Dr Dimitrios Kafteranis and Saba Movahed Nia
https://pureportal.coventry.ac.uk/en/persons/dimitrios-kafteranis
Consumers in the UK and the EU are becoming more attracted to goods and services that make environmental and sustainability claims in a period of increasing environmental awareness. Greenwashing is a dishonest marketing tactic that hides behind some of these outwardly green claims. In this blog, we will briefly examine the legal ramifications of greenwashing, including its definition, current legal concerns in the UK and the EU as well as the reasons why it requires special treatment under consumer protection laws.
The Legal Definition of Greenwashing
The practice of “greenwashing” involves businesses misleading customers about the advantages of their goods or services for the environment. To enhance their brand image and draw in environmentally sensitive customers, these claims frequently exaggerate or outright misrepresent their eco-friendly initiatives. Although greenwashing is commonly used to refer to ‘misleading actions’ the effect of this intentional negligence has a broader damage. however, commonly used in a broader sense to refer to intentional or careless actions. While incorrect or deceptive environmental claims are the primary source of greenwashing, it has expanded to include other aspects of environmental, social and governance (ESG) standards, such as social responsibility and corporate governance procedures.
In order to appropriately address the unique environmental repercussions of greenwashing, regulators and academics have acknowledged the necessity for a defined legal definition.[1] In the EU for example, the European Securities and Markets Authority (ESMA) has highlighted the necessity of defining greenwashing, and has defined it as a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. [1]
While this practice may be misleading to consumers, investors, or other market participants[2], sanctioning deceptive ESG claims at the EU level has proven difficult. The main challenges stem from the lack of a standardised legal definition and the use of ambiguous or subjective terminology by businesses to support insufficiently substantiated ESG-related claims. It is, therefore, crucial for EU regulators to provide a complex definition that covers the misleading practices connected to environmental, social, and governance elements if they are to thoroughly improve legal measures against greenwashing.
EU regulators can efficiently detect and counter greenwashing tactics that undermine both consumers’ confidence and more general sustainability efforts by establishing a precise legislative definition. Greater openness and accountability in the marketplace will be promoted by a clearly defined legal framework that will enable enforcement agencies both at the EU and the national level to take the proper legal action against corporations participating in dishonest ESG-related practices. Additionally, a clearer definition will empower customers to make more informed choices and support genuinely responsible companies, accelerating the shift to a more ethical and sustainable corporate environment.
Legislation for Greenwashing in the EU and the UK
The EU has taken significant steps to combat greenwashing. The EU’s Unfair Commercial Practices Directive provides a common framework for member states to protect consumers from deceptive practices, including greenwashing.[3] Furthermore, directives like the Corporate Sustainability Reporting Directive have been established to ensure better, and more comparable reporting on sustainability matters in the corporate world, which will come into effect in 2024. Additionally, the EU also legislates for sustainable investment, by putting out guidelines for financial market participants and financial advisors regarding their transparency with their sustainability profile.[4] Last but not least, the EU has also proposed a new “Green Claims” directive, that specifies the guidelines for the documentation, disclosure, and verification of voluntary environmental claims and environmental labels used by businesses to advertise goods to EU consumers.[5]
In the UK, various laws and regulations aim to address greenwashing and protect consumers. Although the UK has lost the EU architecure surrounding the current legislation, The UK has made an effort to comply with the legislation contributing to the global reach of preventing greenwashing.[2] The Consumer Protection from Unfair Trading Regulations 2008 and the Consumer Rights Act 2015 serve as seminal legislative frameworks designed to prohibit false or misleading statements, ensuring that environmental claims are accurate and substantiated. Additionally, the Competition and Markets Authority (CMA) and Advertising Standards Authority (ASA) work in tandem to monitor and act against deceptive environmental marketing practices. Recently, the Financial Conduct Authority (FCA) has mentioned an “anti-greenwashing rule to address the transparency regarding the sustainability profile of products and businesses through introducing a set of high standard rules for products”.[3]
Case Studies
A number of greenwashing cases have occurred, and which demonstrate the potential impact of robust legal action against deceptive marketing practices. For example, the ASA ruling on Tier Operations Ltd in the UK is a general example of green claims as the company was instructed to ensure clear communication of comparative claims, and it was prohibited from using the eco-friendly advertisement from appearing again in its current form .[6] Conversely, it also demonstrates how the current law is only efficient around general misrepresentation claims. For example, even though the current greenwashing claim against KLM over misleading advertisement in the Netherlands has granted court permission to a full hearing and KLM has stopped its ‘Fly Responsibly’ advertisement, KLM has not made any commitments to change their pledge on sustainbility. This illustrates that the existing legal frameworks, at both the domestic and supranational tiers, are somewhat limited in scope. They principally focus on ascertaining the veracity of promotional claims in order to determine whether an advertisement is misleading or not, rather than allowing for the matter to be observed in depth. [7]
Current Issues Surrounding Greenwashing
Notwithstanding the extant legal architecture, the phenomenon of greenwashing continues to present a serious challenge. Recent high-profile cases have exposed businesses that misrepresent their sustainability efforts to consumers who care about the environment. Nevertheless, The intricate characteristics of greenwashing tactics pose important challenges for authorities in successfully identifying and pursuing misleading practices. Upon comprehensive examination of existing EU and UK legislation deployed to address greenwashing, it becomes evident that the law only focuses on safeguarding consumer protection in the context of product purchases and financial investments.
The fundamental danger of greenwashing is that it could influence people to act in an unsustainable way. The customer service provided by a company may have unintentionally harmed the environment if these environmental claims turn out to be inaccurate, which is why greenwashing should be distinguished from a typical instance of deceptive advertising or disclosure.
Given that greenwashing exerts a more extensive effect on consumer behaviour and the environment than other types of deceptive advertising, it necessitates distinct and targeted legislative treatment. The special complexities and repercussions of greenwashing may not be effectively covered by consumer protection laws intended to combat generic deceptive advertising, as greenwashing causes significant harm to the environment in addition to misleading a consumer in return of their contribution. To properly hold businesses accountable and discourage such dishonest practices, specific legislative measures are required.
Conclusion
It is imperative that legal safeguards, both at the EU and national level, be fortified to effectively combat greenwashing. More stringent regulations and sanctions may serve as a deterrent, enticing businesses to invest in true sustainability as opposed to making false claims. Additionally, educating consumers about greenwashing and equipping them with the knowledge and resources necessary to recognise genuine eco-friendly items will help them make more informed decisions. A multifaceted strategy is needed to combat greenwashing, one that includes not just legal protections for consumer education and ethical business practices but that signifies the environmental harm caused by these unethical commercial practices. Through creating a more robust system towards the prevention of greenwashing, for example through criminalisation, we can minimise acts of greenwashing while building a market that genuinely supports sustainability, and gives consumers the capacity to make informed decisions for a cleaner future.
[1] https://www.reuters.com/business/sustainable-business/fund-groups-warn-over-eu-legal-definition-greenwashing-2023-01-16/
[2] ESMA 31 MAY PROGRESS REPORT < https://www.esma.europa.eu/sites/default/files/2023-06/ESMA30-1668416927-2498_Progress_Report_ESMA_response_to_COM_RfI_on_greenwashing_risks.pdf>
[3] Unfair Commercial Practices Directive (No. 2005/29)
[4] Regulation (EU) 2020/852
[5] EU Green claims < https://environment.ec.europa.eu/topics/circular-economy/green-claims_en>
[6] ASA Ruling on tier operations LTD < https://www.asa.org.uk/rulings/tier-operations-ltd-a21-1118832-tier-operations-ltd.html> April 6, 2022
[1] 31 May 2023, ESMA progress report on greenwashing
[2] Environmental Law & Governance Post- Brexit, Client Earth 11 February 2021.
[3] Sustainability Disclosure Requirements (SDR) and investment labels, Financial Conduct Authority. Consultation Paper CP22/20, October 2022.
UKAEL 