Sustainability is now firmly on the agenda for consumers and investors concerned about climate change. As the demand for eco-friendly products and services grows, so too does the risk of companies overstating their sustainability credentials in order to attract and retain customers and investors. This phenomena has been coined ‘greenwashing’ or the ‘green sheen’ and regulators are starting to take action.
Greenwashing can take many different forms ranging from exaggerated or imprecise claims to those intentionally crafted to deceive or mislead. Although initially used in the context of environmental statements, it now extends to broader sustainability concepts. Government enforcement actions and civil suits alleging greenwashing are on the rise through a myriad of different laws, including securities regulations, consumer protection laws, fraud and misrepresentation statutes, and advertising standards. Here we examine some emerging legal trends in greenwashing claims.
Greenwashing can artificially inflate company stock as customers and investors divert spending power to companies with the best eco-credentials. Disclosures related to sustainability can therefore be material from the perspective of securities regulators.
Earlier this year, the U.S. Securities and Exchange Commission (SEC) noted that funds and investment advisers were increasingly offering investment strategies that focus on environmental, social and governance (ESG) factors. In response, it stated that it would “determine whether the firms’ processes and practices match their disclosures, review fund advertising for false or misleading statements, and review proxy voting policies and procedures and votes to assess whether they align with the strategies.” Shortly after, it also announced the formation of a Climate and ESG Enforcement Task Force to proactively identify ESG-related misconduct. One of its objectives is to “identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules”.
In addition to the SEC’s efforts at the federal level, action has already been brought under securities laws by state governments and investors themselves alleging deceptive practices and misleading advertising. Complaints have included allegations that companies have misled the public and investors about their role in climate change in general and the impact that climate change poses for the companies’ long-term business prospects. Other claims have challenged statements made about the environmental credentials of products marketed as sustainable or eco-friendly.
Complainants have alleged greenwashing in advertising campaigns in proceedings before advertising regulatory boards and tribunals in various jurisdictions. Advertisements may be misleading if they make claims that are untruthful, inaccurate, unsubstantiated or ambiguous. Advertising standards codes generally prohibit advertisements which are likely to be misleading. Accordingly, complaints can be made to these bodies without alleging that any identifiable person was actually misled.
A complaint was made to the UK’s Advertising Standards Authority (ASA) about a marketing campaign by Irish airline Ryanair in which it claimed to have “low CO2 emissions” and that it was the “lowest emissions airline”. The ASA found that high CO2 emissions are so commonly associated with air travel that the claim “low CO2 emissions” would be considered a relative statement and that consumers would unlikely be misled into thinking that Ryanair’s emissions were low in an absolute sense. The ASA did, however, take issue with the second claim as the study it was based on was conducted nearly a decade earlier and failed to sufficiently support the claim.
The New Zealand ASA Complaints Board considered a complaint about an advertisement by Firstgas Group for claiming that its gas “is going zero carbon”. No details about the timeline or means by which this would be achieved were given. The Board held that this constituted an unsubstantiated environmental claim and ordered the removal of the advertisement.
A number of complaints have also been filed with National Contact Points under the OECD Guidelines for Multinational Enterprises relating to allegedly misleading statements made by companies about the environmental credentials of their operations. In one case, this led to the marketing campaign being withdrawn before the complaint was determined, highlighting that filing a claim or complaint can be enough to prompt companies to change course.
Complainants have also brought greenwashing claims under consumer protection laws.
The Australian Competition and Consumer Commission (ACCC) is a forerunner in protecting consumer interests in this area and has published a green marketing guide for the last ten years. It has pursued a number of actions for alleged deceptive or misleading practices against automobile and industrial manufacturers under the Competition and Consumer Act 2010.
In the US, many groups or governments have brought actions against companies relying on state or city consumer protection legislation. These include cases brought against fossil fuel companies by several cities, states, counties, and the District of Columbia. There has also been action at the federal level. Earlier this year, a complaint was filed with the Federal Trade Commission alleging that an oil major was misleading consumers about its efforts to reduce greenhouse gas emissions. The complaint is the first one brought before the FTC alleging that a fossil fuel company has breached the Commission’s Guides for the Use of Environmental Marketing Claims.
In the UK, the Competition and Markets Authority recently published a new Green Claims Code to provide guidance to businesses as to their obligations under consumer protection law when it comes to making environmental claims about their goods and services. The guidelines aim to ensure that such claims are not only accurate and substantiated but also clear and unambiguous. The CMA has announced plans to crack down on misleading environmental claims in 2022.
We are likely to see more greenwashing claims as public attention on climate change continues to grow and sustainability become increasingly important in consumer and investor decision making. Regulators will be more pro-active and new sanctions for greenwashing will be introduced. The wave of securities actions in the US will be copied in other jurisdictions and a wider range of corporate actors will be targeted beyond the carbon majors, including financial institutions, insurers and advertising agencies. Technology may well drive new claims with language processing AI tools such as ClimateBert being deployed to identify potential greenwashing. Against this backdrop the corporate world will need to ensure that environmental and sustainability claims are clear, accurate, and supported by objective evidence, and that public statements on decarbonisation commitments are backed up by action.
With thanks to Kevin Bushell, articling student, Vancouver, for his assistance with this article.