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Speaker
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Transcript
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Mike Barlow, Partner, Burges Salmon
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Welcome to Environment Matters, a podcast by the Environment team at Burges Salmon. I'm Mike Barlow, a partner in the Environment team. Each month I'll be joined by members of the team to discuss key environmental developments and hot topics in UK environmental law. I'm joined today by my colleagues Ian Truman, who's a partner in the team.
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Ian Truman, Partner, Burges Salmon
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Morning Mike.
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Mike
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Morning, and Victoria Barnes, a senior associate.
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Victoria Barnes, Senior Associate, Burges Salmon
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Hi Mike.
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Mike
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Hi, so Victoria, what are we going to be talking about today?
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Victoria
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So today in our podcast we're going to be discussing greenwashing and green claims and the reason why is that green washing has become a real hot topic and a very pressing issue over the last few years and that's because businesses have really sought to try to respond to this growing interest in environmental factors by making those green claims, but with those claims has come increasing scrutiny from across the board, consumers and customers, regulators and activists, so what we hope to do really in chatting this morning is sort of unravel this often complex and multifaceted issue so that our listeners have a better understanding of what greenwashing is, what the risks are and how to avoid doing it.
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Mike
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Great, thanks, I think probably the first thing we need to do is just to
make sure that we all understand what we mean by greenwashing when we're talking about these sorts of claims. Ian, Ian what do we mean by the term today?
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Ian
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Thanks Mike, well it is a difficult, we do have some definitions particularly in the Financial Sphere, for example, from the European Financial Regulators, but there's no universally accepted definition, what we're really talking about here is referring to misleading claims about a business's environmental credentials, which are giving an impression of the business's activities that are either less harmful or more beneficial to the environment than they really are.
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Mike
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Great, so what I suppose might be quite useful for listeners then is just to share some sort of practical examples of such claims just so that we can make sure that we've really nailed that down what we're talking about. Victoria, have you got any sort of examples we can think about?
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Victoria
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Yeah, yeah definitely I think sort of off the back of what Ian said, green claims are essentially sort of there's any suggestion that your business, your product, your service, your operations is green or sustainable so
the common form that we see is sort of broad terminology you know, things like eco-friendly, sustainable, on packaging it's either recyclable or better for the environment, so those are kind of like the common taglines that you see.
Importantly it's not always what you say it's sort of how you say it as well so the use of symbols, logos, graphics on packaging even sort of imagery of nature and wildlife that can all suggest environmental friendliness so that's something to look out for as well, it's not that you have to really label sustainable all over your product for example, and I think we should also bear in mind that it's very often businesses when
they do fall foul of greenwashing it's entirely inadvertent often there are examples of deliberate as well, but really, it's often just due to a misunderstanding of how to promote their genuine sustainability achievements in line with the existing rules and guidance.
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Mike
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So, how big an issue is this currently?
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Victoria
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Well Mike, what we've seen is that the accusations of greenwashing have really surged in the last five years, and this goes back to you know what I said at the beginning is that you know businesses have sought to meet this growing consumer demand for green, sustainable products and as they've done that there's been these more and more green claims made and we've seen a real rise in misleading or unsubstantiated claims and to just give you kind of an idea of the scale of the issue, there's been some real notable studies done, one by the EU Commission from 2020 and what the EU Commission did is they looked at a sample of about 150 environmental claims from a wide range of products and they found that 53% of those had vague misleading or founded information and 40% were unsubstantiated.
Similarly, we've had the Competition and Markets Authority here in
the UK coordinate a global review of randomly selected websites and found that 40% of green claims made online could be misleading customers and consumers so it's a significant problem with unsubstantiated or even deliberately misleading green claims and the scale of this problem Mike is not going unnoticed, consumers, regulators what we've seen highly motivated and organized NGO'S are really clamping down and calling this out and as a result companies are really facing a variety of risk, litigation, regulatory in addition to the kind of financial and reputational risk that flow from a green washing accusation or action or regulatory investigation.
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Mike
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Yeah that's, I mean that really is quite a significant, those are quite significant statistics I think, so it really is important that businesses get to grip with this and confront these issues.
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Victoria
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Yeah absolutely, litigation risks have increased in this area and what we're seeing, and I know I think Ian's going to come on and maybe talk about this a bit later, the regulatory framework's across the globe are becoming more focused and stringent, so these risks are only going to intensify over the, over the coming years and you've hit the nail on the head Mike, businesses really need to ensure they're aware of this changing environment and they're taking steps to mitigate these risks.
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Mike
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And I think there's quite a number of claims and litigation isn't there around this, do you want to just sort of talk us through a little bit of that and, and that risk?
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Victoria
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Yeah, I can certainly walk through some examples of litigation that we're seeing and sort of some themes and the types that are happening across various jurisdictions.
So, I think at the outside just to make clear what greenwashing is it's essentially misrepresentation and that can lead to legal claims alleging misrep or fraudulent misrep and possibly breach of contract and there's an example in Australia of a case that's been brought against the oil and gas company Santos which is example of a misrep claim, in that case which was I believe issued in August 2021, the Australian Center for corporate responsibility which is a shareholder advocacy NGO alleges that Santos's claims that natural gas is clean true effect of natural gas on the climate, including the large releases of CO2 fuel and provides clean energy misrepresents the true effect of natural gas on the climate, including the large releases of CO2 and methane during extraction and burning and the
NGO claims that those misrepresentations violate Australia's consumer protection and corporation laws.
Santos refutes those claims and proceedings are ongoing so that hasn't been resolved those proceedings yet but that is an example of a misrepresentation claim and, you know, it also illustrates how prominent NGO's are really becoming in this space and that's really a growing danger for businesses, the litigation that we're seeing from consumer and pressure from pressure groups and class actions and that's been most prominent in the US as well.
H&M for example last year was at the receiving end of a class action in Missouri where the company was alleged to have misrepresented its garments, its conscious range because obviously the products, they were being sort of represented as sustainable but yet most of them, the majority of the product was polyester or recycled plastic. That claim actually ultimately failed but there's been sort of numerous cases was sort of followed and came before that across a number of sectors from sort of food, beverage, airlines.
In Europe obviously class action has not been has been much more less common but that may be starting to change and actually at the end of last year in Germany, a consumer group there brought a claim against Deutsche bank's asset management unit DWS for allegedly misrepresenting a funds green
credentials in marketing materials and that came off the back of a regulatory investigation. Coming sort of closer to home in the UK, there's been a wave of greenwashing rulings by the Advertising Standards Authority, the ASA they've really been at the forefront on the green washing issue and there you've seen numerous decisions in the last couple of years against HSBC
Tesco, Innocent Smoothies and even this year there was some adverse rulings against Etihad, Shell and Repsol for misleading consumers over their environmental impact of their products and services.
I think the last one to kind of mention which kind of falls into the more climate washing area, so not really squarely a greenwashing claim but an important kind of piece of litigation this year and that's the derivative action against Shell that has been brought by a non-profit organisation and minority shareholder in Shell, now that claim alleges that the board's mismanagement of climate risk puts the directors in breach of their duties under the UK Companies Act and this case is interesting as it sort of follows a trend of climate washing cases that have been filed before courts across numerous jurisdictions from the US, Australia, France and the Netherlands since 2016, and certainly it's raised a few eyebrows in boardrooms across the globe. So overall Mike, sort of canted through some of that but I think the key message is the legal threat from greenwashing and climate washing litigation is mounting.
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Mike
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Thank you, Victoria, it's like a lot of these areas isn't it where increasing sort of consumer and NGO pressure is coming through the courts and we're seeing lots of those sorts of claims and I think there's, there's a quite a lot of regulation that's growing up as well around these greenwashing issues, Ian do you want to sort of take us through the regulatory position?
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Ian
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Sure I, I think it's fair to say that historically regulation has been pretty limited in this area but it's definitely catching up, as Victoria mentioned we're definitely seeing increased scrutiny of these green claims by UK regulators we'll start with and we've mentioned a few of these already, Financial Conduct Authority, the FCA, Competitions and Market Authority, the CMA, and the Advertising Standards Agency.
So sort of starting with the FCA, they're proposing an anti-greenwashing rule as a first component of their sustainability disclosure requirements and unfortunately these have been delayed from their initial target of June 2023, but they are now expected by the end of this year I think. The FDA are also looking at sustainability link loans following concern that the sustainability targets attached to those loans aren't, aren't quite stringent enough, so you're getting there people that are picking a product assuming one thing when actually that it doesn't turn out to be the case, so that's sort of the FCA, CMA in September 2021 they published a green claims code which was based on Consumer and Business Protection Law but it really aimed to help businesses understand and comply with their existing obligations when making these environmental claims.
The requirements of this code are fairly stringent you know claims have to be fully backed up with data, they have to be clear, they have to be complete, and they really have to consider the product's whole life cycle, you can't cherry pick the best part of a life cycle and they you know they have to cover the full gamut from production to disposal, and any shortcomings against, you know, performing in accordance with this code could constitute greenwashing and could therefore lead to action by the regulator for misleading consumers.
We've also got the upcoming digital markets Competition and Consumer Bill which is a bit of a mouthful, but it essentially gives the CMA the similar powers to those that enjoys in the competition arena, so it allows the CMA to fine perpetrators or offenders up to 10% of their global turnover for misleading green claims, so that's really going to get people's attention I think and this bill is making its way through the parliamentary process at the moment and will continue, or is continuing now as the autumn session resumes.
Finally in the UK, the ASA has updated its guidance on misleading environmental claims and social responsibility, and this draws onto the principles by establish in recent ASA rulings and also those principles of the CMA's green claims code that I just mentioned, and so marketeers really have to really have regard to these when making claims about initiatives where they're making any claims about environmental impact.
And in addition, to these changes to the regulatory frameworks we're also seeing a significant uptake in regulatory effort in this area, as Victoria has already mentioned, there have been numerous greenwashing rulings and all the regulators have ambitious programs of work in this area. An example of this, a CMA has announced earlier this year that it's opening an investigation into environmental claims made in relation to a wide range of fast-moving consumer goods, so things like food, drink, and toiletries to try and work out whether businesses are complying with relevant Consumer Protection Law or not.
And then briefly on the EU, we still have to think about the EU, there is a draft EU claims directive that was published in March this year and that aims to establish sort of first set really of detailed EU rules for substantiation of voluntary green claims, and they're looking at requirements for claims and labels to be checked by an independent and accredited verifier, new rules on government's environmental labelling schemes to really ensure they are solid, these are solid, transparent and reliable and the critical thing here of course is that this directive does still apply to any company that makes a voluntary environmental claim directed at EU consumer's so that can obviously apply to a business in the UK
And then finally on this we've got the EU Council and Parliament they've announced as recent in mid-September this year the draft rules will be updated to ban generic environmental claims which Victoria mentioned earlier, things like a product being environmentally friendly or climate neutral unless there's sort of really proof of that exceptional environmental performance that's been provided and these rules will go forward for final endorsement and adoption by the council and Parliament which is expected to take place in November and once directive comes into force member states will have 24 months to incorporate the new rules into their law so, you know it will apply to UK companies of course once it becomes legally enforceable.
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Mike
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So that's really interesting I think isn't it, you've got on the one side you got companies increasingly coming under pressure in relation to environmental issues and making sure they tackle those but on the other you've got these sorts of growing threats of regulation and litigation so, I mean Victoria we are we seeing an impact on businesses from that?
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Victoria
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We are Mike and I think this sort of impending threat of legal and regulatory action, or potentially, is causing a level of business anxiety and leading some to be concerned that actually the result of all of that will be that businesses may feel compelled not to communicate as much about their green credentials.
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Mike
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And that's what we call green hushing isn’t it?
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Victoria
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Yeah, that's right and this is kind of the what people sort of seeing as sort of potential chilling effect of all of this and there is some evidence of it and you know there's a narrative out there that companies, businesses kind of have this binary choice between either green washing or green hushing, I'm not quite sure you know that's a very simplistic way of looking at it
and the ASA sort of come out publicly and said that they don't agree that there's this you know simplistic binary, binary choice although they have recognized that there is causing some business anxiety around sort of the risk of making claims that are misleading.
But I think businesses can take comfort from the fact that the ASA and other regulators have, you know, publicly come out and said look, you know, impactful and informative green claims really do benefit consumers because they enable them to make responsible choices when they're choosing products and services and businesses really do have a right to speak about their environmental credentials but in doing so they need to be sort of realistic and honest and tell a true story of their sustainability journey that they're on and they may be at a diff you know, they're probably along the way on that journey, at the beginning or the end or somewhere in the somewhere in the middle but when they're communicating they don't want to get ahead of where they are on that journey and paint a misleading or irresponsible picture, so accuracy and transparency of communications is really key to that and I think, you know, we've talked a lot about the risk here but I think let's not lose sight of the fact that actually getting to grips with greenwashing presents a real opportunity for positive change and we've had a number of clients come to us and sort out help and advice and they're really trying to get to grips with any potential exposure and seeing it more as a positive opportunity to make some changes and put their house in order but also, as I said, doing those things, making impactful green claims that really will have a beneficial impact for their consumers and other businesses out there.
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Mike
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Yeah, thank you for that and I think that leads us on really nicely to you know so what, what's the advice in relation to practical steps that businesses can take faced with these risks, Ian have you got any thoughts on that?
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Ian
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Yes of course, you know it's important to recognize this is certainly a growing risk and as Victoria mentioned there's a fair bit of anxiety, but it's important to remember that there are always steps that businesses can take to mitigate these sorts of risks whilst continuing to exploit the opportunities that are available.
To bore this down to a really high level I think, like any risk it's really important to understand your own exposure you know, what risk you are exposed to as a business, are you making green claims about products or services either you know inadvertently or intentionally. Are you making climate related disclosures in your company reporting, for example, you know and really identify all of the areas of your business and trying to sort of really understand your own exposure and then like any risk it's a question
of how you then manage that going forward, you know, have you got a plan for managing those risks whether that's developing sustainability policy, updating your existing risk management procedures to include sustainability criteria, making sure that this is coordinated and
communicated across your whole business to make sure there's a governance structure around this, because that's the danger with these new risks is that they don't really fall in any existing, you know, box for one very well within your business and they just get and, you know, left and that's where the problems can arise.
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Mike
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Yeah, and thank you for that and Victoria I know one of your things you particularly like doing is helping clients with their disclosures and I know you've gone through various, you know, bits of material that have been identified by clients in the way that Ian's talked about so if you've got any sort of top tips that you could give businesses in relation to when they've identified those communications, how to make them as risk-free as possible and as impactful as possible.
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Victoria
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Yeah, I can certainly give some kind of examples of key things to sort of look out for when making sort of any sort of claims and as you said Mike, we've worked with a number of clients looking at when they've wanted to
to make a statement or have a new sort of catch line they want to use on a product, and we've gone through and noted any potential sort of red flags for doing that, I think the ASA sort of described it as kind of practical tips to green speak with confidence so here are my sort of top tips. I think the first one really is precision, care and accuracy is really important and what the ASA actually has said on this point in particular is that really businesses should look to use more limited claims and add appropriate qualifications
rather than these broad and vague terms which often is getting companies into trouble.
The second is specificity, claims should be specific, you know, avoid those vague terms, green, sustainable, environmentally friendly and you know these absolute claims or comparative claims, you know, businesses if you want to use those you need to explain what they mean and what you're comparing yourself to and making sure you can, you can back that up. Balance, adding balance is incredibly important and this goes back to what I said earlier, you know, earlier in the podcast about giving a realistic picture of where you are on your sustainability journey and what's
happening across your organization and it's especially true if you're making sort of broad aspirational claims and we've often seen this in the sort of high carbon emitting sectors, so businesses tell a balanced story making sure they're portraying their company's business model sort of accurately, you know, I mentioned Shell, Repsol and Etihad a little earlier and they all tripped up on this because they made claims about their green credentials and aspirations, when at the same time the reality is their high carbon business models, the high carbon sectors and their ads were totally out of kilter of the overall, of their overall kind of picture of their business.
The fourth is evidence businesses really need to make sure they're backing up their claims and the best way to do that is ensure all your claims are supported by robust, credible and up to-date evidence and that they're regularly reviewed and, you know, most of the time sort of internal data and records are sufficient but also sort of independent verification goes a long way as well.
And lastly, kind of a final point to sort of sum up really and if our podcast, you know, podcast listeners don't remember anything they can remember this, it's really important that businesses put themselves in the shoes of the consumer, the consumer will invariably have really high interest in what these claims are but low sort of knowledge and understanding of the sometimes complex issues that underpin these claims, so businesses should have, should assume that sort of low knowledge but really work hard to make sure their message isn't misunderstood, so yeah shoes of the consumer.
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Mike
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That's fantastic really helpful practical advice but both of you and thank you both generally in relation to the podcast I think that's a good place for us to stop, it's been really interesting to talk through those issues certainly green washing is becoming an increasingly hot topic it's likely to remain that I think for the foreseeable future, so if any listeners want to get in touch about any of the things that we've talked about today then please do get in touch with any of the, any of the speakers today. So thank you all for listening.
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Victoria
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Thanks Mike.
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Ian
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Thanks Mike.
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Mike
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Thank you for listening to Environment Matters, if you'd like to know more about our Environment Team and how our experts can work with you, you
can contact me, Michael Barlow, or any other member of the team via our website. If you enjoyed this podcast, you may also enjoy listening to our next podcasts which will be available on Apple, Spotify, or wherever you listen to your podcast normally.
Our next episode is on nature-based solutions, so don't forget to subscribe and thanks for listening.
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