In the UK, 4 out of 10 large businesses face hefty fines for greenwashing in 2024, as a major toughening up of consumer protection law from the Competitions and Markets Authority (CMA) and the EU comes into force.
According to a new analysis of sustainability by the communication platform Compare Ethics, businesses are not mitigating the real risk yet, which includes a fast-changing environment in which every sustainable claim has to be thoroughly verified by them, among others.
With the changing regulations across the UK, and EU, "it's no longer just as simple as thinking about a tick box from a regulator compliance exercise," said Abbie Morris CEO of Compare Ethics.
Watchdogs are cracking down on rulebreakers
In 2020, a range of consumer protection agencies came together globally and conducted an independent survey. They found that 40% of international businesses had made misleading environmental claims.
In the UK, Nestle, Coca-Cola and Boohoo, among others, came to the attention of the Competition and Markets Authority (CMA) last year. Underlining their determination to crack down on wrongdoers, the CMA has spent £1.3 million (€1.52 million) and an estimated 29,471 working hours on its probes into greenwashing between September 2021 and January 2024, as reported by the Financial News.
Some of their findings highlighted the use by firms of vague language.
The CMA also found that the language used by Asos, Boohoo and George was "too broad and vague", suggesting more sustainable fabrication of some clothes than was actually the case.
Such green claims need to be thoroughly proved. Otherwise, businesses could face a hefty penalty. The CMA has the power to fine companies up to 10% of their global turnover.
However, for the next few months it will will need to pursue court proceedings before it can impose fines until the incoming Digital Markets, Competition and Consumers Bill comes into force. That will allow the CMA and to directly enforce penalties.
The end of the Greenwashing era
Greenwashing may not be intentional. In the UK, the term lacks legal definition on top of a fast-changing regulatory environment, in which companies will need to meet a raft of changes over the next 2-3 years.
The EU has recently banned greenwashing - via the Empowering Consumers for the Green Transition Directive. There is an incoming Green Claims Directive, that requires that green claims in the European market must be verified by an independent third party.
The EU Green Claims Directive, which is set to be introduced in April, means that UK retail businesses looking to export abroad have to contend more than 70 new regulations internationally in the next 12-36 months.
Right now every environmental claim needs to be checked before it goes out the door. But the reality is, it is not.
If not, they could see some 1.6 million UK goods getting stuck at the border.
EU Member States have also just voted to support the Corporate Sustainability Due Diligence Directive (CSDDD) which will hold companies to account for environmental and human rights damages in their value chains.
This means, that certain businesses (with a turnover of more than €450 million) who want to label their products as sustainably made, will need to make sure that their supplier, even if based in Bangladesh, is really working under the conditions it should be working over there.
Meanwhile, the real risk this changing regulatory minefield holds for businesses is currently being overlooked by C suite, claims the CEO.
"It's no longer just as simple as thinking about a tick box from a regulator compliance exercise," said Morris. "Right now every environmental claim needs to be checked before it goes out the door. But the reality is, it is not."
What is the risk for businesses?
Compare Ethics expects an increasing number of fines during the next 12-18 months.
"We're starting to see that not only are regulators holding companies to account, but increasingly, investors will actively sue your business if you're not taking it seriously because they themselves have their own regulatory pressure that they need to, respond to," warned the CEO, adding that there is also a rise of European consumer protection bodies and legal firms, taking companies to the European consumer protection authorities.
According to Compare Ethics's analysis, the problem is that many of the large businesses are under-invested for such thorough procedures. The necessary investment for an average business is £500k-£1 million (€1.17 million) annually if it chooses to manually carry out the verification of all the green claims. Building the technology would cost £2-4 million and £1-2 million to maintain the system.
It can take months, if not years, to collect the right data, set up necessary verification systems, and report back to relevant regulators, said the CEO adding that many UK businesses are at risk of seeing products stuck at the border from April this year if they do not urgently verify their entire product supply chains.
