Businesses are increasingly making environmental assertions as they seek to demonstrate their sustainability credentials to consumers. This trend, however, is leading to tougher measures from national regulators as they increase their focus on such environmental claims in a bid to crackdown on greenwashing.
On June 7, 2023, the UK's advertising regulator, the Advertising Standards Authority ("ASA"), issued a series of rulings banning certain advertisements run by three major energy companies, including Shell plc. The advertisements, which highlighted the companies' clean energy initiatives, were deemed to misleadingly omit material information about the balance of the companies' current activities. The ASA considered that these advertisements breached rules under the UK Code of Broadcast Advertising ("BCAP Code") and the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing ("CAP Code"). The ASA held that the advertisements must not appear in their current forms again. Key to each ruling were the BCAP and CAP Code provisions that the basis of environmental claims must be clear and such claims could be misleading if any material information is omitted.
Key Trends
The ASA rulings reveal two key trends in the regulation of advertisements containing sustainability claims: (i) a growing focus on how the average consumer understands companies' sustainability claims; and (ii) an intensifying scrutiny on a company's overall environmental impact and business strategy.
As consumer consciousness around sustainability heightens, the ASA deems it even more important that companies do not misrepresent their overall environmental impact to their audience. These rulings make it clear that companies should avoid any reliance on an assumed level of consumer understanding and knowledge when making such claims. All sustainability claims should be fully substantiated and qualified within an advertisement's contents.
Equally, the ASA is increasingly demanding that advertisements must be reflective of a company's wider activity, business strategy, and impact on the environment. Each of the three rulings considered the companies' carbon emissions and production of other greenhouse gases, as well as the overall impact of the companies' business activities in that year. In one case, the ASA considered that the claims were incompatible with the company's wider business strategies, such as continuing oil and gas exploration and expanding fossil fuel production. In another case, the ASA ruled that a company must not omit material information about the proportion of its business activities that are comprised of lower carbon activities. This presents a dilemma for companies with diverse portfolios or operations. It appears a company must ensure that its claims align with its wider environmental impact and ongoing business strategy. A company cannot evade this by advertising based on one subset of its business because consumers are unlikely to separate this from their impressions of the company at large.
Utility Providers
Alongside energy companies, regulated monopolies such as the water industry are also being targeted by complaints about misleading advertising. Nine complaints were launched against Anglian Water based on two advertisements from September 2022. The ASA ruled that Anglian Water breached BCAP Code rules and CAP Code rules. Evidence of Anglian Water's Environmental Performance Assessment ratings and previous Environmental Permitting Regulations offenses were used to show that the claims made in the advertisements were out of kilter with the company's overall environmental impact.
Regulatory Clamp-Down on Misleading Advertising
The increase in claims initiated by consumers, non-governmental organizations, and other third parties reflects the tightening regulation of all sustainability claims in the United Kingdom. In 2021, the Competition and Markets Authority ("CMA") published a "Green Claims Code" aimed at protecting consumers from misleading environmental claims. Later in 2023, new rules from the Financial Conduct Authority ("FCA") are expected to be published, enforcing against the "greenwashing" of financial products or services and aiming to set a high bar for products that make sustainability claims. The rules will apply for all FCA-regulated firms' sustainability-related claims in client communications. The UK Digital Markets, Competition and Consumers Bill is also expected to be passed later this year. It will enhance the CMA's investigative powers against businesses for breach of consumer law, enabling them to impose penalties in the form of fines of up to 10% of a company's global turnover.
The EU and the United States are also seeing developments in the tightening regulation of environmental claims. In March 2023, the European Commission published a proposal for a new EU directive on the substantiation and communication of explicit environmental claims, and in the United States, the Federal Trade Commission is considering updates to its "Green Guides," which provide guidance on avoiding potentially unfair or deceptive environmental claims.
The regulatory landscape therefore continues to shift, and companies must keep abreast of their ever-changing obligations when making sustainability-related claims.
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