Greenwashing in the Crosshairs: Regulators Take Aim

Increasingly, brands are touting their green creds in order to curry favor with consumers trying to make more sustainable choices. The trouble is, many of the messages have been found to be vague or false, leading lawmakers to crack down on instances of greenwashing. With some penalties already in place in Europe, and the U.S. Federal Trade Commission's Green Guides update coming later this year, greenwashing is already a serious legal risk for brands. And that risk, including the associated fines and reputational damage, is only going to increase as the topic climbs up the agenda for policymakers. “And not only will [regulators] pay attention to [companies’ claims], but they're going to increase scrutiny,” warned Ioannis Ioannou, associate professor of strategy and entrepreneurship at London Business School. Ioannou believes companies should develop a “multidimensional communication strategy” aimed at both consumers and investors to help more accurately communicate environmental, social and governance messaging. Brands face fines A 2020 European Commission study found that 40% of claims made by companies around environmental credentials had no supporting evidence. So last month, the EU took action by proposing the Green Claims Directive for its 27 country members. The goal is to make future green claims more reliable. Among the proposals, environmental claims should be based on minimum criteria that rely on “recognized scientific evidence.” The claim must also be true for the whole product and not parts, and it must be able to identify positive achievement against “worsening of another impact.” Lastly, reporting of greenhouse gas offsets must be transparent and measurable. Failure to comply could lead to fines of at least 4% of a company’s annual income, plus 30 days to adjust any claims that are found to be misleading. To take full effect, the European Parliament and the Council must agree to it, but no date has been set for that. As more brands are making public net zero pledges, the advertising industry has asked for more guidance around the directive, said James Craig, senior regulatory policy executive for the Committee of Advertising Practice (CAP), which works with U.K. advertisers to avoid producing misleading ads. Not only are EU policymakers getting more muscular, but in the U.K., brands need to be aware of several bodies that regulate green claims. The Advertising Standards Authority (ASA) oversees claims made within ads, issuing bans to any that fail to pass muster. In the last year, HSBC and Coca-Cola-owned Innocent Drinks have both faced ad bans as a result of ASA actions. Meanwhile, last July, while looking into the fashion sector, the Competitions and Markets Authority (CMA) enforced action against fashion brands such as ASOS, Boohoo and George at Asda, highlighting its concerns over their claims. These investigations are still ongoing. Brands Hit With Guidelines to End Greenwashing Amid Consumer Skepticism on Sustainability Green Guides and private litigation in the U.S. While the U.S. doesn’t have a greenwashing law, the Federal Trade Commission, which has a more narrow mandate compared with the EU, is ramping up efforts to prevent advertisers from misleading consumers through its Green Guides. Adweek has learned that updated guidance could be released in the next few months. “FTC’s guidelines might help some companies to become more alert to the issues and to avoid greenwashing,” said Benjamin Franta, senior research fellow in climate litigation at the University of Oxford. Last year, Truth in Advertising recorded more than 50 cases of brands making dubious sustainability claims. While the Green Guides are meant to offer companies guidance, the FTC itself can enforce Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices.” Brands keen to avoid scrutiny would do well to back up any claims, especially pertaining to statements related to carbon neutrality, climate change, recyclability and compostability. Meanwhile, several states such as California and Washington have legal frameworks around what environmental claims brands can and cannot make. This means, under state laws prohibiting false advertising, people can bring litigation against companies. Recently, Coca-Cola was sued by the nonprofit organization Sierra Club in California for allegedly labeling bottles “100% recyclable,” when most end up in landfills. The Sierra Club deemed this as misleading. However, the D.C. Superior Court dismissed the suit, finding Coca-Cola’s statements to be “general, aspirational corporate ethos.” Beyond private litigation, the U.S. Securities and Exchange Commission (SEC) is working on new regulations for how brands must disclose their climate-related expenditures. “The Green Guides review will highlight certain issues of concern in the marketplace,” said Jeffrey Greenbaum, managing partner at Frankfurt Kurnit Klein & Selz PC and global chairman of the Global Advertising Lawyers Alliance. “And that may lead consumers to bring claims under state law based on those issues.” Global concern, local laws Laws pertaining to greenwashing have an ultimate agenda to discourage advertisers from marketing misleading claims. While the goals for the EU’s Green Claims Directive and the FTC’s Green Guides may align, “anyone marketing across borders will have to consider different laws in different countries,” said Greenbaum. Meanwhile, before the next U.S. presidential election, there’s a rush to strengthen environmental regulation, which could be eroded should the Republican party regain the White House, with the financial implications of false eco-messaging potentially proving an economic threat. “As a regulator, especially when talking about financial markets, your goal is to create efficient markets with accurate, reliable and robust information, and greenwashing goes directly against that,” said Ioannou. “It might create the next subprime mortgage crisis, for instance, if you report fake carbon emissions markets. But at some point, there's a carbon tax introduced, then suddenly you find yourself in a portfolio that is worth much less than you thought … so disclosure of that information is going to be critical.” This story is part of Adweek’s The State of Sustainability digital package, which spotlights climate-focused marketing solutions across the beauty, experiential and media spaces, and examines how an industry that was built to drive consumption is adapting to reduce its impact. Sustainable Beauty Brands Battle the Industry’s Greenwashing Problem

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Greenwashing in the Crosshairs: Regulators Around the Globe Take Aim

Brands must improve their environmental, social and governance messaging to both consumers and investors

Stephen Lepitak

Trishla Ostwal

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Stephen Lepitak

Trishla Ostwal