Businesses must review the Green Claims Code and accompanying guidance to determine whether their environmental claims are in compliance.
By David Little and Anuj Ghai
Background: The need for a Green Claims Code
The Competition and Markets Authority’s (CMA’s) recent publication of the Green Claims Code (the Code) and its final guidance (the Guidance) in respect of environmental claims represents the culmination of extensive consultation and investigation into claims about “green” goods and services.
In recent years, consumers have paid greater attention to the environmental footprint of the products and services that they buy and consume. In 2019, UK consumers spent £41 billion on ethical goods and services — almost four times the amount spent two decades previously. In light of increasing demand for green goods and services, in 2020 the CMA launched an investigation under its consumer protection powers into the impact of green marketing on consumers and carried out inquiries into potentially misleading environmental claims. At the end of its investigation, the CMA found that up to 40% of online green claims could be misleading. As a result of these findings, the CMA published draft guidance on environmental claims on 21 May 2021, and the final Guidance on 20 September 2021.
Defining environmental claims
The Guidance defines environmental claims as those that suggest or create the impression that a product, brand, or service:
- Has no impact or a positive impact on the environment
- Is less damaging to the environment than a previous version of the same product
- Is less damaging to the environment than a competitor’s goods
The Guidance focuses on both B2C and B2B claims, either implicit or explicit. The Guidance extends to the colours, pictures, and logos used in marketing, packaging and branding, for example the familiar green leaf logo often placed on products, which implies sustainability, but may have no definitive meaning.
The Code and Guidance – an overview
The CMA intends that both the Code and Guidance will help businesses comply with consumer protection law when they make claims regarding the environmental credentials of their products. According to the Guidance, businesses that comply with the Guidance and Code are less likely “to mislead consumers and less likely to fall foul of the law”.[i]
The extensive Code includes detailed guidance, several examples, and three long-form case studies. Most importantly, the Code establishes six core principles:
- Claims must be truthful and accurate
- Claims must be clear and unambiguous
- Claims must not omit or hide important information
- Comparisons must be fair and meaningful
- Claims must consider the full life cycle of the product or service
- Claims must be substantiated
Businesses may find compliance with the Guidance standards onerous. The Code displays a general scepticism of broad sustainability claims and the reliance on jargon such as “green”, “eco-friendly”, and “sustainable”. The Guidance stresses the importance of businesses ensuring that such claims are supported by verifiable data and the need to provide consumers with the tools and means to access such data.
The Code criticises “convenient” omissions of information. By way of example, the Guidance considers problematic any claims that a product is recyclable or biodegradable without further explanation. If only a part of the product is compostable, the Guidance explains this should be made clear to the consumer and even goes as far as suggesting that the recycling method should be included for completeness. The Code encourages more holistic assessment of sustainability claims, asking businesses to consider a product’s entire life cycle, from production through to transportation and disposal.
The CMA notes that business should not read the Code in a vacuum. The Code, in fact, explicitly states that it is non-exhaustive and additional to other legal requirements such as sector- or product-specific requirements (e.g., energy labelling requirements) or requirements from laws which apply to all businesses in order to protect consumers (e.g., Unfair Trading Regulations 2008) or the environment.
Guidance for consumers
On 13 October 2021, the CMA supplemented the Guidance with a complimentary code aimed at shoppers, which sets out five key considerations for consumers assessing environmental claims, including:
- Do not just trust slogans or vague terms.
- Look for evidence to support a claim.
- Look past appearances.
- Do not forget the disposal.
- Think about the bigger picture.
Addressing “Greenwashing” outside of the UK
Other competition authorities and regulatory bodies are also zeroing in on greenwashing. Notably:
- In January 2019, the Italian competition authority AGCM issued a €5 million fine for misleading advertising practices in the fuel sector.
- In January 2021, the Dutch Competition Authority published guidelines for sustainability claims, setting out five cardinal principles for companies to follow to ensure they do not make unsubstantiated claims.
- In April 2021, France amended its consumer code, introducing legal sanctions directly against greenwashing. Listed companies will now be sanctioned for misleading advertising, with fines up to 80% of the false promotional campaign cost, a 30-day clarification on the company’s website, and a mandatory correction in the media or on billboards.
- Also in April 2021, the European Commission published its Sustainable Finance Taxonomy, which determines the EU-wide classification of environmentally sustainable economic activities across the European Union, as well as the Sustainable Finance Disclosure Regulation (SFDR), which imposes broader requirements on sustainability-linked disclosures in the financial services industry. The Danish Financial Supervisory Authority subsequently set up a dedicated unit to monitor investors’ sustainability disclosures to ensure public companies comply with SFDR.
On 4 October 2021, the UK Environment Agency, in partnerships with other agencies and institutions, launched a project to establish standardised metrics to measure the environmental performance of the food and drink sector. This initiative aims to help manufacturers more effectively communicate their environmental performance to consumers, minimising the opportunity for greenwashing.
The CMA has also announced that it will conduct a further full review on the topic of both online and offline misleading green claims in 2022, although whether this means a detailed scoping exercise to identify priority cases, or some other approach remains unclear. In light of the Guidance, the textile, fashion, beauty, food and beverage, and travel/transport sectors may be the target of increased scrutiny.
In the meantime, all businesses should review the Code and the Guidance thoroughly and assess whether their current environmental claims are in compliance.
Latham & Watkins will continue to monitor environmental claims regulation.
This post was prepared with the assistance of Francesca Forzoni in the London office of Latham & Watkins.
[i] The key piece of consumer protection legislation relevant to the CMA’s investigation is the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). The CPRs contain a general prohibition against unfair commercial practices and specific prohibitions against misleading actions or misleading omissions.
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