Author: Julia Archutowska | UC Berkeley School of Law | LL.M. Candidate 2024 | Posted: July 11, 2023
With the growing global demand for a sustainable economy, green marketing has become a powerful tool for attracting new business opportunities. Many large corporations have now publicly announced to reduce carbon emissions and prioritize Environmental, Social, and Governance (ESG) initiatives. At the same time, misleading environmental claims are getting increased attention from regulators, potential litigants, and consumers. Therefore, green marketing carries potential risks, including reputational damage and loss of investors. Hence, the question arises: is it truly prudent for companies to engage in green marketing?
The enactment of the Paris Agreement in 2015 has shown a global consensus on the severity of climate change and its impact on humanity. While governments are taking steps towards reducing greenhouse gas emissions, it has become evident that the active participation of the private sector is essential to meet the Paris Objectives. Companies are now taking various steps to move away from carbon-intensive operations. But the anticipated consequences of global warming also affect consumers’ decisions. A recent study made by Dentsu International and Microsoft Advertising indicates that over 90% of consumers are willing to buy brands that are committed to making sustainability their priority. Hence, sales of packaged goods that are marketed as more sustainable and socially responsible are growing faster than conventional alternatives. Given such an impactful shift in consumer behavior, companies globally are intensifying their efforts to promote products or services as “eco-friendly”. However, this also creates an incentive for companies to make similar claims without taking any steps toward transitioning into a green economy. This practice is known as “greenwashing” and involves making false or misleading claims that overstate the environmental benefits of companies’ products or services. This phenomenon not only creates an unclear situation for conscious consumers who strive to make informed choices, but it is also unfavorable for other corporations that put an effort to minimize their environmental footprint. Consequently, companies that genuinely care about the environment, even at considerable expense, must compete against others that make similar claims without putting in equivalent work. This undermines the economic incentives to deploy sustainable business practices.
The problem of greenwashing is escalating globally. In 2020 the European Commission examined green claims and established that 53% “give vague, misleading or unfounded information” while 40% had no supporting evidence. Different regulatory frameworks further complicate the distinction between legitimate communications and greenwashing, leaving a margin for interpretation both for companies and potential litigants. Large multinational companies such as Coca-Cola, Evian, Danone, or H&M have already been challenged based on greenwashing practices. As a result, consumers are becoming more skeptical of green marketing and are hesitant to trust the authenticity of such claims.
Interestingly, the current landscape shows that litigation is not the only threat to corporations that make deceptive or overstated green claims. In the UK the self-regulatory organization of the advertising industry (the Advertising Standards Authority and the Committee of Advertising Practice) has proven very effective in tackling greenwashing. The CAP develops advertising codes that establish very high standards for green claims. In February 2023, they updated their guidance to provide specific advice on making carbon neutral and net zero claims, reinforcing their commitment to combat misleading green advertising. The ASA is responsible for enforcing CAP codes. Although it is a self-regulatory body and it cannot impose financial sanctions, its decisions are public and may cause significant reputational damage. For instance, in its recent decision, the ASA banned ads made by Oatly which misled consumers about CO2 emissions when compared to cows’ milk for being not specific enough. Another example is a recent decision banning Shell’s advertising campaigns promoting its low-carbon products which were found to be misleading for not mentioning its ongoing “large-scale” investment in oil and gas which makes the “vast majority” of its operations.
On the other hand, in the Netherlands, the Authority for Consumers and Markets (ACM) responsible for competition oversight, and enforcement of consumer protection laws, has announced its investigation into misleading sustainability claims in energy, dairy, and fashion industries. It has already contacted 170 businesses in these sectors to check the accuracy of their sustainability claims. Its recent decisions against H&M and Decathlon have attracted widespread attention, as ACM found their eco-label claims on clothing and websites to be misleading. In response, both companies have committed to adjusting or discontinuing the use of such ambiguous and deceptive claims.
Green claims have gotten similar attention in other parts of the world, e.g., in Australia where the Competition & Consumer Commission (ACCC) made greenwashing its key compliance and enforcement focus for 2022-2023. The ACCC released their initial findings on greenwashing and found that out of the 247 businesses reviewed, 57% were identified as having made concerning environmental claims.
These examples illustrate that carbon neutral, net zero or other similar claims are becoming the primary focus in various jurisdictions. Hence, we might expect in the coming months or years a significant increase of rulings dealing with greenwashing. Plaintiffs are also seeking new ways to hold companies accountable for their failure or not sufficient engagement in fighting against climate change. Interestingly, most of the lawsuits are brought by NGOs or public offices, not by people affected by climate change, and the main focus of these cases is on the reputation of companies, rather than seeking financial damages.
Moreover, the literature indicates that new EU regulations will potentially open gates to new complaints as corporations will have to report their operations with greater diligence. This mainly concerns the Directive on Corporate Sustainability Due Diligence (CSDDD) and Sustainable Finance Disclosure Regulation (SFDR). These laws will increase transparency and make greenwashing harder by putting companies under a magnifying glass.
In conclusion, we are witnessing a significant increase in litigation or law enforcement targeting false or deceptive green claims. Additionally, governmental authorities responsible for consumer protection and fair competition have placed significant emphasis on fighting against greenwashing. This creates a difficult landscape for corporations to navigate through and the lack of harmonized regulations is certainly enhancing the problem. The effectiveness of the proposed Green Claims Directive by the EU Commission remains to be seen among the EU Member States. However, in my view, the solution lies not in abandoning green claims altogether, but rather in adopting a more humble approach to communication. It is advisable to promise less and deliver more. But also, companies should now invest extra efforts and resources to ensure that their green claims are substantiated and supported by factual evidence. Failure to do so can result in legal actions and severe reputational consequences.
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