greenwashing

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PE firms face growing regulatory and litigation risks from greenwashing claims as they navigate a fragmented anti-greenwashing landscape.

By Tom D. Evans, Nell Perks, Anne Mainwaring, David J. Walker, and Catherine Campbell

Amid concerns of exaggerated or misleading sustainability claims, the UK Financial Conduct Authority’s (FCA) recent proposal for new labelling and disclosure rules to combat greenwashing (see text box) should put PE firms on alert for a growing range of greenwashing risks. The FCA proposals are just the latest in a wave of new rules and requirements being enacted and contemplated as regulators across jurisdictions look more carefully at green claims and seek to hold regulated firms (including PE sponsors) to account for exaggerated credentials and misstated investment policies.

Similarly, investor and other stakeholder claims over greenwashing are on the rise as firms and portfolio companies come under greater scrutiny and are required to publish ESG disclosures in market-facing and other public information. These claims can be brought under different and overlapping laws, including statute, securities regulations, and “soft law” provisions, making a consistent and proactive risk management approach essential.  

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.