Are fines of 10% of global turnover on the horizon for greenwashing?

A fascinating article in today's Observer newspaper highlights the possibility that by the end of this year, a new law could be enacted leaving advertisers facing fines of up to 10% of their global turnover for greenwashing. The Digital Markets, Competition and Consumer Bill is due be published next month and could come into force as soon as October this year. The new law would give the Competition and Markets Authority (CMA) the power to impose fines of up to 10% of global turnover for a range of consumer law offences. This could include misleading green claims, if they were sufficiently serious to amount of a breach of the Consumer Protection Regulations 2008 (CPRs).

The Observer article includes a review of several adjudications by the Advertising Standards Authority (ASA) that we have covered previously in this blog, including ones concerning Hyundai and Unilever. The Observer article is not entirely observant, because it fails to recognise that under the CAP and BCAP Codes enforced by the ASA, the burden of proof is on the advertiser to prove that their claims are not misleading. When the CMA enforces the CPRs, the burden of proof is on the CMA to prove not only that the green claims are misleading, but also that they are likely to result in a different transactional decision by consumers. The standard of proof for a prosecution under the CPRs is also the higher, criminal standard. Although the ASA has never been entirely clear about the standard of proof that it applies, as a self-regulatory organisation, it is more logical that it would be applying the lower civil standard, i.e. the balance of probabilities.

The Hyundai adjudication is an interesting example of an ad that could be in the middle ground, being a sufficiently serious to amount to a breach of the CAP Code, but not egregious enough to break the criminal law of the CPRs. The Observer quotes the claims made in the Hyundai ad, but it does not show the artwork that illustrated those claims. The text said “Introducing the next generation of fuel cell vehicles: All-New NEXO. A car so beautifully clean, it purifies the air as it goes”. The sole complainant pointed out that the car's braking system and tyres would release dust and particulates into the air, therefore contributing to pollution. The ASA accepted that argument and upheld the complaint, so Hyundai withdrew their ad. This reduced the information available to consumers about hydrogen fuel cell vehicles, as an alternative to electric vehicles, and inhibited Hyundai's ability to compete with the manufacturers of those vehicles.

However, the illustration showed a woman on a treadmill linked in a bubble, connected by a pipe to the exhaust pipe of the car. To me, the message was clear. The tailpipe emissions of this car are so clear that you could breathe them in, even if breathing deeply while running on a treadmill. My own view was the ASA's adjudication was harsh, as it appeared to take the claims in the copy out of the context of the ad as a whole. And yet again, the ASA overlooked the crucial element of 'materiality' in the most important rule in the CAP Code, which states "Marketing communications must not materially mislead or be likely to do so." [emphasis added.] Yes, the Hyundai ad could have been clearer, but IMHO, when the words and image are taken together, the ad was not materially misleading.

Reasonable people can disagree on this point, although I usually find people who disagree with me are most unreasonable. However, for the sake of argument, even if the ASA was correct to uphold the complaint for a breach of the CAP Code, that does not mean that the same facts would inevitably give rise to a breach of the CPRs. The same logic also applies to the Unilever ad for Persil which is cited by The Observer.

Of course, even if the two examples used by The Observer would not necessarily breach the CPRs, if the bill is passed, the threat of significant fines will cause massive problems for advertisers. The article also refers to the CMA's ongoing investigation into the fashion sector and its more recent investigation into FMCGs. We are currently advising a major retailer on a labelling scheme to provide its customers with the information they want about products with improved environmental credentials but which not offend the CMA or the ASA. It's not easy!

There is a problem is that regulators are so paranoid about greenwashing, and being constantly pressurised by lobbyists, that it is now becoming extremely difficult for advertisers and brands to provide environmental information to consumers about their products and services. In a free market economy, competition should be driving green innovation, but when purist regulation makes it impossible publish green claims, then innovation is stifled. Paranoia about greenwashing risks becoming a straightjacket that inhibits competition and stifles innovation.

It may seem counter intuitive, but a bit of flexibility may be better for the environment. Instead of asking, "is this claim literally true?", regulators need to ask, "is this claim materially misleading?"