’ or climate positive as a marketing or market differentiating factor. Historically, that promotion has been led by the marketing department, but it is now clear that the risk management of this issue should involve compliance teams and, increasingly, the finance director and general counsel,” he said.

“Good governance and risk management will involve a significant amount of work to review and verify legacy claims and promotions, remediate them where possible and, in terms of future claims and promotions, ensure clear governance and risk management policies and procedures are established and followed when deciding how and what to say in relation to products. This often requires changes led by the board and integrating a range of key stakeholders in a business,” Watson said.

The CMA published detailed guidance, known as the ‘Green Claims Code’, in September 2021, to help businesses understand what they need to do to comply with consumer protection law when making claims about their products’ environmental credentials. In light of the new code, the regulator gave businesses a three-month grace period to review their advertising for compliance before starting to review in more detail whether environmental claims in some sectors were misleading.

In January 2022, the CMA opened a review into ‘greenwashing’ in the UK fashion industry and warned that brands could face enforcement action if they are found to have breached consumer protection law. That review remains ongoing, but the CMA has now confirmed that it has opened an investigation into three brands in the sector – Boohoo, George at Asda, and ASOS. It said it plans to “scrutinise environmental claims made” by the companies in relation to fashion products such as clothing, footwear, and accessories.

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