Greenwashing Landscape: Existing and Forthcoming Legislation in the United Kingdom and European Union
In Short
The Situation: Both the United Kingdom and European Union have recently announced proposals to introduce new legal instruments which address alleged greenwashing. When implemented, such legislation would ultimately regulate and curb the environmental claims that businesses in Europe can make in their public communications, as is already the case in France.
The Result: Communications to the public which assert that a particular product is, for example, "clean", "green" and/or "eco-friendly" must be backed by persuasive documentary evidence to demonstrate the accuracy of such claims, taking into account the whole life cycle of the relevant product.
Looking Ahead: The anticipated legislative reforms in the United Kingdom and in the European Union will provide regulators with expanded powers to seek recourse in relation to alleged greenwashing claims made by businesses in the course of promoting, advertising and selling their products. These reforms may well result in an increase of claims initiated by consumers, NGOs and other third parties.
FORTHCOMING LEGISLATION IN THE UNITED KINGDOM AND THE EUROPEAN UNION
Both the United Kingdom and European Union have announced new legislation on greenwashing.
In the United Kingdom, the Digital Markets, Competition and Consumer Bill is expected to be published later this year and to grant the UK Competition and Markets Authority ("CMA") new powers to levy fines against businesses for breach of consumer law (UK Government, Autumn Statement 2022). If this legislation is passed, the CMA will have the power to fine companies up to 10% of their global turnover.
The United Kingdom's Financial Conduct Authority also proposed new rules late last year focusing on alleged greenwashing. The rules will restrict how terms such as "ESG", "green" and/or "sustainable" can be used in respect of investment products.
The European Union published, on 22 March 2023, a new proposal, 2023/0085(COD), for a European Directive on the substantiation and communication of explicit environmental claims (Green Claims Directive) which would set minimum criteria for making environmental claims. This proposal prescribes in detail how green claims for products have to be made and how such claims must be substantiated in order to avoid "unclear or poorly-substantiated environmental claims". Further, the proposal contains detailed provisions on the methodology, transparency and use of green labels as well as claims regarding future environmental performance. Finally, the proposal requires Member States to implement a surveillance system monitoring the market and having the power to investigate and enforce compliance by way of remedies including injunctive relief and "effective, proportionate and dissuasive penalties" in the case of contraventions.
These new laws will supplement the existing regimes in the United Kingdom and the European Union respectively which are increasingly used by authorities, competitors, NGOs, consumers and other third parties to assert greenwashing claims in the United Kingdom, France, Germany and elsewhere.
EXISTING REGULATION OF GREENWASHING
The United Kingdom
Consumers, businesses and groups in the United Kingdom can raise concerns about alleged greenwashing to various bodies including, notably, the CMA and the Advertising Standards Authority ("ASA").
CMA. The CMA is afforded power to investigate greenwashing (among other issues) under the Consumer Protection from Unfair Trading Regulations 2008 ("CPUT") and the Business Protection from Misleading Marketing Regulations 2008. In the near-term, the CMA is expected to gain new powers to fine businesses for breaches of consumer law, as explained above.
The CMA published its Green Claims Code ("GCC") in September 2021 which was intended to help businesses comply with their obligations under consumer protection law when making environmental claims about their products and services. The GCC does not create new legal obligations for businesses but does clarify the CMA's view on how consumer protection laws apply in practice to environmental claims. For example, under the GCC, businesses must ensure that their claims are (i) truthful and accurate; ((ii) clear and unambiguous; (iii) do not omit or hide important relevant information; (iv) compare goods and services in a fair and meaningful way; (v) consider the full life cycle of the product or service; and (vi) are substantiated.
In July 2022, the CMA issued a press release stating that it would be investigating the fashion sector and, in particular, three large fashion brands, regarding sustainability and eco-friendly claims to determine whether they were misleading, in breach of the CPUT (ASOS, Boohoo and Asda investigated over fashion 'green' claims). Fast-forward to January 2023, the CEO of the CMA stated: "[l]ast year we opened an investigation to look closely at eco-friendly and sustainability claims made by a number of firms in the fashion sector. And, as we've said in our draft Annual Plan, we're preparing to launch work examining green claims in other areas too." (Speech by Sarah Cardell, CEO of the CMA to the Scottish Competition Forum: "Sustainability – Exploring the possible", 25 January 2023).
The CMA issued a further press release at the end of January 2023 indicating that it will expand its ongoing work into greenwashing to examine the accuracy of green claims made by companies about their fast-moving consumer goods to ensure that UK consumers are not being misled (UK Competition and Markets Authority, Press Release: "CMA to scrutinise 'green' claims in sales of household essentials", 26 January 2023). Concerning practices include packaging or marketing products as "sustainable" or as being better for the environment without any evidence, and misleading claims about the use of recycled materials or natural materials.
ASA. The ASA is tasked with resolving alleged greenwashing complaints in advertisements and promotional materials. The UK Code of Non-broadcast Advertising and Direct & Promotional Marketing ("CAP Code") and the UK Code of Broadcast Advertising ("BCAP Code") (together, the "Codes") both set out the rules that businesses advertising in the United Kingdom must follow. As its name suggests, the CAP Code applies to non-broadcast advertisements which include ads appearing on a business's own website.
Rules 9 and 11 of the BCAP Code and CAP Code (respectively), relate directly to environmental claims contained in advertising materials. For example, both Codes require the basis of any environmental claim to be clear to consumers and to be based on the full life cycle of the advertised product or service. The Codes also require any absolute claims to be supported by a "high level of substantiation".
In October 2022 the ASA ruled that a UK-wide advertising campaign of an international bank which featured high street billboards relating to climate change omitted material information and was therefore misleading. The ASA concluded that the advertising, which highlighted the bank's environmental initiatives, did not make consumers aware of the fact that the bank continued to finance investments which contributed to notable levels of carbon dioxide and other greenhouse gases. The ASA considered that was material information which was likely to affect consumers' understanding of the overall message. It ruled that the advertisements breached the CAP Code and were prohibited from appearing in the form complained of. The bank was told they must ensure that any future advertisements are adequately qualified and do not omit material information (CAP Code, Rules 3.1 and 3.3 (misleading advertising); Rule 11.1 (environmental claims)).
Germany
Civil Court Actions by NGOs and Competitors. In Germany, competitors and NGOs can assert claims for alleged greenwashing before the civil court. The legal basis for such a claim is the Law Against Unfair Competition which prohibits false or misleading statements or omissions with regard to commercially relevant criteria of a product or service.
Currently, German NGOs, such as the Deutsche Umwelthilfe, are quite active in suing companies for alleged greenwashing. Claims like "climate neutral" or "carbon compensated" are subject to court litigation against several companies before various civil courts in Germany.
Due to a continued lack of clarity, particularly with regard to the meaning and content of terms such as "environmentally friendly", "environmentally compatible" or "organic", as well as the signs indicating these, the risk of misleading consumers is considered to be particularly high in the area of environmental advertising. Clarifying information may be used to avoid misleading the public, as the courts will typically assess whether the documentation provided to support a claim justifies the substance of the claim made.
Administrative or Criminal Proceedings and Investigations. German law also provides for administrative or criminal proceedings in respect of misleading advertisements, enabling the authorities to investigate such cases. In practice, however, these proceedings are rarely used as public authorities nowadays do not actively monitor the German market with regard to greenwashing claims. But it remains to be seen how Germany will implement a monitoring system against greenwashing in the future as required by the European Commission's new proposal.
France
In France, false or misleading environmental claims regarding products or services are considered an offence pursuant to an update of the French Code of Commerce applicable as of 25 August 2022. Such claims may lead to criminal sanctions as well as civil claims from consumers, NGOs or competitors.
Autorité de Régulation Professionnelle de la Publicité ("ARPP"), which is the French advertising self-regulatory organization, publishes recommendations on a regular basis regarding environmental claims, with a recent version dated August 2020. ARPP recommends in particular that advertising prohibits any representation likely to trivialize or promote practices or ideas contrary to the objectives of sustainable development and requires the advertiser to be able to substantiate sustainability claims with objective, reliable, truthful and verifiable information at the time of advertising. The JDP, a branch of ARPP which handles consumer complaints concerning advertisements that appear to breach the ARPP code, has published over the years a number of decisions regarding environmental claims which serve as precedents.
In addition, as of 1 January 2023, carbon neutral allegations are regulated pursuant to Article D. 229-106 of the French Environmental Code. Such provisions prohibit, in principle, advertising a product or service as "carbon neutral", "100% offset" or any similar meaning. This prohibition applies to online communications, advertising correspondence, advertising displays and product packaging. An advertiser may only make a claim of carbon neutrality if it makes a certain amount of information and documents easily accessible to the public to justify the carbon neutrality claimed. Such documents include, in particular, a greenhouse gas emissions report taking into account the entire life cycle of the product or service being advertised. For practical purposes, meeting the requirements of carbon neutrality claims is likely to be difficult for advertisers in France.
Three Key Takeaways:
- Commercial use of environmental claims is becoming an increasingly regulated field in Europe, setting high standards to avoid alleged greenwashing.
- Public authorities, NGOs and competitors are active in addressing greenwashing claims in Europe. When advertising environmental claims or when communicating environmental goals, businesses should ensure that such claims are substantiated by relevant scientific evidence.
- The new laws to come will broaden the opportunities for public authorities to pursue and sanction alleged greenwashing, including the issuance of dissuasive fines. Businesses would therefore be well advised to review and adapt their commercial communication in accordance with the forthcoming legislation.
