As climate-conscious consumers look for more sustainable shopping options, businesses are recognising the importance of ‘green’ business practices to maintain their market reputation and position. This market shift is evident in the rise of B-Corps, which have increased by approximately 50% in the past year, plus the volumes of marketing campaigns which specifically speak to consumers’ growing appetite for environmental credentials, and their willingness to pay a premium for them.
The developing consumer trend is matched by shifts in the regulatory landscape, intended to protect UK consumers from exaggerated eco-claims, a practice dubbed as ‘greenwashing’. The CMA, ASA and FCA are all taking action, and greenwashing is one of a range of consumer protection issues that the government’s Digital Markets, Competition and Consumers Bill will address.
Regulatory response to consumer protection
Back in 2021, the Competition and Markets Authority (CMA) published its Green Claims Code. The Code applies to advertising of any product, including branding, logos, descriptions, and packaging – directed at a UK consumer. It requires businesses to hold data to substantiate environmental claims made about their products and/or business practices, taking account of the whole product life cycle. The CMA has been monitoring industries such as fashion and fast-moving consumer goods, in which eco-claims are common. Its review of the fast-moving consumer goods industry as a whole is ongoing, as are investigations into fashion companies including ASOS and Boohoo. At present, the CMA’s code is enforced under the Consumer Protection from Unfair Trading Regulations 2008 (CPUT Regs), with penalties ranging from fines to requirements to remove products from sale, and even imprisonment of company officers. Current law, however, requires the CMA to pursue court proceedings to enforce breaches of consumer law, limiting its ability to respond swiftly and definitively to infringements.
In a similar vein, the Advertising Standards Authority (ASA) has increased its focus on ads making environmental claims in recent months. It has investigated eco-claims made by household names including Lufthansa, HSBC and Shell. In June, it ordered the removal of adverts published by Shell, Petronas and Repsol, which it had concluded were likely to mislead consumers as to the overall environmental impact of these companies’ activities and products. In the same month, it issued consolidated guidance regarding environmental and social responsibility claims.
Over in the financial markets, concerned that exaggerated eco-claims are eroding trust, the FCA is preparing to implement its own ‘anti-greenwashing rules’. Among other measures, these will require funds to adhere to prescribed labelling requirements if they wish to market their funds as ‘sustainable’.
A green knight: the new DMCC
With the regulators demonstrably keen to act, though limited in their powers, enter the Digital Markets, Competition and Consumers Bill (the Bill). The Bill is set to replace the CPUT Regs and will extend regulators’ powers to enforce consumer protection law. This includes enforcement in respect of ‘misleading practices’ which cause a consumer to take a ‘transactional decision’ they may not otherwise have taken. While the Bill does not expressly define or refer to ‘greenwashing’, the CMA’s power to require substantiation of claims, and its substantially enhanced enforcement powers, are intended to tackle greenwashing as a form of misleading practice. The Bill will apply to all businesses, irrespective of size or industry, and whether domestic or trading with UK consumers from overseas.
Enforcement powers under the DMCC
The CMA will receive new powers to investigate suspected infringements and practices which may be detrimental to consumers, and take enforcement action without going to court. These powers will include issuing infringement notices and enforcement directions, requiring the removal of certain content and imposing considerable fines. The current draft proposes a maximum financial penalty of £300,000 or 10% of an entity’s global turnover, whichever is greater. It puts the consequences of breach on a similar footing to those in place for breach of data protection law, and could be potentially catastrophic for a business that fails to comply.
Regulators such as the FCA will also benefit from enhanced powers, however will still require court authority to exercise them.
Businesses trading in Europe should also be aware that Union regulation is set to tighten. The European Parliament and the European Council have provisionally agreed to add misleading claims about a product’s ‘green’ credentials to the EU’s existing EU list of banned commercial practices (the legislation from which the UK’s CPUT Regs originally derived). Terms such as ‘climate-neutral’, ‘environmentally-friendly’, ‘natural’ and ‘biodegradable’ will require proper substantiation. Member states are expected to vote on the proposals in January and, once passed, would have two years to implement the new rules.
How businesses can avoid greenwashing claims
As regulators adopt a more robust approach to greenwashing, businesses should review their marketing and contracts and ensure that any environmental credentials claims made can be substantiated. The CMA’s Green Claims Code and ASA guidance on misleading claims and social responsibility in advertising are already in force, with the FCA new rules expected early next year. These sources already provide a guidance on what those regulators will and will not consider acceptable in marketing, and seem likely to inform regulatory policy when their new powers are formalised. This is currently anticipated to be mid-2024, with secondary legislation and further guidance to follow.
Additionally, the Bill will make further changes to the rules regarding unfair commercial practices, and introduce new rules relating to subscription contracts. Details of these changes, and how they will impact your business, will feature as the subject of further instalments in our upcoming series of articles.
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