The Competition and Markets Authority (CMA) has recommended legislating to impose a positive obligation on consumer-facing businesses to disclose information about the environmental impact of their products. It has also recommended changes designed to make it easier to enforce consumer law against companies making misleading environmental claims, to allow orders to be made requiring businesses to make redress payments for environmental harm and to increase supply chain transparency. In this briefing, we look at what these changes would mean in practice and what is likely to happen next.
B2C marketing: CMA calls for businesses to disclose how "green" their products really are
Background to the CMA's report
In July 2021, the CMA was asked by the Secretary of State for Business, Energy and Industrial Strategy to advise on how it could best use consumer and competition law to meet its net zero and sustainability goals. During the course of 2021, the CMA carried out a consultation process and published its recommendations in March of this year. This briefing focusses on the CMA's recommendations relating to the consumer protection regime and supply chain transparency. The recommendations relating to competition law are discussed in our separate briefing.
What has the CMA recommended for B2C businesses?
The CMA has recommended that consumer-facing businesses should be under a positive, express obligation to disclose information regarding the environmental impact of their products to consumers on the grounds that it is material to consumers' decision making.
As it currently stands, B2C businesses have an obligation to ensure that information provided is not misleading. In practice, this means that the current law primarily affects those businesses that seek to make a virtue out of being "green"; if they go too far with such claims, they risk being found to have engaged in unfair commercial practices. A positive obligation would go further as it would force even those businesses which choose not to make claims of that type to disclose information about the environmental impact of their products; in some cases, this could require admitting that a product is not particularly eco-friendly, although the CMA's guidance does not contain any recommendations about the prominence which should be given to this information. However, it would in effect introduce a presumption that all consumers expect this type of information in order to make informed decisions about which products to buy.
There is, however, a possible tension between these changes and the CMA's existing Green Claims Code, which warns businesses against using compliance with minimum environmental standards required by law in order to emphasise a product's "green credentials". The rationale for this is that all comparable products will have to comply with the relevant standards, so it can be misleading to suggest that one product is "greener" than its rivals purely on the basis of such compliance. But consumer awareness of such standards is often low and if in future businesses are to be required to indicate the environmental impact of their products, some minimum legal standards may be relevant to that assessment.
The need for consistent definitions of "recyclable", "carbon-neutral" etc.
The CMA recognizes that a common problem faced by businesses is that there is little consistency over the use of terms such as "recyclable", "repairable", "biodegradable", "compostable", "carbon-neutral" or "carbon-negative". It therefore recommends creating standardised definitions of commonly used environmental terms to which businesses must adhere when marketing their products. However, the guidance leaves it up to Government to decide how these definitions should be arrived at. This could prove to be a controversial exercise, because businesses will be concerned about their products being perceived negatively by consumers if they fall on "the wrong side" of a particular definition. Those definitions will in turn need to be underpinned by consistent methodologies for calculating environmental impact over a product's lifecycle so that consumers can be confident that they are comparing "like with like".
Enforcement and remedies
The CMA has also suggested adding misleading and/or unsubstantiated environmental claims to the list of banned consumer law practices. This would make these practices automatically unfair, which would remove the burden on the CMA or Trading Standards to prove that the average customer would find the practice misleading. Instead, a supplier or business could be liable purely by virtue of the fact that a misleading statement was made.
Finally, the CMA has suggested extending consumer protection remedies to address the harm to the environment caused by unfair commercial practices directed at consumers. This would allow the CMA to apply to court for an order requiring a business to pay compensation in the collective interest based on a wider harm to the environment (rather than to individual consumers for any specific losses that they may have suffered – which may in some cases be difficult to quantify).
What could the new redress remedy mean in practice?
In a future case, similar to, say, the diesel emissions scandal, a manufacturer could be ordered by a court to make a payment designed to compensate society as a whole for environmental damage. The report does not provide any detail on how this would be calculated, nor does it indicate to whom the payment would be made. One possibility is that an award could be made to support the work of an environmental charity, but this is another area where the CMA's recommendations are short on detail.
B2B businesses and supply chain transparency
The CMA also recognises that B2C businesses are likely to need greater transparency from their upstream suppliers when it comes to environmental information about products and raw materials. With this in mind, it has made several recommendations regarding the Business Protection from Misleading Marketing Regulations 2008, which protect businesses from misleading claims by other businesses. The CMA recommends that these should be amended to:
- cover misleading omissions of material environmental impact information; and
- require businesses making claims that a product is green to disclose the evidence which substantiates that claim.
However, the recommendation does not go as far as to extend the positive obligation recommended for B2C businesses to B2B businesses.
The Government now faces the challenge of deciding which recommendations it wishes to proceed with. Whilst it could decide to amend consumer legislation (as recommended by the CMA), another option might be to use powers in the Environment Act 2021 to issue regulations requiring the provision of certain information about a product's "resource efficiency" and its "impact on the natural environment". A further option would be to use the draft Digital Markets, Competition and Consumer Bill announced in the Queen's Speech to implement some or all of the CMA's recommendations. In any event, further consultation is likely to be required, followed by the lengthy process of enshrining the chosen recommendations in legislation; as a result, it is likely to be at least a year, if not longer, before any of the CMA's recommendations can be implemented.
That said, this report, alongside events such as COP 26, provides an important indicator of the general "direction of travel", towards a greater general focus on environmental issues in the application of consumer and competition law. In the meantime, as we have reported on previously, the CMA is likely to continue to be active in pursuing cases of alleged "greenwashing".
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