By Freshfields’ Simon Duncombe, Catherine Greenwood-Smith and Jonathan Isted
Businesses’ approaches to sustainability are under greater scrutiny around the world.
Given the ever-increasing demand for sustainable goods and services, what organisations say about sustainability is business critical. It features in the decision-making of company boards, regulators, legislators, investors and consumers. Companies who get it right can gain a competitive advantage, but there is increasing scrutiny from regulators, NGOs, shareholders, competitors and other claimants on so-called ‘greenwashing’ claims – where it is alleged that a business has conveyed a false impression or provided misleading information that a product or service is more sustainable than it is in reality.
It extends beyond the products and services we consume. What, for example, banks say about their lending portfolios, or what energy companies say about their business models has been a central theme of AGMs in recent years.
Consumer protection agencies leading the charge
To illustrate the direction of travel, the consumer space is one area where regulators have been quick off the mark – and the UK Competition and Markets Authority (the CMA) and the Netherlands Consumer and Markets Authority (the ACM) are at the forefront of regulators taking action.
In November 2020, the CMA launched an examination into how products and services claiming to be ‘eco-friendly’ are being marketed. The CMA is concerned that businesses may be incentivised to make false or misleading claims about the environmental impact of their products or services, for example by exaggerating their green credentials, or falsely implying that their products are environmentally friendly through their packaging or logos.
The ACM published its Guidelines on Sustainability Claims earlier this year which offer companies and consumers practical guidance on what types of claims could be misleading or incorrect, and how to avoid greenwashing. The ACM’s Guidelines may well serve as a helpful blueprint for the CMA, since it also intends to publish guidance on sustainability claims this summer.
On the same day that the ACM published its Guidelines, the European Commission and several national consumer authorities released the results of their ‘sweep’ of websites for sustainability claims. They found that 42% of the claims they examined were exaggerated, false or deceptive. This sweep is another recent example of national authorities across Europe working together to tackle the issue of greenwashing.
The US Securities and Exchange Commission (the SEC) is also taking action on greenwashing. In March, the SEC announced the creation of a climate and ESG task force which will initially focus on greenwashing by identifying material gaps or misstatements in investor disclosure materials.
We are also starting to see litigation in respect of alleged greenwashing. Earthworks, Global Witness and Greenpeace, for example, recently filed a joint complaint to the US Federal Trade Commission claiming that a fossil fuel company is misleading consumers by misrepresenting its image to appear “climate-friendly” despite its great reliance on fossil fuels.
New York City also recently filed a claim against a number of fossil fuel companies and an industry trade association for allegedly running deceptive advertising campaigns claiming their products are “cleaner” and “emissions-reducing” while failing to disclose their environmental impacts.
In the UK, ClientEarth has been calling on policymakers to ban all fossil fuel company ads unless they come with tobacco-style health warnings about the risks of climate change.
Managing greenwashing risks
There are a number of practical steps that businesses may wish to consider taking to mitigate the risk of future allegations of greenwashing.
- Any sustainability claims should be sufficiently substantiated with data and by reference to credible sources. A record of this verification exercise will be critical in the event of future regulatory action or litigation.
- Be specific about sustainability efforts and avoid making general claims. In particular, claims or statements made about a company’s footprint or sustainability efforts should be true and accurate, and not refer to general ambitions but instead to actual results.
- Ensure that visual claims are not confusing to consumers: sustainability claims include images, colours and other visual aspects. For example, the use of the colour green or images of leaves or trees may lead consumers to believe the product has benefits to the environment or is eco-friendly. It is important to ensure that such visuals cannot be said to be misleading or give a false impression about a company’s sustainability efforts.
- It is important that marketing, procurement and legal in-house teams work together collaboratively with shared goals and understanding to manage the risk, and that there are internal processes in place to ensure that sustainability claims are accurate and properly substantiated.