Greenwatch: Issue 5
12 December 2024
Ashurst's regular briefing on the evolving risk of greenwashing and how to manage it.
Welcome to the fifth issue of Greenwatch, where we look at the risk of greenwashing – and how companies can mitigate it.
In this issue we explore five hot topics for 2025, focusing on legislative changes and enforcement actions anticipated in the UK, EU and globally, and what they mean for your organisation.
What's been happening?
UK: Driving Sustainable Growth - The Competition and Market Authority's (CMA) role in the UK's net zero transition and what to expect in 2025
"Facilitating the UK's transition to a net zero economy is a key priority for the CMA and global regulators. Regulatory enforcement against misleading green claims is intensifying, with the CMA's new consumer enforcement powers starting in April 2025. These powers include imposing fines of up to 10% of worldwide turnover for breaches of consumer law, raising the prospect of substantial penalties for greenwashing."
Christopher Eberhardt, Legal
The CMA's annual plan for 2024-25 commits it to supporting sustainable and productive growth, helping accelerate the UK's transition to net zero. This commitment concerns two key areas:
- Regulatory enforcement against greenwashing: The CMA has been active in enforcing its Green Claims Code (see Issue 1 and Issue 4). The new consumer law's direct enforcement powers will increase enforcement activity and penalties for breaches. The fashion sector is under scrutiny. Tailored guidance has been issued and several companies have made undertakings. The CMA has made it clear that future investigations into misleading green claims could see firms facing significant fines.
- Sustainability agreements: Several competition regulators have now issued guidance for businesses collaborating to achieve sustainability goals. The Australian competition authority is expected to follow suit. In the UK and EU, while the guidance helps firms to self-assess the risk of any initiative, few have taken up the option of seeking informal advice. The CMA has issued informal guidance to Fairtrade on its Shared Impact Initiative and to WWF on decarbonising retailers' supply chains. These opinions provide helpful guidance for other businesses considering similar initiatives, and it will be interesting to see whether other firms take up this advice.
What does this mean for you?
- Businesses should ensure that their environmental and sustainability claims are clear, precise, accurate and substantiated, and that they have the policies, training and systems in place to ensure compliance.
- Proposed collaborations and initiatives for promoting environmental sustainability should consider the CMA's published guidance on competition law risks and whether seeking informal advice would be helpful. In the UK, agreements and initiatives which have been discussed with the CMA in advance through the informal opinion process are protected from fines.
With thanks to Olivia Spong for her contribution.
Europe: What can we expect from the new EU Commission?
"The new Commissioner for Climate, Net Zero and Clean Growth, Wopke Hoekstra, announced during his confirmation hearing at the European Parliament that he will work on proposing clear rules against climate-greenwashing in view of the implementation of the Green Claims Directive".
Giovanna Ventura, Legal
The proposed Green Claims Directive (see Issue 2) is still to be finalised. It aims to ensure that green claims are reliable, comparable, and verifiable across the EU by requiring companies to substantiate their claims. Inter-institutional negotiations between the Council of the European Union, European Parliament and the Commission will start soon, but key differences have already emerged. The Council and Parliament support a simplified verification procedure for certain claims, making obligations on traders less onerous. However, the Commission has concerns about amendments related to climate claims and the impact on voluntary carbon markets. Negotiations are ongoing on how best to protect consumers from greenwashing, while promoting environmentally sustainable innovation and maintaining a business-friendly environment for economic operators.
What does this mean for you?
- Stay abreast of the European political landscape changes: - the European Commission proposed a Green Claims Directive in March 2023, and the European Parliament and the Council adopted their positions in March and June 2024, respectively. Following the European elections, a new Parliament took office in July 2024, and a new European Commission began on 1 December 2024.
- Although the new Commission's work programme is not yet available, the EC President's Political Guidelines suggest that the focus is on boosting Europe's competitiveness by reducing the regulatory burden for businesses, while maintaining the goals of the European Green Deal.
- The message from Brussels' puts the emphasis on simplification, as well as reducing administrative burdens and costs to enhance competitiveness. The question remains how the EU's environmental and sustainability policies will align with this agenda.
EU: Eyes are on the food sector
"More than 200 sustainability-related labels are currently being used in the EU Food Sector – with 12% of new product launches having a food-related sustainability label. Companies must proactively align with the Green Transition Directive's requirements and avoid the use of unverified sustainability labels going forward."
Miran Bahra, Legal
The suite of legislative amendments and proposals focusing on ESG and sustainability across the full product lifecycle continues to impact consumer goods in the EU. We have seen the introduction of the Green Transition Directive (see Issue 4), which came into force in early 2024.
Whilst the proposed Green Claims Directive aims to provide more specific rules on environmental claims, the Green Transition Directive focuses on amending the Consumer Rights Directive and Unfair Commercial Practices Directive to tackle unfair commercial practices that mislead consumers and prevent them from making sustainable consumption choices, such as practices associated with the early obsolescence of goods, greenwashing, misleading information about the social characteristics of products or businesses and the use of non-transparent / non-credible sustainability labels.
Member states must transpose The Green Transition Directive into national law by 27 March 2026, with the rules in force from 27 September 2026.
The European Court of Auditors has published a food labelling audit report in November 2024 announcing that "there are notable gaps in the EU legal framework as well as weaknesses in the monitoring, reporting, control systems and sanctions. This leads to consumers being confronted with labels that can be confusing or misleading". The audit report also refers to the myriad of environmental claims about food products made by producers and more than 200 sustainability-related labels currently in use in the EU food sector, with 12% of newly launched products displaying a food-related sustainability label.
The audit report confirms that the Green Transition Directive and proposed Green Claims Directive will address unfair food labelling practices, but any evidence of its effectiveness will only be evident in the future. This raises the question of whether consumers would benefit from a more targeted revision of current food safety regimes.
What does this mean for you?
- Companies should review the obligations set out in the Green Transition Directive and proactively implement any necessary changes to their commercial practices to ensure compliance ahead of 27 September 2026.
- Companies should not display voluntary sustainability labels which are not subject to a third-party verification scheme or one established by public authorities.
- The audit report strongly recommends that the European Commission should encourage member states to strengthen their own checks on voluntary labels and online retail. Food manufacturers selling products within the EU should watch this space, as increased checks and enforcement action may soon be on the horizon.
UK Failure to prevent fraud: new liability for companies from September 2025
"New UK powers to hold companies criminally liable for fraud, including in relation to green claims, highlight the importance of implementing robust fraud prevention procedures."
Tom Cummins, Legal
"We’ve seen climate fraud cases grow exponentially, now involving millions of pounds and spanning multiple jurisdictions". So wrote Mick Gallagher, Chief Investigator at the UK Serious Fraud Office (SFO), in 2022.
Two years later the agency is receiving far reaching new powers to hold companies criminally liable for fraud. The new "failure to prevent fraud" offence comes into effect in September 2025. In November 2024, the UK Government published its guidance.
The offence applies to "large organisations" and, covers a wide range of "base" common law and statutory fraud offences. It applies if there is a "UK nexus" i.e. at least one aspect of the base offence, or the gain or loss, occurs in the UK.
Allegations of fraud in relation to green claims have proliferated in recent years. The published guidance gives numerous examples of a green claims fraud. These include a timber company making fabricated claims against wood harvested from a protected forest, a testing company falsifying energy efficiency test data, a company submitting false data relating to discharges into a river, and a producer not taking sufficient steps to verify information about the recycling of packaging waste.
What does this mean for you?
- These examples suggest that green fraud will be a priority for investigation and enforcement. How can companies protect themselves? There is a defence to liability if a company has reasonable procedures in place to prevent fraud.
- Companies should review the guidance to understand what this means in practice, take advice on the implementation of fraud prevention procedures, and ensure that any assessment of fraud-related risks includes greenwashing.
Global: Is 1.5 staying alive?
"Should companies abandon 1.5°C? No, because every fraction of a degree matters. The key message is to keep your climate strategy, risk assessment, and transition plans under review."
Eleanor Reeves, Legal and Elena Lambros, Risk Advisory
The year 2025 will be the tenth anniversary of the historic Paris Agreement and efforts to reach a global consensus on achieving 'net zero' emissions by 2050. The agreement aims to keep the global temperature rise this century well below 2°C above pre-industrial levels, and to pursue efforts to limit the increase to 1.5°C.
Over the last ten years, we have been going in the wrong direction. The IPCC's sixth assessment report published in 2021 warned that concentrations of carbon dioxide in the atmosphere are higher - and rising faster - than at any time in the past two million years. Scientists are concerned about early warning signs that human activity may cause temperatures to exceed the 1.5°C threshold before 2030. The impact of this acceleration is becoming more rapid, interconnected and unpredictable across every continent. The economic, environmental and social consequences mean that, within the next decade, mitigation efforts could be dwarfed by adaptation.
Many companies have set targets aligned with 1.5°C under the Science Based Targets initiative (SBTi) for 2030 and several jurisdictions have set Paris-aligned legally binding national emissions targets for 2050. That leaves a mere five years to meet the 2030 target, which is now within the current investment cycle of many companies. 1.5°C is baked into the sustainability reporting requirements of many large and listed organisations, including the Task Force on Climate-related Financial Disclosures (TCFD) and climate Transition Plans. The SBTi has faced controversy over the use of carbon offsets to achieve absolute emissions reduction targets and climate change litigation has been successfully deployed in connection with offsets.1
What does this mean for you?
- Shareholders, financial regulators and other stakeholders now expect companies to take risk management measures, including carrying out climate-related stress-testing and integrating sustainability risk into their wider operational resilience and risk management framework. It is more important than ever to consider:
- how climate risk impacts your people, assets, markets and supply chains;
- what your organisation's material climate-related risks and opportunities are;
- how you might address the risks and opportunities; and
- who will lead the implementation of your climate transition plan.
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