Should businesses be concerned about the possible fallout of Environmental, Social and Governance (ESG) scandals? Is greenwashing a growing risk to be aware of? We look closer at the balancing act involved for businesses looking to promote their sustainability efforts.
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Whether it’s a new food brand that produces less waste, an energy-saving device, or recycled fashion, when businesses have a green selling point, they’ll likely want to communicate that to customers.
The trouble is that greenwashing – when a company’s actual green credentials don’t match the image they’re portraying – is a growing concern for the public and regulators. That means communicating green credentials can be tricky and potentially risky.
A new era of complaints and claims against businesses?
Joanna Fulton, a partner at Burness Paull, is a specialist in product liability and consumer claims. She has noticed a new area for claims related to greenwashing.
Joanna explains: “We advise companies faced with claims by consumers in relation to products that have gone wrong and caused harm or some kind of financial loss, or where products are not what they thought they were getting. It’s that second concept that’s an extension of the traditional focus of consumers.”
Products that aren’t as green as they claim to be is a growing area of risk for businesses, in a wide variety of sectors, from food and drink to automotive.
“There is also a lot of attention at the moment on financial products, of one kind or another,” adds Joanna. Investors – including people looking at their pension funds – are becoming more interested in the green credentials of financial products. Joanna discusses how, increasingly, not only do investors want to invest money in areas perceived to be more climate- or ESG-friendly, they are also scrutinising whether these products are really ‘green’ in practice.
And it’s a growing trend that’s likely here to stay. Joanna says: “The predictions are that we’re going to see more of this. COP26 brought it home to people – and everyone can see it happening around them. There’s a lot of discussion about it. And there’ll be increasing pressure put on companies to demonstrate that they’re doing what they say on the tin. It’s about honouring the impression that you are giving.”
A balancing act: the two main risks for businesses and greenwashing
When it comes to greenwashing and consumer claims about misleading products or marketing, Joanna explains that there are two main risks for companies to think about.
One is the risk of action from regulators (like a financial regulator, the Advertising Standards Authority (ASA) or the Competition and Markets Authority (CMA)) when a company makes unsubstantiated claims or breaches guidance or regulations.
Joanna says: “The second risk is claims by consumers or investors saying that they bought a product relying on these claims that have been made, that they have turned out not to be wholly accurate, and saying that they are entitled to some form of compensation as a result.”
Businesses need to strike a fine balance to manage both of these potential risks. Joanna explains: “Regulators want companies to be very specific about their green claims, to have evidence to back it up and to be very careful in terms of what product a claim is attached to.
“On the other hand, with consumer claims, the less specific you are, the better in some ways. Because if a consumer can point to a very specific claim they’ve relied on when purchasing a product, potentially, the more likely it is that they may have a claim.”
There is a “tension” between these two risks and demands, Joanna acknowledges – but it’s likely that most companies will focus firstly on regulatory action, as consumers could piggyback on any regulatory action when making a claim.
What are the consequences of greenwashing claims for businesses?
If a business is accused of misleading advertising, marketing or greenwashing, there are various potential consequences.
Regulators can take a sequences of measures against businesses who break their guidance. Essentially, the regulators will want to make sure that these things don’t happen again, so there will be engagement with the business to remedy the issue.
But regulators may also be keen publicly to flag companies that haven’t complied with guidance, to send a warning to others. ASA, for example, publicises details of action it has taken.
This can be a big worry for businesses. Joanna explains: “It’s the reputational damage that for many can be the most concerning. Often the regulatory action can be managed and dealt with, and there’s co-operation on both sides, but it’s the reputational angle that can be difficult to manage.”
So how likely is it that regulatory action will happen? Well, regulators – like CMA and ASA – have indicated that they are looking into greenwashing claims. Some areas that have been noted as of particular interest include the EV market and waste, amongst many others.
Businesses and sponsors: managing reputational damage
Organisations who receive sponsorship money from larger companies are also considering if they are aligned in terms of their ESG profile – and in some cases, are cutting ties if not (like Scottish Ballet ending its sponsorship from bp).
Be brave about your green credentials with expert help
So with all this in mind, what should businesses do next when it comes to marketing green credentials on products or in marketing? Being aware of the potential risk comes first.
Joanna says: “With all business risk, clearly, the focus should be on managing that risk by complying in so far as possible with the regulatory guidance, in order to avoid it.”
For businesses, it’s about making sure that they’re doing things right. Then, when or if there is a problem, addressing it quickly and proactively.
Experts, like Joanna and team at Burness Paull, can help.
“We are well placed to assist people both in terms of working with regulators to remedy areas of concern and in terms of consumer claims that might be threatened,” explains Joanna.
Avoid the potential risks of mis-marketing your green credentials as a business. Discover how Burness Paull can help.
