Answer ... Enforcement of the ESG framework in the United Kingdom has still to take shape, particularly for climate and non-financial related disclosures. However, ClientEarth has reported two UK listed companies (Just Eat Takeaway.com NV and Carnival plc) to the FCA for failing to report on climate change risk to their investors in their 2020 annual reports, and has asked the FCA to refer both companies for investigation.
In other areas, attempts are being made to provide more substantive enforcement capabilities to regulators.
For example, the requirement for a modern slavery statement. under the Modern Slavery Act, setting out steps taken to address modern slavery risks in a company’s operations and supply chains, has historically been poorly adhered to by qualifying businesses. Only 60% of companies to which the legislation applies report on modern slavery and the majority fail to disclose risks in their sectors, meaning that responses are often formulaic and a tick-box exercise.
The UK anti-slavery commissioner reported last year that with an estimated 16 million victims of modern slavery working for the private sector globally, it is the responsibility of businesses to ensure that their commercial practices are not fuelling exploitation at home or abroad. The UK government have proposed amendments to the legislation. Proposals include:
- mandatory issues which must be covered in a modern slavery statement; and
- the inclusion of public bodies with a budget of £36 million or more, as well as qualifying private companies.
A private members bill introduced on 15 June 2021 would establish criminal offences for making false or incomplete modern slavery statements, with the potential for individual liability. Anyone responsible for a modern statement could potentially be liable, including a director. A defence would be available if all reasonable steps were taken to ensure the statement was accurate.
The bill proposes a fine of up to 4% of global turnover or £20 million, whichever is lower, and/or imprisonment of up to two years for the relevant individual. The legislation also proposes the same level of fine if a company received a warning from the commissioner but continued, for example, to source from suppliers which have failed to meet minimum levels of transparency. Currently, there is no financial penalty for failure to comply with the Modern Slavery Act. The penalty is limited to the secretary of state being empowered to bring proceedings for specific performance, but these powers have not been used since the act was passed in 2015.
In January 2022, plant-milk brand Oatly was ordered by the ASA not to repeat misleading ads and social media posts. The ads claimed that “Oatly generates 73% less CO₂e vs. milk” but this was only accurate when comparing with Oatly Barista Edition and not all Oatly products. The ASA had received 109 complaints about the advertising.
Pepsi also had an ASA complaint against it upheld. A bus shelter advert for Lipton Ice Tea included the words “Deliciously Refreshing, 100% Recycled*” and shots of the bottles with a recycling logo and text stating, “I’m 100% recycled plastic.” The asterisk in the first statement led to text at the bottom of the poster which stated that the cap and label were excluded; but the ASA found that due to the small size of the text and its placement, it could be overlooked and the overall impression was that the whole bottle was made from recycled materials.
January 2022 also saw the CMA launch its first sector compliance review under its new Green Claims Code, spotlighting fashion retail. This sector accounts for approximately £54 billion of spending in the United Kingdom annually and is estimated to be responsible for between 2% and 8% of global carbon emissions.
Other sectors potentially up for review include:
- travel and transport; and
- fast-moving consumer goods (food and beverages, beauty products and cleaning products).
The CMA has warned, however, that it will take appropriate action against any non-compliant business even while reviews are ongoing.
Looking to the future, it is clear that regulatory bodies will be taking more action against businesses that make misleading environmental claims.