UK: Truly Green Or Emperor's New Clothes? - The UK CMA Targets Fast Fashion First In Its Investigation Of Sustainability Claims

On 29 July 2022, the UK Competition and Markets Authority (CMA) launched an investigation into three fashion firms over potentially misleading eco-friendly and sustainability claims about their products. This action, against ASOS, Boohoo, and George @ Asda, is the first significant step taken by the UK watchdog against individual companies, as part of its wider investigation into 'greenwashing' - the practice of using inaccuracy or exaggeration in branding something as sustainable, eco-friendly, or environmentally sound. The CMA follows a growing trend of international authorities showing a willingness to investigate and prosecute entities unable to substantiate their green claims, evidenced most recently by action from the UK's Advertising Standards Authority to ban advertisements containing unproven environmental claims and, notably, the U.S. Securities and Exchange Commission's $1.5 million fine imposed on BNY Mellon in May 2022 for misstatements about its environmental, social, and governance (ESG) investment considerations.

In September 2021, the CMA published guidance for businesses on how to comply with their existing obligations under consumer protection laws when making environmental claims on their products. As part of this guidance, the CMA warned that, from the start of 2022, it would be conducting a full review of misleading green claims, starting with a targeting of certain industries. Sure enough, in January 2022, the CMA announced that the fashion retail sector would be the first industry subject to a detailed review of its environmental claims. In selecting this sector, the CMA recognised the impact of fashion on carbon emissions (reported to account for between 2% to 8% of all global carbon emissions), the increased desire of consumers to choose more environmentally sustainable options when buying clothes and the related growth in environmental claims promoted by fashion businesses.

The CMA's fashionable concerns

Announcing its action against ASOS, Boohoo, and George @ Asda, the CMA is particularly concerned that these businesses may have:

(i) Used overly broad and vague statements to suggest that their products are more sustainable than they are (including, for example, product lines called 'Responsible edit', 'Ready for the Future' and 'George for Good');

(ii) Set criteria for inclusion in these 'sustainable' product lines that are lower than customers might reasonably expect;

(iii) Not accurately applied these criteria to their products;

(iv) Failed to provide important information about the products included in their product lines; and

(v) Not been clear as to whether references to environmental standards or accreditation schemes apply to specific products or to wider firm practices.

The CMA's actions are based on the UK's consumer protection rules contained in the Consumer Protection from Unfair Trading Regulations 2008 (CPUT)¹. These regulations prohibit unfair or aggressive commercial practices and misleading actions or omissions. Broadly, the rules require a business to ensure that its claims (including those related to the environment):

(i) Are truthful and accurate;

(ii) Are clear and unambiguous;

(iii) Do not omit or hide important details;

(iv) Compare goods or services in a fair and meaningful way;

(v) Consider the full life cycle of the product or service; and

(vi) Are substantiated.

Penalties for breaches of the consumer rules include fines and imprisonment, and the CMA in its announcement of its recent investigation confirmed that if breaches are found, it "won't hesitate to take enforcement action - through the courts if necessary".

Future regulatory action and potential consumer claims

Although the CMA announcement shows that it is focusing at present on the fashion industry, this is just the start and the CMA has made it clear that it intends to act on all sectors over which it has significant concerns. Accordingly, the CMA's focus is certain to widen and businesses across all sectors should give careful consideration to their own practices to ensure they are legally compliant and able to substantiate all environmental claims made on their products or services. Further, businesses should not just be concerned about actions taken by enforcement authorities, as non-compliant companies may face direct customer claims for misleading actions, particularly effective given the rising availability of group consumer actions within the EU (and the potential introduction of 'opt-out' group claims in the UK for consumer law breaches).

Footnote

1 The Consumer Protection from Unfair Trading Regulations 2008 (legislation.gov.uk)