Analysis: What the crackdown on sustainability claims means for retail

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With the demand for eco-friendly products and services rising, so is the number of companies exaggerating their sustainability credentials to get a larger market share. This type of action is also known as “greenwashing” – and now regulators are beginning to take action.

In the UK, the Competition and Markets Authority (CMA) has scrutinised sustainability claims made by fast fashion brands Asos, Boohoo and George at Asda, concluding they constitute greenwashing. 

Sarah Cardell, the interim CEO for CMA, told The Guardian that the organisation “won’t hesitate to take enforcement action” – “through the courts if necessary” – if they are found guilty of misleading customers over environmental credentials.

“People who want to ‘buy green’ should be able to do so confident that they aren’t being misled,” she said.

“Eco-friendly and sustainable products can play a role in tackling climate change, but only if they are genuine.” 

In January, fashion labels, including H&M, and Norrona, were accused of breaching “greenwashing” laws over the use of a sustainability index that an investigative journalist in Europe has discredited.

Greenwashing is when a company claims to be environmentally aware, but only for marketing purposes. It is when a brand’s words do not match up to its actions.

For example, businesses involved in greenwashing behaviour might make claims that their products are biodegradable (when not), or “carbon negative” when they are only planting trees to compensate for their carbon footprint.

The term greenwashing was initially created in 1986 by environmentalist Jay Westerveld in an essay inspired by the irony of the “Save the Towel” movement in hotels, which had little impact beyond saving laundry costs.

Many corporations genuinely intend to tackle climate change, while others are just milking the mileage going green has to offer. Authorities worldwide are finding it challenging to assess whether the efforts of companies are actually making a difference, or they are just appealing to the growing cadre of consumers who want to feel they are doing good by buying one brand that promotes proactive environmental considerations over another that doesn’t. 

Because of the prevalence of misleading green claims, the European Commission has proposed introducing a “ban on greenwashing” – including several changes to the UCPD (Unfair Commercial Practices Directive) – aiming to oblige businesses to provide full transparency on their sustainability claims and practices.

The commission shared an extended list of characteristics on products where a business cannot mislead its consumers, including:

  1. Not informing about features introduced to limit durability, for example, software that stops or downgrades the functionality of the good after a particular period.
  2. Making generic, vague environmental claims where the excellent environmental performance of the product or trader cannot be demonstrated. Examples of such generic environmental claims are ‘environmentally friendly’, ‘eco’ or ‘green’, which wrongly suggest or create the impression of excellent environmental performance.
  3. Making an environmental claim about the entire product when it concerns only a certain aspect of the product.
  4. Displaying a voluntary sustainability label that was not based on a third-party verification scheme or established by public authorities.
  5. Not disclosing that a product has limited functionality when using consumables, spare parts or accessories not provided by the original producer.

These amendments, the commission says, would also “encourage competition towards more environmentally sustainable products”, thus reducing the negative impact on the environment. 

In Australia, regulators are keeping a close eye on what’s happening overseas. 

Many international regulatory groups and organisations, including the Australian Securities and Investment Commission (ASIC), have advocated for better disclosure of sustainability claims.

Every part of the globe has different climate-related obstacles, from floods, drought, and wildfires, and it needs to be tackled with a unified effort; Europe appears to be leading on that front.

“This is a world without borders,” said ASIC commissioner Cathie Armour. 

Armour notes the leaders in this space are “undoubtedly” the investors pushing for companies to do better.

“Investors are doing their due diligence on choosing fund managers when choosing companies to invest in,” she explained to LSJ. 

“It’s one of those areas where I feel like the community expectations – the market – is well ahead of regulators in many respect.

“Companies are hearing from their shareholders that [climate change] is an important issue, and when they’re making decisions, this is a significant matter.”

The UK Competition and Markets Authority reports that a review by global consumer authorities found that 40 per cent of websites are promoting “sustainable” products and services in a “dubious” and misleading way.

Greenwashing is already rampant in many, if not all, businesses worldwide. It poses a risk to enterprises with genuine green intentions. However, will imposing these new regulations and crackdowns be enough to reduce it? 

Cynthia Cummis, the co-founder of the Science Based Targets Initiative, suggests making sure that the claims made are validated by a non-profit third party.

“Investigate how a group is cutting its emissions,” Cummins told Reuters. “Look at their broader policies and actions, rather than just the narrow claim they’re making around maybe one product.”

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