Greenwatch briefing series: Issue 1
23 October 2023
Ashurst's regular briefing on the evolving risk of greenwashing and how to manage it
Allegations of greenwashing are widespread. In almost every industry, participants face scrutiny in terms of what they say they are doing about sustainability versus what they actually do. In this briefing, we aim to cut through the noise and draw your attention to key developments in jurisdictions around the world.
Greenwashing is a global issue. Here, we discuss developments in specific jurisdictions and highlight how similar issues may arise in other countries. Rather than focusing exclusively on the legal aspects, in this series we aim to draw on the expertise of our Risk Advisory consulting team and Ashurst Advance, our NewLaw division, to illustrate how technology and resourcing can be used to manage sustainability-related risks.
What's been happening?
Australia: greenwashing litigation
"Australian regulators are turning to the courts to prevent greenwashing. Private claimants are increasingly doing the same.
Alyssa Phillips, Legal and Elena Lambros, Risk Advisory
Investors, members, shareholders and regulators continue to test ESG integrity and seek to hold companies to account for their management of ESG risks and opportunities. This has led to a rise in ESG-related actions and litigation cases in Australia.
Misleading or deceptive conduct in relation to greenwashing is a key enforcement priority for Australian regulators in 2023-24.
Earlier this year, the Australian Securities and Investments Commission (ASIC) launched the first Australian civil penalty proceedings for greenwashing, alleging that Mercer Super made misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. ASIC later commenced greenwashing civil penalty proceedings against Vanguard Investments Australia and Active Super. Further civil penalty proceedings are expected to follow.
The Australian Competition and Consumer Commission (ACCC) released further guidance on making environmental and sustainability claims in July 2023 and has recently made a submission to the Senate inquiry into greenwashing reform, identifying the limitations on what can be achieved through the Australian Consumer Law, which suggests a desire for increased greenwashing regulation in the future.
Private entities are also increasingly bringing greenwashing test cases against companies, including those in the energy and resources sectors, in relation to their net zero and emissions reduction commitments.
The ongoing focus on greenwashing litigation underlines the need for companies to 'say what they mean and do what they say' with respect to their environmental and sustainability-related claims. It is important to be proactive in taking steps to manage ESG-related risks, by developing and implementing robust ESG governance frameworks, as well as adequate and accurate reporting practices, disclosures and Product Disclosure Statements, among other things.
UK: strengthening consumer protections
"The UK consumer protection authority has focused on greenwashing for the past few years. Soon it will have new powers to ramp up enforcement".
Christopher Eberhardt, Legal
In recent years, tackling greenwashing has been a priority for the UK's competition and consumer regulator, the Competition and Markets Authority (CMA). In September 2021, the UK published its Green Claims Code, which provides extensive guidance for businesses on how to ensure that their environmental claims comply with UK consumer law. The CMA has since opened investigations into three fashion brands and announced earlier this year that it will investigate green claims made in the fast-moving consumer goods (FMCG) sector.
The CMA's powers to enforce consumer law in the UK, including as it applies to green claims, will be significantly enhanced once the Digital Markets, Competition and Consumers Bill (DMCC Bill) comes into force in 2024. The DMCC Bill, which was introduced into Parliament in April this year, will give the CMA powers to directly enforce consumer law, such that it will no longer need to secure undertakings from companies, or court orders, to achieve changes in behaviour.
Specifically, the CMA will have the power to issue infringement notices and impose fines on companies (up to 10 per cent of its global turnover) and individuals (up to £300,000) for breaches of consumer law. The CMA will also be able to award compensation to consumers.
We expect that these new powers will herald the CMA's significant ramping-up of consumer law enforcement in the UK. The DMCC Bill does not expressly refer to greenwashing, despite speculation that it would. But with misleading green claims already in the CMA's sights, companies should expect both the level of regulatory scrutiny, and the risks if they get it wrong, to increase.
UK advertising: greenwashing in focus
"There's active enforcement of green advertising in the UK. That presents risks for companies, but it also means there's plenty of guidance on how advertisers can strike the right balance in their messaging."
Anna Varga, Legal
The UK Advertising Standards Authority (ASA) is one of the most active UK public bodies when it comes to policing greenwashing.
In addition to high-profile enforcement actions, ie banning advertisements from a range of financial, energy, and transport companies, in June 2023, the ASA's sister body – the Committee of Advertising Practice – updated its guidance on misleading environmental claims and social responsibility.
What lessons can companies learn from these developments?
First, the ASA sees greenwashing as a priority. This is driven by the belief that consumers are increasingly concerned about environmental issues, and are actively seeking out businesses that are making meaningful progress in moving away from higher-carbon products and services.
Second, the ASA is particularly alive to any advertising it perceives as misleading due to a company's emphasising one "green" aspect of its business, without drawing attention to its wider carbon-emitting activities or the full life cycle of its products or services. This is why the ASA emphasises the need to "get the balance right". The ASA cites as good practice the "inclusion of straightforward, prominent copy in ads that acknowledges the less-climate-positive aspects of their activities, that indicates how early in their journey they are, or that provides summary details of their future planned activities". Adverts that fail to adopt this approach are banned.
These considerations are relevant beyond the UK. The ASA's approach reflects more widespread thinking in this area of regulation and highlights the risks to companies of failing to take adequate care when producing consumer advertising.
Greenwashing and international human rights
"Climate change litigation is often based on human rights arguments. New guidance identifies avoiding greenwashing as one of the expectations for responsible businesses".
Tom Cummins, Legal
When businesses are challenged on climate change issues, those challenges are often framed by human rights arguments. The 2011 UN Guiding Principles on Business and Human Rights set out expectations on businesses to respect human rights and address any adverse impacts on human rights that they encounter.
The Guiding Principles do not expressly mention climate change. However, in June 2023 a UN Working Group published a note on how the Guiding Principles apply to this issue.
Among other responsibilities of businesses in relation to climate change, the note states that: "Business enterprises should act responsibly and not promote unsustainable consumption, undertake greenwashing or seek to have undue corporate influence in the political and regulatory sphere in this area".
In addition, the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (another international standard frequently cited in human rights complaints) was revised earlier this year to include "recommendations for enterprises to align with internationally agreed goals on climate change". These recommendations include commentary on how businesses should approach climate change mitigation and adaptation and the reporting of climate targets.
Documents such as these will probably be cited in future human rights-based challenges to alleged greenwashing by international companies.
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