The fight against greenwashing – the last straw for misleading environmental claims?

WHAT IS GREENWASHING?

Greenwashing is not a new phenomenon. The term was coined in the 1980s by the environmentalist Jay Westerveld to describe the hypocrisy of hotels calling on their guests to save the planet by reusing their bath towels while they pursue expansion strategies, arguably causing ecological damage. More broadly, greenwashing is the practice whereby companies use advertising and marketing to make their products, values and policies appear more environmentally friendly than they are in practice. It also describes techniques employed by some corporations to obscure the extent of the environmental harm which their activities cause.

Use of the term has increased exponentially in recent years. Notable headline-grabbing examples of greenwashing accusations have ranged from numerous airlines claiming without substantiation that they have lower emissions than their competitors, allegations that oil and gas majors disproportionately focus attention on their (smaller) renewables businesses to distract from their continued exploitation of fossil fuels, and fast food and coffeehouse chains making a virtue of axing plastic straws in their restaurants to protect sea life in favour of alternatives which either contained more plastic or were not recyclable.

It is an often-repeated statistic that significant proportions of consumers, particularly younger ones, would be happy to pay more for environmentally sustainable and ethically sourced goods. As consumers increasingly demand that the products they buy and the services they use are sustainable and environmentally responsible, companies have a growing commercial incentive to brand themselves, their activities and their products and services as "green". This has led to a surge in advertising and social media campaigns focused on the "carbon neutral", "eco-friendly", "sustainable", "net zero", "100% recycled and recyclable" or "kinder for the planet" credentials of their products and services.

While some of these claims are evidence-backed, others have been shown to be exaggerated, false or deceptive. For example, claims of being "carbon neutral" and "net zero" are often based on carbon offset schemes, despite vast disparities in the quality of different carbon credit schemes, and the growing body of scientific evidence questioning whether offsetting has any material impact on reducing deforestation and biodiversity loss.

 

WHY DOES GREENWASHING MATTER?

The UN notes that common hallmarks of greenwashing tactics used by companies to improve their public image include:

• statements about being "on target" to reach net zero when the company has no credible plan in place;
• ambiguous or non-specific statements about the company's operations or materials, which are not substantiated and cannot be verified by consumers;
• misleading or simplistic "green" labels on the company's products, using terms which do not have standardised meanings and can therefore be deliberately misused by the company or misinterpreted by consumers;
• presentation of minor improvements as having a major impact on emissions, and of products which meet minimum regulatory requirements as being significantly better than the standard;
• focus on single, small environmental attributes of the company's products and no recognition of other, significant negative impacts; and
• emphasis on the sustainability of certain products in isolation from a company's activities and operations (and vice versa). This may include a fashion brand promoting its recycled clothing which is manufactured in a factory that has high carbon emissions and contributes to water pollution by discharging waste chemicals and oil into nearby waterways, or an airport publicising its initiatives to reduce single-use plastic, while not acknowledging the environmental impact of air travel.

Academics and campaigners argue that such misleading claims about the environmental impact of products and services are hampering efforts to tackle the climate crisis.

• On the one hand, greenwashing distracts from the real issues and the causes of the climate crisis. It places the emphasis on consumers making small changes to their own carbon footprints, rather than on carbon-intensive industries decarbonising their operations and ending their reliance on fossil fuels.
• On the other hand, greenwashing also causes consumers to treat all "green" claims with scepticism and thereby reduces their power to drive positive change in companies' businesses by voting with their feet. If all brands and products claim to be green, it is more difficult for consumers to make genuinely environmentally friendly purchasing choices.
• In addition, greenwashing also gives consumers, investors and the public the false impression that action is being taken to tackle the climate crisis. In turn, this belief damages public debate surrounding climate change, undermines the drive for urgent and ambitious action, and delays concrete mitigation measures (reducing emissions of greenhouse gases) and adaptation measures (building resilience to adapt to the effects of climate change which is already underway), both of which are critical to global efforts to combat the climate crisis.

 

IS THE END IN SIGHT?

As institutions and consumers place greater importance on products and services being environmentally friendly and sustainable, companies have a tangible financial incentive to amplify the environmental benefits and minimise or omit the environmental harms associated with their activities.

However, some commentators believe that the golden age of greenwashing is now coming to an end. With the increased threat of legislative/regulatory intervention and claims from disgruntled consumers, activist stakeholders and other advocacy groups, there is a high level of public scrutiny of green claims, and companies now risk enormously damaging adverse publicity when they “get it wrong”. 

1. Threat of increased legislation and regulatory enforcement

Authorities in the UK and several other jurisdictions (most notably the EU) are now moving to crack down on false, unsubstantiated or inflated claims by businesses about their eco credentials.

Marketing and advertising practices

In the UK, the Advertising Standards Authority (ASA) has targeted a growing number of companies across a range of sectors in relation to their environmental and sustainability claims. In particular, the ASA has taken enforcement action over recent months against:

• oil and gas companies, for omitting material information about their operations and thereby failing to give a balanced view of the progress of their decarbonisation plans;
• airlines, for making representations about the sustainability of aviation without contextualising them properly, and minimising the negative environmental impact of flying; and
• food and beverage companies, for a range of unsubstantiated claims such as whether packaging was 100% made from recycled materials and whether comparisons between dairy and non-dairy milk products were accurate.

The ASA has an enforcement focus on "carbon neutral" and “net zero” claims, indicating that such claims are unlikely to comply if they are unqualified and/or if they are based on offsetting but fail to provide information about the offsetting scheme involved. This follows reports that many carbon offsetting schemes (which typically involve planting trees to compensate for greenhouse gas emissions, for example from transatlantic flights) are ineffective and not themselves sufficiently transparent.

Similarly, in May, the European Parliament approved draft legislation to stop misleading environmental and sustainability claims. Amongst other changes, the new directive will ban generic claims like "eco", "natural" and "biodegradable" unless backed by detailed evidence, and environmental claims that are based solely on carbon offsetting schemes; and will also require that many green claims be independently verified and accredited before they can be run (for more detail on the proposals, see here).

The fashion industry has been subject to increasing levels of public criticism and consumer pressure in recent years over the harm caused by fast fashion. In 2022 the UK’s consumer regulator the Competition and Markets Authority (CMA) started an investigation into a number of retailers on the grounds that the marketing of certain fashion lines or particular products as "recycled" or "responsible" conveys the impression that they are more environmentally sustainable than they in fact are. Regulators in Europe and the USA have been conducting similar investigations. Likewise, in January 2023 the CMA announced a review into claims made about products in the FMCG sector (covering food, drink, cleaning products, toiletries and personal care items- for more detail, see here).  It is worth noting that the CMA’s enforcement powers in consumer protection matters (including misleading green claims) are expected to be significantly enhanced in 2024, to include the ability to fine up to 10% of global turnover in the most serious cases.

Reporting and disclosure requirements

In the UK, the Financial Reporting Council (FRC) launched a public consultation in May on changes to the UK Corporate Governance Code, which applies to companies listed on the London Stock Exchange, aimed at increasing boardroom responsibility and accountability for the accuracy of accounts in relation to ESG matters. The proposed changes (to take effect from 2025, if implemented) include placing responsibility for ESG reporting on a company’s board and audit committee and introducing explicit requirements to explain in annual reports how the sustainability of the company's business model and ESG matters have been taken into account in the delivery of the company's strategy, specifically including its "climate ambitions" and "transition planning".

These proposed changes follow the entry into force in January of the EU's Corporate Sustainability Reporting Directive, which requires large companies, and listed small and medium sized enterprises, to report on environmental and sustainability matters. From FY2024, over 10,000 EU companies to whom the new rules apply will be required to publish information on environmental risk, how their activities impact the environment, and a range of other matters, including treatment of employees, respect for human rights, anti-corruption and bribery, and boardroom diversity. The aim of the rules is to allow investors and other stakeholders to assess those companies' environmental impact and sustainability performance, and the associated financial risks.

The International Sustainability Standards Board (ISSB) also published a new set of norms in June. The ISSB standards set out detailed disclosure requirements on listed companies in relation to (1) sustainability-related financial information and (2) their governance, strategy and risk management in relation to climate-related risks and opportunities that they face. Individual countries will decide whether or not to require listed companies to apply the ISSB standards from FY2024 onwards. As at the date of this article it is understood that major economies including the UK, Canada, Australia, Hong Kong, Singapore and Japan are considering their implementation.

2. Rise of greenwashing litigation

Businesses are likely to face an uptick in civil claims brought by activist investors and shareholders, affected consumers and interested NGOs, attempting to enforce corporate compliance with emissions targets and seeking redress for any perceived greenwashing.

Such claims have targeted fossil fuel multinationals and businesses in the aviation, automotive, fashion and food industries. Although greenwashing litigation has not yet fully taken off in England and Wales, it is proliferating in Europe and the USA, in step with the growth of broader climate-related claims worldwide. Even if such claims fail, such as a class action lawsuit against a clothing retailer (which has recently been dismissed) in relation to the use of sustainability language in its marketing, they may still cause long-term damage to the public perception of the brand and the value of the company.

Future greenwashing claims in England and Wales may take several forms, each with their own challenges. For example, we may see claims in the tort of deceit for allegedly false statements made by the seller of a product (although it may be difficult to establish intention to defraud the purchaser, or loss), misrepresentation claims, or claims for breach of statutory duty relying on environmental legislation/regulation. However, despite the difficulties inherent in such actions, the objective of claimants may not be to obtain favourable judgments or compensation for their losses. Instead, activist investors in particular may be more interested in using legal proceedings as a means to exert public pressure on companies, to force them to change their climate strategy.

 

COMMENT

Companies should very be wary about making claims about their environmental or sustainability credentials, unless they can be demonstrated to stand up to objective scrutiny. Any false/exaggerated marketing of products or services as "responsible", "sustainable" or "carbon-neutral", advertising that overstates or misrepresents corporate climate pledges, or inaccurate/inadequate disclosures that obscure the true environmental impact of firms' activities and operations are increasingly likely to attract the attention of regulators, gain unwanted press coverage and may lead to activist groups taking legal action.

Any statements about environmental and sustainability attributes must be substantiated and independently verifiable, and comply with the relevant rules, including (in the UK) the ASA's updated guidance on misleading environmental claims and social responsibility published in June and the CMA's Green Claims Code. Aspirational, vague or imprecise claims will not stand up to close scrutiny, so the language used must be carefully chosen and appropriately qualified. What is omitted may be equally as important as what is disclosed, to avoid creating a misleading impression about the environmental impact of products and services.

As a result, it is essential for businesses to ensure that their marketing, corporate communications, sustainability, and legal teams work closely to ensure advertising campaigns and social media posts do not fall foul of tighter rules, and are supported by robust evidence to back up any public statements on ESG issues. They must also keep an eye on rapidly developing legislation, guidance and case law in this area, which often differs significantly between jurisdictions.  Companies will need to conduct a delicate balancing act between the understandable desire to publicise the positive action they are taking towards net zero, and the risks associated with overstating or concealing their true progress.