The Competition and Markets Authority (the CMA) has been threatening to investigate companies making misleading environmental claims since it announced the launch of the Green Claims Code in September 2021. On 29 July 2022, having given companies a period of time to get their representations in order, it announced that it had launched investigations into the eco-friendly and sustainability claims made by ASOS, Boohoo and George at Asda about their fashion products, including clothing, footwear, and accessories. These are the first greenwashing investigations to be announced under the Green Claims Code although the fashion industry is a sector the CMA had specifically targeted as a priority area for greenwashing.
What is the Competition and Markets Authority (CMA) and why is it conducting this investigation?
The CMA is the UK’s principal competition and consumer protection authority. Its objectives include ensuring that consumers get a good deal when buying goods and services, and that businesses operate within the law - objectives which may not appear to have much relevance to environmental protection per se. However, given the rapid rise of the value consumers (and therefore retailers) now place on environmental and sustainability considerations the CMA, in tandem with other UK and international regulators, has decisively turned its focus to greenwashing as a consumer protection issue. It was in this context that the CMA published its Green Claims Code in September 2021 announcing at that time that it would be carrying out a full review of misleading green claims in early 2022 and stating that “ industries where consumers appear most concerned about misleading claims – textiles and fashion, travel and transport, and fast-moving consumer goods (food and beverages, beauty products and cleaning products)” might be prioritised.
What is the Green Claims Code?
The key piece of consumer protection legislation guiding the investigations in to ASOS, BooHoo and ASDA is the Consumer Protection from Unfair Trading Regulations 2008 which is a well-established piece of consumer protection law. How these regulations might apply in relation to environmental claims and the particular caution that businesses should adopt when making such claims in relation to the environment is set out by the CMA in the “Green Claims Code” (the Code) which was published in September 2021. The principal focus of the Code is environmental claims; however, it covers all sustainability claims, such as those relating to climate change, biodiversity, animal welfare, workers’ welfare or corporate social responsibility. The Code contains principles and guidance to assist businesses to ensure that any environmental or sustainability claims they make are compliant with consumer protection law. It focuses on the following six principles and provides a number of examples and case studies to assist with their application:
- Claims must be truthful and accurate;
- Claims must be clear and unambiguous;
- Claims must not omit or hide important relevant information;
- Comparisons must be fair and meaningful
- Claims must be substantiated; and
In making the claim you must consider the full life cycle of the product of service.
When published, the CMA confirmed that it would carry out a full review of misleading green claims in early 2022.
What is the focus of the CMA investigation?
The CMA focus of the investigation includes whether:
- the statements and language used by the businesses are too broad and vague, and may create the impression that clothing collections – such as the ‘Responsible edit’ from ASOS, Boohoo’s current ‘Ready for the Future’ range, and ‘George for Good’ – are more environmentally sustainable than they actually are;
- the criteria used by some of these businesses to decide which products to include in these collections may be less sustainable than customers might reasonably expect from their descriptions and overall presentation – for example, some products may contain as little as 20% recycled fabric;
- some items have been included in collections when they do not meet the criteria;
- there is a lack of information available to customers about products included the companies’ eco ranges, such as what the fabric is made from;
- any statements made by the companies about fabric accreditation schemes and standards are potentially misleading, such as a lack of clarity as to whether the accreditation applies to particular products or to the firm’s wider practices.
The broad categories of concern that the CMA have identified are not dissimilar to those identified in the greenwashing investigations of other regulators. Broadly speaking these are: the misrepresentation of a product’s sustainability credentials, the mislabelling or inaccurate classification of products and the misleading of consumers through omission and/or inadequate information. Some of the recent investigations announced by the SEC’s Climate and ESG Task Force illustrate how these considerations have been applied in the context of the financial sector.
What are the risks and potential consequences for companies and executives working in the fashion industry?
At the moment the CMA will be using powers to gather evidence and information. What happens next will depend on the CMA’s assessment of the material it gathers and the level of cooperation it receives from the businesses it is investigating. What is clear is that these three investigations are unlikely to be the only ones in relation to the fashion industry. Announcing the investigations, Sarah Cardell, interim Chief Executive of the CMA explained that “[s]hould we find these companies are using misleading eco claims, we won’t hesitate to take enforcement action – through the courts if necessary.”
Possible outcomes include securing undertakings from the companies to change the way they operate, requiring the company to pay redress to those that have been harmed by the failure to comply with consumer law; taking the firms to court, including the possibility of criminal prosecution followed by a fine and/or sentence of imprisonment; and closing the case without further action.
The risks may extend beyond the retailers as these investigations will undoubtedly shed light on practices of those within the supply chain and could expose not only misleading environmental claims but also questionable working practices including health and safety, modern slavery, human rights and employment issues. They encourage further scrutiny from third parties, including law enforcement, other regulators, NGOs, consumers and investors and actions brought by authorities such as the Advertising Standards Authority.
Engaging with regulators in relation to these kinds of investigations requires a clear strategy taking into account the subject company’s ethical and corporate responsibilities, including important legal, regulatory and corporate governance questions that can have serious impacts on the longevity and sustainability of the company in question. These kinds of investigations are not going to go away; as the climate crisis deepens, companies believed to be misleading customers or investors over the extent to which they are impacting the environment in order to achieve profit are only going to become a greater target.