New Year deadline for businesses to clean up greenwashing act

With next month’s COP26 meeting on the horizon, the competition regulator has warned that it will use 2022 to come down hard on businesses trying to mislead consumers over their environmental credentials.

As part of a wider campaign launched this week ahead of the UN’s Climate Change Conference, and in light of a murky, complex issue that has exploded as consumers become increasingly influenced by the impact their purchasing decisions have on the environment, the Competitions and Markets Authority (CMA) has fired a warning shot at those who inaccurately spin their products and services to appear more sustainable than they really are.

Research carried out in 2020 by the CMA and other global authorities found that 40 per cent of claims made online could be misleading, which includes the things businesses fail to mention about their products and services as well as the claims they do make and which, crucially, must also take “the full life cycle of the product” into account.

Failure to comply with trading requirements in the UK – as enshrined in the Consumer Protection from Unfair Trading Regulations Act 2008 – could mean businesses find themselves subject to immediate action even before formal review and legal proceedings have begun.

Acting both on and offline, including rifling through in-store marketing and labelling, the regulator is likely to focus on industries where consumers are most concerned about being misled, including fashion and textiles, travel and transport, and “fast-moving consumer goods” such as food and drink, beauty and cleaning products, though it has stated, “any sector where the CMA finds significant concerns could become a priority.”

“Millions of UK households are rightly choosing to switch to green products as they look to reduce their carbon footprint. But it’s only right that this commitment is backed up by transparent claims from businesses,” UK energy minister, Greg Hands, said.

“The competition regulator’s new code will help to ensure this [and give] advice on how best to communicate and understand environmental claims.”

Elsewhere, the government is also reviewing green energy tariffs. Around nine million people are currently on green energy tariffs that claim to be 100 per cent renewable or simply “green”.

However, energy companies are currently able to market tariffs as “green” even if some of the energy they supply to customers comes from fossil fuels, as long as this is offset by purchasing enough certificates called Renewable Energy Guarantees of Origin to cover their customer base.

But few sectors have witnessed the challenges and complexities surrounding eco claims and greenwashing quite like financial services.

“There has been a material market response over the last 18 months across the banking, insurance and asset management sectors, with products and services continually being expanded to meet demand and help clients play their part in tackling the climate crisis,” said Gill Lofts, global sustainable finance leader at EY, speaking ahead of this week’s Zero Emissions Day.

“However, amid much good progress is rising scepticism – and scrutiny – about whether all ‘green’ and ‘sustainable’ products do what they say on the tin. Providers of financial products must ensure they practice what they preach, not least because the credibility and growth of their business and the health of our environment depends on it.”

And just like every other aspect of our consuming lives, demand for more sustainable investment portfolios is only set to increase as the true extent of the climate crisis filters through.

Research by Interactive Investor found two in every five investors said they have been particularly moved towards “green investing” by the latest Intergovernmental Panel on Climate Change (IPCC) report that infamously threw off its traditional restrained style in the face of mounting evidence and fundamentally inadequate action to issue a “code red” to humanity to take immediate and dramatic steps to curb emissions – currently forecast to only increase further despite the latest pledges.

Kyle Caldwell, collectives specialist for Interactive Investor, offers the following advice to those determined to avoid bankrolling destructive companies: “When we talk about greenwashing in asset management, we mean the term coined to describe fund firms pushing themselves or their funds as ‘green’ through marketing, rather than fully integrating ESG [environmental, social and governance factors] into their investment processes.

“It is a worrying trend, but there are some safety checks investors can apply to find funds that are managed in a genuinely ethical manner.

“One tactic is to assess the fund manager’s heritage in the ESG sector, as well as the fund management group’s overall knowledge and experience.  Resources also fit into this; if a fund firm employs a large team of ESG fund managers and analysts, this arguably shows a healthy level of commitment towards sustainable investing.

“Another factor to consider is the level of emphasis the fund management firm places on ESG. If only a small number of its funds have an ESG focus, and have been launched over the past couple of years, this certainly raises question marks.”