Greenwashing risks and regulatory control

Greenwashing, or the use of ecological “claims” to improve the ecological credibility of a company or product in the eyes of consumers, has become the subject of detailed analysis in recent years. Both the Advertising Standards Authority and the Competition and Markets Authority (MOTH) have recently taken action and, in the case of the CMA, obtained voluntary onerous undertakings from the alleged perpetrators of the crime.

These obligations, combined with recent changes to criminal law in the UK under the Economic Crime and Corporate Transparency Act 2023, as well as already sophisticated civil regulatory regimes, mean that environmental claims may involve real risks, if not will be managed and considered appropriately.

In July 2022, the CMA publicly made clear that it was concerned about the way three fashion companies (ASOS, BooHoo and Asda) were promoting their products. In particular, the CMA expressed concern that the claims and language describing products as responsible, sustainable, recycled and environmentally friendly were materially misleading.

The CMA launched an investigation and on March 24, 2024, the three companies made voluntary broad and onerous undertakings which included, among other things:

1. a commitment to ensure that all environmental claims (no matter where they are made) are accurate and not misleading;
2. objective criteria for classifying products as “green” assortments;
3. ensuring that any claims made to consumers about environmental targets are supported by a clear and independently verifiable strategy, and that customers have access to more details, including what the target aims to achieve, when they expect to achieve it and exactly how they will achieve it ; AND
4. regular reporting on how they fulfill their obligations.

Although these companies operate outside the energy sector, it is easy to see similarities to operations in the energy industry. Examples include claims about achieving net zero emissions by a specific date or the green nature of newer products such as sustainable jet fuel or hydrogen. Energy companies need to take steps to manage and mitigate these risks, and given that the CMA already covers fashion and fast-moving consumer goods, energy seems an obvious target for future scrutiny – particularly where interactions with consumers are concerned.

Furthermore, recent changes to criminal law in the UK have made corporations that fail to prevent fraud committed by their employees, agents and other associated persons subject to aggravated criminal offences. This may include fraud by misrepresentation – a crime that will often be caused by a fraudulent environmental claim. For non-fraudulent crimes, such as unfair trade practices, new rules on corporate liability for senior management conduct may pose similar risks.

However, it is not just regulatory risk in the UK that needs to be considered. Advanced global energy companies will also need to consider the following:

1. risk of enforcement in other jurisdictions, in particular in the USA. Jurisdiction may arise from having a presence in the United States, using US dollars or being an issuer in US markets. U.S. law enforcement remains aggressive, especially where consumers are affected by corporate dishonesty.
2. the risk of civil lawsuits brought by shareholders, contractors, consumers and non-governmental organizations, all of which can lead to significant liabilities, legal costs and distraction for the elderly.

Energy companies therefore need to take a holistic view of the risks in this space. Companies will want to consider what controls are appropriate to minimize the risk of investigations or litigation across the full range of risk scenarios, recognizing that much of the harm a company may suffer occurs when action is taken by a regulator or third party, regardless of final result. This adds an additional compliance burden, but should not be ignored.