The rise of environmental activism and intra-government events like the COP 26 event in Glasgow next week has increased the interest and demand for sustainable goods and services. Unfortunately, with this, so has the volume of environmental claims by businesses in advertising.
In a further sign of the continued trend towards stricter regulation and enforcement, in the context of so-called “greenwashing”, the UK’s Competition and Markets Authority (CMA) recently published its “Green Claims Code” (the “Code “), a guidance note for businesses on making environmental claims when advertising goods and services in the UK. See the useful little video from the CMA here.
The CMA’s aim in publishing the Code is to improve protection for consumers from misleading environmental claims by ensuring that businesses are aware of their existing obligations under UK consumer protection law when making environmental claims. The CMA has also announced that it will carry out a full review of environmental claims made by businesses at the beginning of 2022 to commence enforcement action against companies concerning claims that do not comply with UK consumer protection law. The need for businesses to understand fully and comply with their obligations under UK consumer protection law when making environmental claims is acute; there will be an increased focus on such claims through 2022.
But what are environmental claims? And how can businesses ensure that they comply with their obligations under UK consumer protection law when making them?
Environmental claims broadly describe statements, or claims, by businesses that suggest their goods or services have a positive or neutral ecological impact, or perhaps less of a negative environmental impact than other similar goods or services. As consumers become increasingly aware of the environmental and socio-economic effects of their purchasing choices regarding goods and services, these claims can, and increasingly do, influence consumers’ decision-making. There is a considerable risk that businesses – in response to consumer demand – are making environmental claims that may not be entirely justifiable and maybe deliberately misleading in response to consumer demand. The risk of ‘greenwashing’ is demonstrated in research conducted by the International Consumer Protection Enforcement Network’s global review of randomly selected websites, conducted earlier this year. The review found that 40% of environmental claims could be misleading consumers. By making misleading claims, the businesses are at risk of breaching their obligations under UK consumer protection law.
Businesses’ obligations under UK consumer protection laws derive from two primary sources; sector- or product-specific rules; and general consumer protection laws, such as the Consumer Protection from Unfair Trading Regulations 2008.
Sector- or product-specific rules require specified information to be provided to consumers in specific ways; for example, energy labelling requirements may apply to claims regarding certain household appliances.
In addition, general consumer protection laws: (i) prohibit certain specific practices; (ii) prohibit misleading acts and omissions; and (iii) contain a general prohibition on unfair practices, all of which are potentially relevant to the making of environmental claims. For instance, businesses inaccurately claiming that a public body has approved particular products as “sustainable”, or omitting to provide adequate information to enable consumers to make informed decisions about the environmental impacts of their products, may constitute breaches. Explicit claims about particular products’ sustainable nature, or implicit claims, must be accurate and justifiable.
Given the variety of ways businesses may breach UK consumer protection law in making environmental claims, there is a considerable risk that companies may fail to comply with these obligations.
Potential consequences of non-compliance
Businesses that do not comply with these obligations when making environmental claims face the threat of enforcement proceedings against them from the CMA. The Advertising Standards Authority may also investigate any misleading advertisements thought to contravene the Non-Broadcast (CAP) and Broadcast (BCAP) Codes, leading to proceedings issued by the Trading Standards Services. Needless to say, as well as the significant reputational harm that will be suffered, any enforcement action will likely have significant financial consequences for businesses, particularly given that the CMA will have the ability to fine companies up to 10% of their global turnover for consumer law infringement under the current proposals for reforming competition and consumer policy.
In addition, businesses may face litigation from consumers or consumer groups, perhaps with the benefit of third party funding, seeking redress for breaches of UK consumer protection law.
The stakes, already high, are growing, and the importance of ensuring compliance with obligations around environmental claims will become more acute.
Promoting compliance with obligations
The Code includes six core principles that should form the basis of businesses’ approach to environmental claims, namely that such claims must:
- Be truthful and accurate: claims must not mislead consumers by giving them an inaccurate impression, even if the claims are factually correct. Claims must only provide an image that goods or services are as green and sustainable as they are;
- Be clear and unambiguous: claims should be worded straightforwardly and transparently, which is not liable to confuse consumers or give the impression that goods or services are better for the environment than they are;
- Not omit or hide important information: consumers must be provided with the information they need to make informed choices, since omitting or hiding information can inappropriately influence consumer decisions;
- Only make fair and meaningful comparisons: comparisons should be based on clear, up-to-date and objective information and should not benefit one product or brand to the detriment of another if the comparison is inaccurate or false;
- Consider the complete life cycle of the product or service: all aspects of a product’s or service’s environmental impact over its lifecycle may be relevant to the accuracy of a claim including, for example, the manufacture and transport of a product; and
- Be substantiated: claims must be capable of being tested against scientific or other evidence.
Ensuring that the principles are observed is vital, both as a matter of ensuring best practice and in the interests of reducing potential exposures. Although not legally binding, the CMA has stated that it will consider non-compliance with the principles as possible evidence of UK consumer protection law infringement which, in turn, increases the potential exposures faced by businesses.
If your business has any queries regarding ‘greenwashing’ and environmental claims in commercial agreements to supply goods and services or in your advertising, please do not hesitate to contact XYZ Law.