A Thinking Business publication
Ever since the UK and other nations around the world began setting targets to reduce carbon emissions, greenwashing has been on the agenda from a regulatory perspective. The United Nations has said that, in order to limit climate change and preserve a liveable planet, greenhouse gas emissions need to be cut in half by 2030 and reduced to net zero by 2050, with greenwashing identified as a global problem that undermines efforts to combat the climate crisis via credible solutions.
Greenwashing can be defined as the use of untrue or misleading statements about the environmental performance or impact of a business, product or service. It can include misleading statements made in marketing materials, annual reports or communications to clients, for example, while in advertising it occurs any time untrue or misleading environmental claims are made about goods and services.
“For most businesses, greenwashing is inadvertent,” says Alex Sharples, a partner in Trowers & Hamlins’ commercial litigation department. “It tends to be down to a misunderstanding of how to promote genuine sustainability achievements in line with consumer protection rules. But the message is that, if you’re selling green products or services, this is a growing concern for regulators and you need to have genuine accountability for any green claims that you are making.”
The regulatory landscape is changing on a frequent basis, both at EU and UK level, with businesses potentially facing significant penalties for failing to take greenwashing seriously.
Ginny Butcher, an associate in Trowers & Hamlins’ commercial litigation department, says: “Just recently we have seen a number of updates and changes to how anti-greenwashing efforts are being enforced. Businesses need to care about this, not just because of the climate crisis and because their customers care, but increasingly because they will face penalties if they fall foul of anti-greenwashing laws.”
Sharples says: “There is a real reputational point here. Being green is now a real positive for a business, but that intrinsically means that businesses want to leverage their green credentials to drive sales and revenues. That creates a risk because if you are saying something is green you now really have to be able to evidence it.”
In March 2024, in Europe, the EU’s Empowering Consumers Directive came into force, which prohibits businesses from making misleading or unclear environmental claims to consumers and introduces definitions for green claims. Member states have two years to transpose the directive into national law, and then businesses will have six months to adapt to the new rules before they begin to apply in September 2026.
Meanwhile, in the UK, the Consumer Protection from Unfair Trading Regulations 2008 ban unfair or aggressive commercial practices and make misleading acts and omissions illegal. In 2021, the Competition and Markets Authority (CMA) also introduced its Green Claims Code (the Code), which says that environmental claims must: be truthful and accurate; be clear and unambiguous; not omit or hide important information; compare goods and services in a fair and meaningful way; consider the full life cycle of a product or service; and be substantiated. The Code is not legally binding, however.
Last year, the CMA conducted a review of environmental claims in the fast-moving consumer goods sector and found problematic claims that included the use of vague and broad eco-statements, misleading claims about the use of recycled materials and the incorrect branding of entire ranges as ‘sustainable’.
In May of this year, the Digital Markets, Competition and Consumer Act 2024 became law, giving the CMA new direct enforcement powers in relation to breaches of consumer protection rules.
Sharples says: “The Act gives the CMA new teeth via direct powers to fine businesses or impose restrictions. The fines are significant – up to 10 percent of a business’s global annual turnover if the CMA issues an infringement notice finding a breach of consumer law. Regulatory bodies are being given the tools to tackle greenwashing, having previously only been able to rely on optional guidance that they wanted businesses to follow.”
Outside of consumer goods, efforts to tackle greenwashing are increasingly evident across other industry sectors. In financial services, for example, there are now an estimated $18.4 trillion of ESG-oriented assets being managed globally, and the UK’s Financial Conduct Authority (FCA) recently introduced the Sustainability Disclosure Requirements and investment labelling regime (the Regime). Starting with an anti-greenwashing rule which came into force on 31 May 2024, all authorised firms will need to get up to speed on this. Over the next 18 months, the Regime will ultimately bring in a suite of rules surrounding investment labels, disclosure and naming and marketing rules, which will impact FCA-authorised firms, UK asset managers and potentially portfolio management services.
The aviation industry is another segment of the economy grappling with greenwashing issues. With a focus on transitioning away from fossil fuels in favour of sustainable alternatives, there has been intense scrutiny of the green credentials surrounding the growing use of sustainable aviation fuels. At the same time, voluntary carbon offsetting schemes fronted by airlines are becoming increasingly widespread as a way for consumers to pay more in order to support environmental projects that reduce or cut greenhouse gas emissions.
Various cases have arisen across the EU accusing airlines of making misleading comments about the sustainability of their fuels, the offsetting of their negative impact on the environment and their efforts to reduce emissions.
“There is far more demand for transparency and accountability around sustainability claims than there ever used to be,” says Butcher. “The Advertising Standards Authority (ASA) has also demonstrated its willingness to pursue advertisers accused of greenwashing, and the Companies Act 2006 means that individual company directors can be held accountable for failures to comply with green commitments.”
In both the energy industry and the finance sector, there is a growing trend of shareholder activism as shareholders collaborate to take issue with the conduct or decision-making of company directors.
“Business leaders really need a clear understanding of the regulatory landscape out there,” says Sharples. “If companies are going to make claims about their sustainability efforts, they need to be able to substantiate them and that needs to drive marketing strategies and underpin any information that is put out there.”
Butcher concludes: “Today, corporate bodies of any size have to fully grasp the impact that their operations are having on the environment. You can’t properly communicate about your impact with consumers unless you know what it is, which will often mean bringing a sustainability officer into the business and making this a genuine C-suite issue.”
Critically, having individuals within the business that fully understand the efforts being made by the CMA, the FCA, the ASA and others to crack down on greenwashing is now a key requirement as companies strive to remain appealing to consumers and compliant with fast-moving law.
