Greenwashing in marketing

Answer

Over the past two years, there has been a marked rise in regulatory action by the Competition and Markets Authority (CMA) and the Advertising Standards Authority (ASA) against businesses making misleading or unsubstantiated environmental claims about their products and services.

Consumers are increasingly demanding products and services that have a positive or smaller impact on the environment. While businesses are understandably trying to tap into these growing markets, for example by promoting sustainable processes or advertising new, biodegradable packaging, they risk facing enforcement action and reputational damage when their claims become misleading. The introduction of the Green Claims Code in September 2021 and recent ASA decisions against household name brands demonstrate that greenwashing is, and will continue to be, a key concern for regulators over the coming months.

Green claims: what are they?

Environmental or ‘green’ claims are claims made by businesses that relate to the environmental impact of their goods, services, processes or brand. This can range from claims suggesting a service has a positive environmental impact, or no environmental impact at all, to claims that create the impression that a product is better for the environment than a competing product. In most cases the claims are used by businesses to promote and sell their products and services to consumers. While some claims will be genuine and supported by clear evidence, others will omit or hide information to present the product or service as environmentally friendly.

In general, misleading actions and omissions are prohibited under UK law. Under regulations 3(4) and 5 of the Consumer Protection from Unfair Trading Regulations 2008, a commercial practice is misleading if it contains false information or if its presentation is likely to deceive the average consumer and cause them to take a transactional decision they would have otherwise not taken. Making misleading claims or omissions about the environmental impact of a good or service would fall under the scope of these regulations, as well as other consumer protection laws, such as the Business Protection from Misleading Marketing Regulations 2008.

In September 2021, the CMA published its Green Claims Code, which sets out guidance for businesses to better understand what green claims are and how they can comply with the law. The code outlines six key principles to be considered by businesses when making green claims and they act as a useful summary of the position already established in UK consumer protection law. The principles are that:

• 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 be substantiated; and
• in making the claim, you must consider the full life cycle of the product or service.

The ASA also published guidance in December on Rule 11 of the committee of Advertising Practice Code and Rule 9 of the Broadcast Committee of Advertising Practice Code, expanding on the provisions relating to environmental claims made in adverts.

The regulators have made it clear that businesses must make every effort to ensure their green claims are not misleading – and they have made it even clearer that they are willing to take action when obligations are not met.

When green claims go wrong…

The CMA and other bodies, such as Trading Standards, have the power to bring court proceedings against businesses that do not comply with consumer protection laws. The ASA can act against advertisers where their adverts are found to be misleading.

Recent ASA decisions on green claims demonstrate the difficulties some businesses face when navigating between using everyday marketing tools in their adverts and making claims about the environmental impact of their products and services.

For example, the ASA recently found that Oatly, the dairy-alternative brand, had failed to substantiate four out of five green claims made in its TV and social media adverts. Reasons for the finding included that the claim, "Oatly generates 73% less CO2e vs milk", could be misunderstood by consumers to be referring to the entire Oatly range, rather than to just one product in the range, and that the opinion of just one climate expert could not be extrapolated to the opinion of multiple climate experts.

Lipton Ice Tea also found itself in hot water for claiming that its bottles were "100% RECYCLED*" on a bus stop poster advert. Despite the use of an asterisk to inform the consumer that the cap and label were not recycled, the ASA found that the very small wording placed in the bottom left-hand corner of the poster could be overlooked by consumers. In any case, the overall impression of the advert was that all parts of the bottle were made entirely from recycled material and they had not done enough to counter this impression.

In addition to regulatory action, businesses should be mindful that even minor infringements can taint the reputation of its brand. This is particularly important in industries such as retail, where some consumers seek only to invest in products and services that align with their own ethical values. For some brands, even an accusation of making false or misleading green claims can lead to reputational damage and share prices falling, as was the experience of Oatly in 2021.

Closing thoughts

It is clear that green claims will continue to be a key concern for regulators over the next few years as businesses tap further into eco-conscious markets. The CMA has already announced that it will be conducting reviews of green claims and how they are used across different sectors, beginning with the fashion retail sector. This means that businesses will need to get well acquainted with the Green Claims Code and ensure they are putting steps into place to evidence, draft and review any green claims made.

This raises another important point: it is not only fashion retailers or food and drinks brands who seek to use green claims to monetise on these growing markets. Businesses in all sectors are acknowledging the importance of the environment to consumers and there is the potential for a broader range of businesses to be making green claims, whether to promote their services, advertise their products or to impress shareholders.

Future of greenwashing – three trends to look out for

1. Businesses in the banking and financial services sector are already facing new challenges with environmental claims. For example, the surge of environmental, social and governance (ESG) investment funds has created difficulties when assessing the practices of companies and institutions within the funds. Will investment funds claiming to have a positive impact on the environment face the same level of scrutiny as we have seen in other sectors?
    
2. In a recent Financial Times article, the ASA reportedly found that two of HSBC Bank's adverts misled customers by "selectively promoting its green initiatives, while omitting information about its continued financing of companies with substantial greenhouse gas emissions". Although the outcome of this draft finding is not yet finalised, it reinforces the message that regulators are seeking to enforce their green claims mandate in a wider range of sectors.

3. A reported letter before action sent by activists ClientEarth to the board of directors of Royal Dutch Shell could become the first ESG-related shareholder litigation in the UK (and a world-first on the same for a derivate action). The activists claim that Shell is failing to prepare the company for its net-zero mandate. It will be interesting to see how this case develops.

Courtney Brotherson is a trainee solicitor at RPC.