January 4, 2022 | Ali Abbas
Estimated reading time: 3 minutes
CMA’s Green Claims Code to prevent greenwashing
The Competition and Markets Authority has published its Green Claims Code, in a bid to ensure that businesses are “honest with their customers about their green credentials”.
The guidance, which tackles the emerging rise of greenwashing, has been opportunely published in the run up to COP26.
On publishing the Code, the CMA highlighted that a recent “global sweep” of randomly selected firms found that as many as 40% of “green” or sustainable claims made online were actually misleading, therefore acting in contravention of several laws and regulations, not least the Consumer Protection from Unfair Trading Regulations.
What does the Green Claims Code say?
The Green Claims Code applies to all businesses (products and services within all sectors) and will cover the gamut of industry – from advertisements and product labeling to product names.
The Code establishes 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 lifecycle of the product or service
- Claims must be substantiated
When will the Code apply?
The CMA has given firms until January 2022 to embed and comply with the newly published Code.
‘Greenwashing’ is hugely topical and an increasing concern for consumers, especially given the current climate in the run up to COP26. Consumers and investors are eager to know that their ‘green’ products and investments actually do what they say on the tin. The new Green Claims Code should be a concern for firms who were looking to profit from the rise of sustainable investments, without actually embedding environmental, social or governance (ESG) or sustainability within their product offerings.
From a stronger armed standpoint, greenwashing should also be a concern for firms given the messaging coming from global regulators. As some of you may remember, it was not long ago that the FCA said that many of the investment fund applications it was seeing were “poor quality and falling below expectations”. In a Dear Chair letter it found that many ‘green’ or ‘sustainable’ claims did not stand up to scrutiny.
Similarly, the Australian Securities & Investments Commission (ASIC) recently announced that it had “intervened” in a yet to be named energy company’s initial public offering over concerns about its ‘net zero’ statements. ASIC said that “where there are no reasonable grounds to underpin a ‘net zero’ statement that is predictive in nature, the disclosure may be misleading”. The regulator’s action resulted in the company discontinuing its ‘net zero’ messaging, with ASIC adding that it will “take regulatory action where warranted”.
The CMA has said that in its review of misleading claims under the Green Claims Code it will initially prioritize sectors such as fashion, travel, and fast-moving consumer goods. However, it points out that it will swiftly explore any sector in which it finds significant concerns about greenwashing. Given the recent regulatory activity from FCA, ASIC and rumors that Germany’s BaFIN is working with US regulators to take punitive action against a large German bank for greenwashing (which it is pursuing through the lens of fraud), it is almost a dead cert that financial services will be high on the CMA’s list.
The CMA is just the latest body to take decisive action to affirm that greenwashing won’t wash. It also adds to the growing number of ESG-related regulations, rules, and guidance that firms will have to comply with as we move into 2022.