Greenwashing: the story so far

What is ‘greenwashing’?

Greenwashing is the practice of making false or misleading statements about the environmental credentials of a particular product or practice, whether that be unintentionally or as a deliberate marketing strategy. It is seen as a cynical means by which companies appeal to the green-thinking, sustainably-minded consumer, all the while continuing or escalating (certainly not reducing) their polluting and other damaging behaviours.

It may have only recently entered the everyday lexicon, but the term was actually coined in 1986 by environmentalist and student (at the time), Jay Westerveld. Whilst visiting a hotel in Fiji, he noticed that it asked guests to reuse towels for the planet’s sake. Whilst that may have been true, he suspected that the request was more keenly motivated by a desire to save the hotel money – a suspicion that was heightened by the hotel’s expansion into sensitive island ecosystems nearby. Did they really care for the planet?

And so the term was born. And in the perfect storm of a relatively unregulated space meeting environmentally conscious consumers, greenwashing was able to prevail. Because going green sells.

High profile examples of greenwashing include:

• Volkswagen cheating emissions tests by fitting vehicles with a ‘defect’ device and marketing their products on the basis of these attractively low emissions;
• Starbucks releasing and publicising a ‘straw-less lid’ that contained more plastic than the previous lid and straw combination;
• Soft drinks giant Coca-Cola, seeking to label itself as sustainable and environmentally friendly while continuing to generate millions of tonnes of plastic; and
• Fast fashion company Boohoo, announced a ‘sustainability and style’ collaboration with Kourtney Kardashian whilst ongoing was an investigation into Boohoo’s working conditions which found that UK factory workers were paid only £3.50 an hour.

These are just a handful of the multitude of instances of greenwashing that have emerged over recent years. With the UK Government committing to achieve net zero greenhouse gas emissions by 2050, environmental issues have unavoidably and rightly become a central part of corporate strategy and the public’s psyche. The UK has already reduced emissions by over 40 per cent since 1990 but a significant commitment from all corporations will be required in order to meet the 100 per cent reduction by 2050 (which, in light of the government’s September 2023 announcement, may have already become a harder task). Unfortunately, out of such pressure comes the temptation for some to greenwash and, in turn, the requirement for regulation.

UK regulation

There is currently no one specific law governing greenwashing in the UK and instead regulators are relying on a combination of advertising and consumer and business protections laws.

In November 2020, the Consumer and Markets Authority (CMA) launched its first investigation into misleading claims and by early 2021 the Advertising Standards Agency (‘the ASA’) was considering how effective its rules were in governing, specifically, environmental claims and subsequently found a number of companies in the food and drink sector had fallen foul of its rules.

The suite of existing legislation has been enhanced by a proliferation of guidance to help companies avoid breaching the rules, and unveiled laws that will enable the CMA and the courts to impose penalties of up to 10 per cent of global turnover upon companies for breaching consumer law. It has also been reported that the ASA is planning to ban adverts that claim products are ‘carbon neutral’ using offsetting, unless they can prove they actually do work. This follows recent enforcement against Lufthansa and Etihad about specific green claims. Guidance is expected to be released later this year which gives specific definitions of claims such as ‘green neutrality’.

Other examples of companies falling foul of UK regulation include Pepsi Lipton International who received an adverse ASA ruling against its Lipton Ice Tea for a poster which said, ‘deliciously refreshing, 100% recycled’. Next to this was an asterisk which included the fine print: ‘bottle made from recycled plastic, excludes cap and label’. The ASA banned the advert on the basis that the qualification did not adequately counter the overall impression given that the bottle was made from 100 per cent recycled material.

Alternative dairy company Oatly has also found itself in hot water due to misleading environmental claims, such as ‘climate experts say cutting dairy and meat products from our diets is the single biggest lifestyle change we can make to reduce our environmental impact’. The ASA pointed out that consumers would understand the claim to be a ‘definitive, objective claim that was based on scientific consensus’, whereas instead it was found to be the opinion of one climate expert.

It is expected that regulation in the UK will continue to develop piecemeal in line with global trends, with much tougher regulation expected in the near future.

EU regulation

Whilst green claims are already subject to general consumer protection laws, a new EU directive proposed in March 2023 imposes new and specific requirements concerning how companies should substantiate and communicate voluntary environmental claims. The proposed rules are intended to prevent increasingly environmentally motivated consumers from being misled over unsubstantiated marketing tactics by cracking down on the companies who employ those tactics. Additionally, the European Parliament and the European Council have just reached a provisional agreement to ban advertisements which use misleading phrases such as ‘environmentally friendly’ and ‘eco’ in order to provide consumers with better information. Members of the European Parliament are expected to vote on the new law in November 2023.

Green Claims Directive

Scope

• The proposed directive applies to ‘explicit environmental claims’ made by traders about products or traders in business-to-consumer commercial practices.
• It does not apply to environmental labelling schemes or to explicit environmental claims regulated by existing EU law (for example organic food production and labelling).
• Micro-enterprises (with fewer than ten employees and turnover less than 2 million EUR) are exempt from certain provisions.
• Organisations based outside the EU that make environmental claims directed at EU consumers will also have to adhere to requirements (it is through this limb that UK companies may be caught).

Key measures

• Substantiation of claims: Traders will have to carry out an assessment (that meets minimum criteria) to substantiate their green claims, and this must be independently verified before the claims can be made to consumers.
• Comparative claims: Claims that expressly or impliedly compare products or traders with other products or traders are subject to additional requirements to ensure that fair, like-for-like comparisons are made.
• Communication of claims: Claims can only refer to environmental impacts, aspects or performance that are identified as significant for the product or trader in question and have been properly substantiated. Traders also must make available information about the subject of the claims and the supporting evidence for it.
• For green claims that rely on carbon offsetting, traders will need to make available information about the extent to which those claims rely on offsets and whether the offsets are derived from emissions reductions or removals projects.
• There are planned ‘delegated acts’ under the directive which will likely add further requirements relating to certain claims related to use of offsets, ‘climate neutrality’, and recyclability and recycled content.

Enforcement

Penalties are proposed for non-compliance, meaning that enforcement authorities will have powers to:

• Require traders to take corrective action within 30 days or cease making a claim or using the labelling scheme;
• Levy fines of up to 4 per cent of the trader’s annual turnover; and
• Ban the trader from participating in public procurement or accessing public funding for 12 months.

There is still water to pass under the bridge yet though before we see these measures in practice. The European Parliament and Council both need to adopt the final text, and then, assuming the directive becomes law, EU Member States will have 18 months to adopt it, with the measures applying after two years.

Practical points

In the meantime, however, it is important to take care that any promotion of green activities is compliant with the ASA’s environment-related advertising regulation and guidance. From the existing regulations and guidance and likely future legislation, the following are some pointers which should help to ensure the claims stay on the right side of the line.

• The basis of the environmental claim made must be clear.
  A high level of understanding by the intended audience should not be assumed and an ad should be clear if the promoted green benefit will only result from specific action or change in behaviours by the consumer.
• The claim must be adequately substantiated. This requires robust documentary evidence to prove all claims, whether direct or implied.
  It is acceptable to describe a product as ‘greener’ or ‘friendlier’ but only if the basis for the comparison, either with a competitor’s product or a company’s own previous product, can be justified with evidence.
• The claim must state any significant limitations and qualifications.
  Relevant qualifying information should be provided in an easily accessible manner so that a consumer can see it and take account of it before making any decision to purchase the product.
• The claim must be based on the full life cycle of a product or, if not, be clear as to what part of the product life cycle is referred to.
  Claims such as ‘100 per cent eco-friendly’, ‘less plastic’ and ‘zero emissions’ are considered full lifecycle claims unless it is made clear otherwise. These terms should therefore not be used without qualification. An advert must not mislead about the product’s total environ- mental impact and terms like ‘environmentally friendly’ should therefore be used with caution.
• While the terms ‘carbon neutral’ or ‘net zero’ are commonly used there is deemed to be a low understanding and lack of consensus as to what these terms actually mean to the consumer.
  It is therefore important to:
• explain the basis for any such claims;
• include accurate information about the degree to which carbon emissions are being actively reduced;
• ensure that claims based on future goals relating to reaching ‘net zero’ or achieving carbon neutrality are based on a verifiable strategy to deliver them; and
• ensure that claims based on carbon offsetting are supported by information about the offsetting scheme that is being used.

As will be clear from the above, the regulatory, litigation and reputational risks for companies are multiplying as regulators and legislators take a tougher stance. Businesses must, therefore, carefully consider what statements they make about environmental and social impact in the context of the complex risk environment and the developing conversation about greenwashing.

Initially published by Lawtext Publishing