UK Competition and Markets Authority (CMA) reminds fashion retailers that it's not so easy to claim you're green

Overview

The UK Competition and Markets Authority ("CMA") has announced that three fashion retailers have signed voluntary undertakings to ensure that consumers have a clearer idea of how green their clothes really are. At the end of March 2024, ASOS, Boohoo and George at Asda committed to only make green claims about their products that are accurate, clear and not misleading.¹ At the same time, the CMA also published an open letter to the fashion retail sector stressing that players should ensure that all the green claims they make comply with UK consumer protection law.² The commitments will be a particularly useful resource to fashion retailers, and businesses more generally, that are considering how to apply the CMA's Green Claims Code to their products, and gearing up for potentially more potent interventions by the CMA in this space. To this end, it should be noted that the CMA ominously concludes its open letter by noting that its anticipated new powers under the Digital Markets, Competition and Consumers Bill ("DMCC"), which is currently being approved by Parliament, will allow the CMA for the first time, to impose financial penalties for breaches of consumer protection law, such as misleading green claims, without having to go to court.

What are "green claims"?

Green claims broadly describe statements, or claims, by businesses that suggest their goods or services have a positive or neutral green impact, or perhaps less of a negative green impact than other similar goods or services.³

For example, statements about clothing being "sustainable" or "eco" or made using "recycled" materials would normally be considered green claims. The CMA also considers the use of visual signs, such as green leaves, to be claims that could be potentially misleading.

Greenwashing in context

The CMA, like many of its counterparts around the globe,⁴ has made sustainability a key focus, as reflected in its annual plan. In the past 6 months alone, in addition to the fashion greenwashing undertakings, the CMA has also published formal guidance on environmental collaboration projects between competitors, and two examples of informal guidance to such projects.⁵ Indeed, in its 2024 Annual Plan, the CMA said that it would prioritise ensuring that "people can be confident they are getting great choices and fair deals", and that "the whole UK economy can grow productively and sustainably". These recent developments show how the CMA is seeking to achieve these goals in practice and is not shying away from intervening when it thinks markets are not working as they should. So, the recent greenwashing investigations in the fashion retail sector need to be viewed in this broader context. The CMA's determination to utilise all of the weapons in its armoury to protect consumers in the markets that are most important to them is clear. 

More specifically, the news about the undertakings given by the fashion retailers follows:

• publication of CMA's Green Claims Code in September 2021.⁶ This sets out six key principles for business to follow in ensuring their environmental claims are not misleading, namely that they (a) are truthful and accurate, (b) are clear and unambiguous, (c) do not omit or hide important information, (d) compare goods or services in a fair and meaningful way, that consider the full life cycle of the product or service and (f) are substantiated; and
• the launch of a separate investigation into green claims in the fast-moving consumer goods sector in January 2023 (see our previous blog post on this here), amongst others.

What do the CMA undertakings require the three fashion retailers to do?

The undertakings recently announced include legally binding commitments with respect to the retailers' green claims on product labels, online, in store, on products and elsewhere. They relate to both new claims and claims that have already been made by the retailers before the date of the undertakings.

The undertakings impose a general requirement that green claims must be clear, accurate, and not misleading. Of perhaps greater interest, there are also specific provisions for certain claims, including:

• Statements about fabrics should be specific and clear e.g., "organic" or "recycled" if they meet specific criteria, and not be ambiguous without further explanation such as "eco", "responsible" or "sustainable".
• Specific ranges classified by reference to the environment must be subject to specific criteria and these criteria must be displayed clearly and prominently on such products. For example, if a retailer claims that a certain garment is in its 'green' range, the percentage of recycled material required to fall into that range, needs to be obvious. There are also details on the advertising and marketing of such products – not least that all products sold within such range must meet all relevant criteria for inclusion.
• Environmental claims dependent on consumer action including by way of example, those requiring the shopper to recycle the article of clothing in a specific way for the environmental benefit.
• The use of imagery and icons should not suggest that a product is more environmentally friendly than it actually is. An example of this might be the use of green leaves or plants.
• Claims based on specific parts of a product’s life cycle must specify to which part of the life cycle the claims apply if necessary to ensure they is not misleading. For example, manufacture, distribution or disposal.
• References to wider environmental targets must be accompanied by information on the targets and can only be used where there is a clear and verifiable strategy in place to meet them.
• The use of product filters and navigation tools such as displaying only clothing made from "recycled materials" if the article is made predominantly from recycled materials.
• The use of affiliation and accreditation schemes must make clear if an accreditation scheme applies to a specific product or the wider practices of the business.
• The use of environmental comparisons such as a statement that a product is "more sustainable" should set out clearly and prominently the basis for any such comparison.

The undertakings require ASOS, Boohoo and George at Asda to put in place internal policies and a training programme with respect to green claims, implement the policy in their supplier due diligence processes, and spot check product listings for compliance. The three businesses must also keep records and regularly report to the CMA on their progress with compliance with the undertakings. If the CMA finds that the companies are not complying properly and they continue to refuse to do so, the CMA can go to court and ask for an enforcement order (although this would be rare and a last resort for all involved).

Are the CMA undertakings applicable to other fashion retailers and businesses in other sectors?

The undertakings are only directly binding on the three specific fashion retailers in question. However, the CMA stressed that the undertakings set a benchmark for how fashion retailers should be marketing their products in compliance with UK consumer protection law. Indeed, in the light of the 'Open Letter', it is hard to imagine the CMA adopting anything but a stringent approach to greenwashing in the fashion sector going forward.

The undertakings will be an important, and useful, reference for fashion retail businesses looking for best practice in implementing any of these matters in their own product ranges. For instance, how information should be displayed clearly and prominently.

Furthermore, whilst the undertakings specifically consider green claims in the fashion retail sector, they provide a concrete example of how the Green Claims Code should be applied in practice and, more generally, are also illustrative of the CMA's thinking in relation to environmental claims in other sectors. For example, the requirement to implement internal policies and training to ensure that environmental claims are accurate, clear and not misleading are applicable to all businesses making claims about their products and services having a certain environmental impact in the UK.

In addition, the CMA's expectations with respect to specific environmental claims (including the use of "green" imagery, filters and accreditation schemes) may also be applicable to goods outside the fashion retail sector.

More broadly, it's worth noting that although the CMA considered that on the facts of this case, it was appropriate to proceed on the basis of its consumer powers, it has a whole range of other, and more intrusive powers at its disposal. Future intervention in this sphere should not be ruled out, for example on the basis of its market study powers.

What steps should businesses making green claims take?

Businesses making green claims about their products or services are now on notice about the CMA's determination to ensure that consumers in this area are not being misled. That said, businesses do not need to shy away from making proper green claims about their products, as to do so often offers significant commercial advantages. Businesses should therefore:

• Conduct an audit of what green claims they are making noting the CMA's wide approach including online, in store, in advertisements or on product labels;
• Check if they meet the CMA's expectations in the Green Claims Code and the voluntary undertakings requiring these kinds of claims to be accurate, clear, and not misleading, considering modifications where appropriate; and
• Consider implementing a robust internal compliance programme with respect to environmental claims which takes into account the Green Claims Code and the content of the undertakings. Businesses may also find the examples used by the CMA with respect to environmental claims about the use of fabrics, imagery, product filters, accreditation schemes, comparisons and environmental targets as a useful guide on how to ensure compliance.

What are the consequences of non-compliance?

Currently, breaches of UK consumer protection law and, in particular, the Consumer Protection from Unfair Trading Regulations 2008, both of which are relevant to misleading environmental claims, are not easy for the CMA to enforce. Indeed, they require persuading the court of a breach of consumer protection law, alongside all the unpredictable events of the court process. As such, it is not surprising that at the current time, normally, the CMA proceeds in the consumer law sphere by way of discussions and undertakings.

However, the proposed UK DMCC will, when passed, significantly strengthen the CMA's consumer enforcement powers.⁷ In particular, the DMCC would allow the CMA to impose fines for breaching consumer protection law of up to 10% of annual global turnover (if any) or £300,000 (whichever is higher) without the need to go to court. In addition, the CMA might also be able to require that businesses award consumers with compensation where it would be just and reasonable in the circumstances of a specific case. The DMCC Bill is in the final stages of the legislative process and is expected to enter into force later in 2024. These new powers could lead to the CMA imposing substantial penalties on businesses that breach UK consumer protection law when making environmental claims about their product or services. Once the DMCC Bill passes into law, the CMA is expected to publish guidance explaining how it will apply its new powers in practice. In the meantime, businesses should take note of the CMA's unwillingness to sit back and wait. Given the number of times that the CMA has referred to penalties and greater action in this space, businesses must ensure compliance before it’s too late.

Looking forward, the news of the undertakings in the fashion sector to address concerns with greenwashing indicates the real risk of greater enforcement action being taken by the CMA using its enhanced powers in the near future. The CMA's recent activity underlines its keen determination to address green washing, and businesses need to be ready for this.