Greenwashing Guidance Gathers Momentum: the Crackdown is Nigh

The UK’s Advertising Standards Authority (ASA) and Committee of Advertising Practice (CAP) recently updated their guidance for advertisers making environmental claims to consumers, particularly regarding the use of “net zero” and “carbon neutral”. This guidance seeks to reflect the key principles in the Competition and Markets Authority’s (CMA) guidance on environmental claims.

Regulators such as the ASA are making concerted efforts to tighten up guidance and better align it with other regulators in view of the imminent crackdown on companies that are “greenwashing”. There has been some criticism of the subjective and inconsistent nature of guidance to date, particularly between different regulators and different countries. This led to the ASA’s Climate Change and the Environment Project identifying consumer understanding of “carbon neutral” and “net zero” as a priority area for research given the increased prevalence and potential for consumers to be misled.

In recent months we have seen companies take the risk of climate change litigation and regulatory action much more seriously than they have done in the past. Reports of tougher enforcement regularly hit the headlines, with the Guardian reporting just last week that a draft EU law would give companies just ten days to justify green claims about their products or face “effective, proportionate and dissuasive” penalties. Legislation is also expected in the UK to give greater powers to the CMA to impose monetary penalties for beaches of consumer laws.

HSBC recently added “greenwashing” to a list of risks that it says have the potential to affect a bank’s access to capital markets. It was noted that ESG risks are becoming more likely in frequency and greater in scale. This follows the well-publicised censure the bank received from the ASA following two adverts that were deemed to be misleading.

Outside of the UK, it was reported this week that the Australian Securities and Investments Commission has started legal proceedings against corporate pension fund Mercer Superannuation for misleading members about a fund that promoted its sustainable credentials but at the same time was investing in coal and other fossil fuels, in addition to alcohol and gambling stocks.

Whilst updated guidance alone won’t drive change, when it coincides with the increasing legal and regulatory action we are seeing internationally, it starts to show its teeth. It also stops companies from being able to hide behind inconsistent guidance or claiming they didn’t understand the rules. In our view, the momentum against Greenwashers is really starting to build.