‘Greenwashing’: fashion industry in the spotlight

Maria Cronin and Mariana Garção at Peters & Peters Solicitors LLP describe how some fashion houses are making dubious claims about sustainability and warn that regulators are clamping down on this

 

In July 2022, the UK Competition and Markets Authority (CMA) launched an inquiry into ASOS, Boohoo and George at Asda to investigate potentially misleading ‘green’ claims by the three fashion giants.

 

According to the regulator, the firms’ fashion products, including clothing, footwear and accessories, are being marketed as being eco-friendly and sustainable, even though the businesses may not be able to substantiate these claims.

 

The CMA’s probe comes as regulators worldwide are increasing their scrutiny of businesses overstating their sustainability credentials to attract environmentally aware customers and capitalise on environmental, social and governance (ESG)-related funds.

 

It also follows the publication of its “Green Claims Code”, in September 2021, which aims to help businesses comply with their consumer protection obligations when making environmental claims.

 

The code urges corporations making ‘green’ claims to consider the whole life cycle of the product, not omit or conceal key information and to substantiate their claims, providing solid, reliable, and up-to-date evidence in support.

 

CMA’s investigation

Among others, the CMA is concerned that the three companies may have made broad and vague claims to inflate the sustainability of their products; used lower criteria to decide which products should be included in these ‘green’ lines compared to what consumers may reasonably expect; and not included enough information about the products featured in their eco lines.

 

Further, some items may have been included in the ‘green’ collections erroneously and statements about fabric accreditation schemes and standards could also be misleading.

 

The watchdog will use its information-gathering powers to determine whether the companies breached consumer protection laws and misled consumers by exaggerating the ‘green’ credentials of certain fashion lines, more commonly known as ‘greenwashing’.

 

‘Greenwashing’ exposes consumers to unsubstantiated sustainability claims that are ambiguous and generic. These ‘eco’ claims can lead consumers to wrongly believe that their purchases are environmentally friendly. Such claims affect both the consumer and competitors that truly seek to be environmentally sustainable.

 

If the CMA concludes that the companies’ ‘green’ claims constitute ‘greenwashing’, they will face a number of potential outcomes, such as a requirement to provide undertakings committing to change or being pursued in the civil or criminal courts. Perhaps most concerning will be any potential reputational damage.

 

It remains to be seen whether the authorities will have the appetite and resources for criminal investigations for ‘greenwashing’. Imminent changes to the CMA’s authority, announced by the UK government in April 2022, may result in a potentially more interventionist regulator.

 

The UK is not the only jurisdiction investigating greenwashing, nor is the fashion industry its sole target. In September 2021, the CMA warned that “any sector where [it] finds significant concerns [of greenwashing] could become a priority”.

 

The CMA’s inquiry also follows several civil and criminal actions across the globe for alleged ‘greenwashing’. Notably, in May 2022, the U.S. Securities and Exchange Commission fined BNY Mellon US$1.5 million for misstatements regarding its ESG investment considerations.

 

Far-reaching consequences

In July 2022, the CMA’s interim chief executive warned that “all fashion companies should take note: look at your own practices and make sure they are in line with the law”.

 

The CMA expects corporations to be ready to justify and substantiate sustainability claims, including by co-operating and granting access to internal records. This entails conducting an internal analysis of the company as well as examining what competitors are doing and preparing to engage with the regulator.

 

Internally, corporates should be implementing two strategies in parallel: a sustainability strategy, and a communications strategy. Regarding the former, corporations should engage lawyers early on to ensure that the internal documentation on which any sustainability claims are based will withhold scrutiny and is evidence-based.

 

As for a communications strategy, it is evident that, ultimately, consumers want businesses to be authentic and for the messaging to match the product they purchase or in which they invest.

 

Finally, the idea of working with competitors should not be discounted as resources can be pooled to create sector-tailored commitments and standards, which may reassure the regulator.

 

Looking forward

The regulatory landscape surrounding ESG compliance has grown more difficult and complex for businesses to navigate. Whistleblowing, corporate leaks, and the dissemination of corporate information online have led to increased levels of corporate transparency.

 

These considerations have forced corporations to examine their health and safety, environmental and broader human rights practices more carefully to ensure compliance not only with legislation, but also with industry and product standards, as well as with consumers’ moral and ethical expectations.

 

If a company wants to avoid potential enforcement action and the reputational damage that will ensue, it must carefully consider its sustainability and communications strategies, and be open to dialogue with the regulators.

 

The message from the authorities is clear: companies will be expected to evidence any environmental and sustainability claims they make.

 

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Maria Cronin is a Partner, and Mariana Garção is a Paralegal, at Peters & Peters Solicitors LLP

 

Main image courtesy of iStockPhoto.com