ESG Litigation Part 1 – Greenwashing: Is your business really 100% organic?

In a short space of time, Environmental, Social and Governance (ESG) has placed itself at the top of many corporate agendas. ESG has elevated expectations that customers, clients and investors have of businesses to consider sustainability, social responsibility and social justice when conducting business. Operation and management teams are now under pressure to consider these issues on a day to day basis when making commercial decisions.

In this mini set of blogs, we will have a look at the types of litigation trends we are seeing in this area. In part 1, we will be taking a look at the rise of “greenwashing” in litigation.

What is Greenwashing?

Consumers and investors are increasingly beginning to invest in sustainable products and environmentally friendly services. The term “green” is frequently used to describe products which purport to minimise their environmental impact. Businesses are increasingly using “green” product labelling as marketing strategy to attract customers. 

“Greenwashing” is when a business describes its operations or products as sustainable and environmentally friendly without having the credentials or data to back this up.

“Greenwashing” in the fashion and retail industry has been most commonly observed with companies that use statements to describe their brand as “eco-friendly”, “organic” and “sustainable” – so called “greenwashed products”.

When does litigation in this area arise?  

Over the past few years, the fashion and retail industry has become a target for “greenwashing” consumer class actions. This is when consumers represent a class of individuals who have purchased products which are represented as “sustainable” by major fashion retailers.

Some of the biggest fashion and retail brands have been subject to greenwashing proceedings and investigations, including Boohoo, H&M, Tesco and HSBC. These investigations have targeted the following:

• Statements and language used by the companies which suggests that their products or services are more sustainable than they actually are; and
• The criteria used by companies to decide what products to include in their “eco-friendly” collections, for example, alleging that some products are made of recycled materials but contain as little as 20% recycled fabric.

This trend is likely to continue as more and more consumers consciously purchase environmentally friendly products and demand for green and sustainable products subsequently increases.

An example of  “greenwashing” retail-related litigation includes the Advertising Standards Authority (ASA) ruling on HSBC UK Bank plc.

In 2021, HSBC came under fire for a series of adverts it made in 2021 ahead of COP26, which were said to have misled consumers as to its green credentials.

The Ads

The two adverts were seen on bus stops in Bristol and London in October 2021 in which HBSC represented  it was:

“…aiming to provide up to $1 trillion in financing and investment globally to help [its] clients transition to net zero” and “helping to plant 2 million trees which will lock in 1.25 million tonnes of carbon over their lifetime”.

The Law 

The ASA considered these adverts in accordance with the Code of Non-broadcast Advertising and Direct & Promotional Marketing (CAP). In addition to breaching Rule 3.3 of CAP which states that marketing materials must not mislead the consumer by omitting material information, Rule 11 specifically relates to environmental claims. Rule 11.1 states that the basis of environmental claims must be clear and that unqualified claims could omit significant information.

Decision  

The ASA concluded that HSBC’s adverts were misleading because they contained unqualified claims as to HSBC’s green credentials and omitted material information about the bank’s contribution to carbon dioxide and greenhouse gas emissions, in particular by failing to mention its financing of fossil fuel projects links to deforestation.

ASA found that the adverts would lead to the consumer thinking that HSBC was making, and was intending to make, an overall positive environmental contribution, which does not appear to be the case when looking at the whole picture.

What legislation is in place to prevent greenwashing?

Since early 2022 and following CAP’s decision in the HSBC case, there has been a significant turning point in the ESG regulatory framework and a number of developments in the UK and internationally illustrate a broader trend in this area.

These include:

• The Green Claims Code. The Competition and Markets Authority’s Green Claims Code which is aimed at protecting consumers from misleading environmental claims and related concerns about unfair competition.
• Financial Conduct Authority (FCA) Action. In October 2022, the FCA announced its proposed measures to enforce greater scrutiny over ESG representations to protect consumers and improve trust in sustainable investment products. These should be implemented in mid-2023. 
• ASA’s Climate Change and Environment Project - In 2021, ASA launched their own Climate Change and Environment Project which is aimed at reviewing how effective their rules are in governing greenwashing claims and other environmental claims. As part of this project, they will look at new ways they can be more proactive in tackling green claims and will aim to develop the advice for advertisers so they can advertise their alleged “eco-friendly” products or services more responsibly and accurately.

Clearly, this is a growing trend and we are likely to see legislative powers extended to ensure that businesses purporting to be “green” are qualified to make such statements.

Individuals and businesses need to be very careful when promoting sustainable goods or services and should seek legal advice and guidance to mitigate their risk which could arise from their campaigns or advertisements.