Standards & Regulations Group Blog Post

Standards and Regulations

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The Perils of Greenwashing

The growing interest in environmental responsibility is great. An Accenture 2023 survey of 2,600 CEOs across 128 countries found that 98% agreed sustainability is now crucial to their role.However, the desire to seem ‘greener’ and get a competitive edgecan result in companies making false or misleading statements about the environmental benefits of a product or practice. This is known as ‘greenwashing, a term that was coined back in 1986 by Jay Westerveld. Visiting a hotel in Fiji, he saw the usual notice that asked guests to reuse towels for the planet’s sake; that this would also save the hotel money was not stated. That would not, in itself,be a major issue but the hotel, located near sensitive island ecosystems, was in the middle of an expansion.

Greenwashing has continued apace with numerous companies being called out for misleading advertising. There have been numerous court cases – the highest profile is (currently) the Dieselgate’ case which cost Volkswagen $34.69 billion (in fines and compensation) for implementing software that falsified data and helped evade emissions tests on its vehicles.

But the impact of greenwashing doesn’t stop at the direct costs; the reputational damage can be severe. In the case of Volkswagen, sales of their diesel models dropped by over 25% in some markets,their share price dropped over 30%, their CEO resigned and other executives were suspended.

However, the lure of greenwashing continued. Recently (March 2024), KLM were taken to court by a campaign group, and it was ruled that they had misled customers with vague environmental claims and painted “an overly rosy picture” of its sustainable aviation fuel. No fine but a ban on using those advertising claims, and a reputational loss (and a 20% drop in share price for Air France KLM).

In the UK, there have been numerous examples of the Advertising Standards Agency (ASA) banning adverts deemed to be ‘greenwashing’: Ryanair (who else?) claimed to be the lowest emissions European airline; a claim that was said to have been ‘plucked out of the air’.

Why is all this about greenwashing appearing in a piece supposed to be about Standards and Regulations. It’s because regulation is coming, at least in Europe.

In March 2024, the European Parliament put forward a Green Claims Directive (GCD) with the aim of preventing false or misleading advertising from hindering the green transition. Under the GCD, only companies that have verified their claims as environmentally friendly can reap commercial benefits from using green claims.

The key aspects of the GCD are that it provides conditions for how such claims are to be substantiated and communicated and detailed requirements for the approval of environmental labels, third-party verification of claims, and penalties for companies found to be noncompliant. Potential penalties include fines, confiscation of revenues and exclusion from public procurement.

The GCD will be taken up again after the European Parliament elections in early June. When it comes into force the GCD will form an integral part of the European Green Deal, and the Circular Economy Action Plan. It will not only cover Business to Consumer communication but also Business to Business.

This has an impact on standards: standards for determining Environmental Product Declarations will be required, product standards will need to be opened up to more recyclates and designing for end-of-life recycling.

How does this impact us in the UK? Well, in some ways we were slightly ahead; greenwashing is covered under Consumer Protection, and the Competition and Markets Authority issued guidance on green claims, in 2021. Enforcement sits largely with Trading Standards (and the ASA for adverts).

However, the Green Claims Code is really aimed at B2C with virtually no impact on B2B. To date, the CMA has focussed on two main sectors – the fashion retail sector and the Fast Moving Consumer Goods sector.

Post-Brexit we will not implement the GCD into UK law so, for most of us in the UK, not much will appear to change. But expect the penalties, financial and reputational, to get bigger and more actively pursued in the future.

And, who knows what a future government may choose to do in future?

Any views expressed in this article are those of the author and do not represent the position of the Future Water Association.

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