Greenwashing: Where are we now?

In this article, we provide an overview of some of the key developments that have taken place since our previous article on greenwashing.

To recap - what is greenwashing?

Greenwashing is a type of marketing that (intentionally or unintentionally) presents companies as more sustainable than they in fact are, in order to appeal to an increasingly eco-conscious public.  These issues can be difficult to detect for both consumers and investors, so regulators such as the Advertising Standards Agency (ASA), Competition and Markets Authority (CMA), the Office of Gas and Electricity Markets (Ofgem) and the Financial Conduct Authority (FCA) have made it clear that tackling greenwashing is a priority.

Aviation and “greenhushing”

The aviation industry continues to come under scrutiny as a major contributor to carbon emissions. Many businesses in this field are seeking to present themselves as an eco-conscious choice, which has drawn the attention of the regulators. In the latter part of last year, the ASA banned advertisements from a number of airlines as they included unsubstantiated claims and misleading information about sustainability.  As the pressure increases on airlines and the travel industry in general, this has led some organisations simply to decline to publish ESG information – a practice labelled as “greenhushing”. This is, however, unlikely to be a viable solution in the long term as regulators and the public demand more transparency from businesses about their plans to reduce their impact on the environment. 

Shareholder claims - on the rise?

While shareholder claims remain relatively rare when compared to other jurisdictions such as the US and Australia, the listed energy company Drax Group Plc recently made headlines for its alleged false environmental claims.  Its shareholders are pursuing an action under s90A of the Financial Services and Markets Act 2000, claiming that the allegedly misleading portrayal of the company’s green credentials has negatively impacted the value of their shares. Drax is also currently being investigated by Ofgem in relation to those claims. UK listed companies will no doubt be taking note.

New FCA anti-greenwashing rule

On 23 April 2024, the FCA published its finalised guidance on the anti-greenwashing rule, with which all FCA-authorised firms must comply from 31 May 2024. The new rule is part of a package of measures finalised by the FCA in 2023 and it follows the FCA’s consultation which closed earlier this year.

The guidance provides information about how the rule will be implemented practically - the primary focus being the FCA’s expectations on clear messaging, which underpins a principal obligation to communicate in a way which is fair, clear and not misleading.

These are some of the FCA’s key points: 

• Claims made by companies are “correct and capable of being substantiated”. This is designed to tackle companies exaggerating a service or product’s sustainability or making false statements about the impact on the environment. Crucially, claims must be backed up with “robust and credible evidence”. 
• Claims should be “clear and presented in a way that can be understood”.  In other words, companies must avoid general terms that could be confusing to the consumer and should be conscious of the overall impression a visual representation could give through the use of logos and colours.
• Statements must not be incomplete or omit information. The FCA is aiming here to tackle the issue of companies using positive sustainability impacts to disguise negative effects.  For example, where an organisation claims to be “carbon neutral” and therefore appears to be without greenhouse emissions, but is in fact relying heavily on offsetting its carbon footprint and is not transparent about this with the consumer.
• Comparisons should be “fair and meaningful”. This means avoiding market-wide comparisons that are, in reality, based on a limited sample.

In its finalised guidance, the FCA also addresses the concerns expressed by some firms that the deadline of 31 May 2024 for implementation does not provide sufficient time to ensure compliance. The FCA’s position remains that the anti-greenwashing rule does not introduce new obligations, and that firms should already be compliant with existing requirements and related guidance. 

Conclusion

Anti-greenwashing regulation is increasing and, although still relatively rare, shareholder activism is also on the rise, with pressure on certain industries such as aviation, food and drink and energy.  It remains crucial that organisations are able to support their sustainability claims with robust evidence, not just to avoid regulatory action and litigation, but also to protect investor and consumer trust.