The UK Competition And Markets Authority Takes Action Against Allegedly Misleading Environmental Claims

In Short

The Situation: The UK Competition and Markets Authority ("CMA") recently secured undertakings from fashion brands ASOS, Boohoo, and George at Asda to address allegedly misleading environmental claims. The CMA has also published an open letter to the wider fashion industry setting out compliance benchmarks for the industry.

The Result:The investigation into ASOS, Boohoo, and George at Asda was the CMA's first greenwashing investigation. The conclusion, after a nearly two-year review, puts all businesses on notice of the CMA's continued focus on greenwashing claims as part of its wider prioritisation of promoting environmental sustainability through its consumer protection and competition law powers.

Looking Ahead: The Digital Markets, Competition and Consumers Bill (the "DMCC Bill"), which is expected to be enacted later this year, will provide the CMA with major new powers for direct enforcement of consumer law, including the power to impose significant fines in respect of greenwashing. Businesses in the United Kingdom should be aware of the increasing risks associated with making green claims and ensure that any claims they do make comply with the CMA's Green Claims Code.

Greenwashing in the Crosshairs

The CMA's Green Claims Code (the "Code") was first published in September 2021. The Code, reflecting consumers' increasing environmental concerns, aims to prevent businesses from profiting from misleading claims about the impact of their products on the environment. It consists of six key principles:

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 consider the full life cycle of the product or service; and
• Claims must be substantiated.

Since the Code's introduction, the CMA has initiated investigations into claims made by fashion businesses ASOS, Boohoo, and George at Asda (July 2022); the boiler manufacturer Worcester Bosch (October 2023); and the consumer goods group Unilever (December 2023). These investigations and their findings provide important lessons for all businesses operating in the United Kingdom.

Greenwashing claims are also being targeted by the Advertising Standards Authority ("ASA"), the industry's self-regulatory body that assesses advertisers' compliance with the UK's advertising codes, which contain specific provisions addressing environmental claims, with which the Code aligns. The ASA accepts and investigates complaints from a wide range of stakeholders, including consumers, competitors, and NGOs. According to the ASA's most recent Annual Report, it secured the amendment or withdrawal of 27,378 advertisements in 2023—an average of roughly 535 per week.

Under a Memorandum of Understanding between the ASA and the CMA, if the ASA identifies potential breaches of consumer protection legislation falling within the CMA's jurisdiction, and which are likely to cause harm to the collective interests of the consumers, the ASA will the notify the CMA.

These developments come at a time when regulators and politicians around the world are becoming increasingly active in the protection of consumers against greenwashing claims. In the Netherlands, for instance, public interest groups have pursued greenwashing claims before the Dutch ASA equivalent, the Advertising Code Committee, based on the Code for Environmental Advertising. Moreover, public interest groups in the Netherlands may challenge alleged greenwashing in the civil courts.

In Europe more broadly, the EU's Directive (EU) 2024/825 on Empowering Consumers for the Green Transition entered into force in March 2024 and must be applied from September 27, 2026. This directive, which amends already existing EU legislation in this area, is designed to ensure that consumers can make informed purchasing decisions and thus contribute to more sustainable consumption. Furthermore, the European Parliament recently adopted its negotiating position for a proposed Green Claims Directive. If pushed through as planned, the national laws giving effect to the directive in Member States will impose a number of standards for making environmental claims vis-ŕ-vis consumers.

Similarly, in the United States, the Federal Trade Commission ("FTC") sought public comment in December 2022 to determine whether to retain, modify, or rescind the Green Guides, which address unfair or deceptive acts or practices pertaining to environmental advertising and labeling claims that violate Section 5 of the FTC Act. The last revision of the Green Guides occurred in 2012. Furthermore, the FTC appears to be considering a rulemaking to establish independently enforceable requirements related to unfair and deceptive environmental claims.

CMA Investigations Across a Number of Business Sectors

On July 29, 2022, the CMA announced its investigation into ASOS, Boohoo, and George at Asda, citing concerns about the way products were "being marketed to customers as eco-friendly." As part of the investigation, the CMA required these companies to provide information relevant to the investigation, which likely included details on the criteria adopted by the businesses to categorise goods as eco-friendly, as well as scientific information backing up those claims.

On March 27 2024, the CMA published an update on the investigation, confirming that the companies have signed legally binding commitments under the Enterprise Act 2002 to adhere to certain rules concerning green claims. These commitments include:

Green claims. Ensuring all green claims are accurate and not misleading, providing key information in plain language and in a clear and prominent place;
• Statements regarding fabrics. Using specific statements on fabrics (e.g., "organic" rather than "eco");
• Criteria for green ranges and imagery. Clearly marketing the criteria for green ranges, so that consumers can understand the basis for a product being included, and to avoid using "natural" imagery to suggest a product is more sustainable than it is; and
• Environmental targets and accreditations. Providing customers with access to the company's clear and verifiable strategy to support claims made about environmental targets, and ensuring that statements about accreditations are clear as to whether they apply to particular products or the firm's wider practices.

The three companies must provide regular reports to the CMA setting out how they are complying with the commitments.

The CMA took the opportunity to publish an open letter to the wider fashion industry, encouraging businesses to "familiarise themselves with the Code and with the commitments in the undertakings, and take all necessary steps to ensure that any environmental claims they make comply with consumer protection law...." Additionally, the CMA emphasised that "we expect any business making environmental claims promptly to review and, where necessary, change its practices to comply with the law."

Similarly, the CMA is reviewing possible greenwashing in relation to the sale of boilers for heating and hot water. In October 2023, it announced that it was investigating whether Worcester Bosch, a leading UK boiler brand, is misleading shoppers with confusing or inaccurate green claims in the advertising and labeling of its hydrogen-blend ready home boilers. The CMA has also written to a dozen other boiler businesses to warn them that their marketing materials could be breaching consumer protection law and to remind them of their legal obligations.

The CMA has also targeted greenwashing of so-called fast-moving consumer goods. It continues to investigate Unilever for green claims made about certain household essential items, including cleaning products and toiletries. In launching the investigation in December 2023, the CMA made clear that it was concerned that Unilever may be overstating how green certain products are through the use of vague and broad claims, unclear statements around recyclability, and "natural-looking" images and logos.

Future Trends—New CMA Enforcement Tools

The CMA's open letter to the fashion industry expressly notes that "promoting environmental sustainability remains a priority for the CMA" and gives a commitment to "continue to consider any intelligence that businesses may not be complying with consumer protection law with a view to taking possible enforcement action where appropriate."

The DMCC Bill currently before Parliament will overhaul what the CMA Chief Executive recently described as "fundamentally deficient" powers. If it becomes law, it will give the CMA stronger consumer law enforcement tools, including the power to impose directions and/or fines itself, without the current requirement to apply to the courts to impose sanctions. These fines could be very significant—up to 10% of a business's global annual turnover where the CMA issues an infringement notice finding a breach of consumer law, and up to 5% of annual global turnover for noncompliance with an undertaking given to it by the company or an enforcement direction imposed by it.

Three Key Takeaways

1. Targeting greenwashing remains a policy priority for the CMA. With the implementation of the new DMCC regime, the CMA will have greater means to pursue businesses that violate consumer protection law by making misleading green claims in breach of the Code. Corporations should ensure that they comply with the Code and maintain adequate policies and procedures to demonstrate the basis on which compliance is claimed.
   
2. Although the CMA's recent open letter was aimed primarily at the fashion industry, the comments within it, including reference to the undertakings provided by ASOS, Boohoo, and George at Asda, should be considered carefully by all businesses that advertise products to UK consumers.
   
3. While the ASA does not have direct enforcement powers, companies should keep in mind that its activities also increase the compliance risks in this area because the ASA may refer potential violations to the CMA for further investigation and enforcement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Ms Françoise Labrousse
Jones Day
2 rue Saint-Florentin
Paris
75001
FRANCE
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URL: www.jonesday.com

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