The global call to attain net-zero, and the critical need to transition from business-as-usual, have spawned an exponential growth in the number of green products all marketing to an audience eager to join the sustainability bandwagon. However, in this fast-growing green market, the disturbing trend of greenwashing has clearly diminished consumers’ and businesses’ confidence in sustainable business practices, products and services even if these are genuinely green.
As António Guterres, UN Secretary-General, famously put it, “We must have zero tolerance for net-zero greenwashing.” It is therefore unsurprising, that there is a fast-growing body of rules governing green claims to incentivise genuine sustainability practices, improve the trustworthiness of green claims and to penalise greenwashing. Whilst greenwashing may have started from product-level claims in the retail sector, it has now evolved into firm-level claims that impact every single sector in the world.
This article provides a non-exhaustive outline of the current laws, codes and guidelines in relation to greenwashing in the European Union (“EU”), the United Kingdom (“UK”), Australia, and Singapore. This gives a general overview of how global businesses can navigate the current web of greenwashing rules.
The Empowering Consumers Directive (Directive 2024/825) aims to better protect consumers against unfair practices. The Directive took effect on 26 March 2024. Member states must apply the new rules by 27 September 2026. This Directive amends the Unfair Commercial Practices Directive (Directive 2005/29/EC) and the Consumer Rights Directive (Directive 2011/83/EU), which is currently in force in EU Member States. The Empowering Consumers Directive will apply primarily in the B2C (business-to-consumer) context, with some relevance to the B2B (business-to-business) context as well.
Generic Environmental Claims
The Empowering Consumers Directive sets a high bar for the use of “generic environmental claims”.
“Examples of generic environmental claims include ‘environmentally friendly’, ‘eco-friendly’, ‘green’, ‘nature’s friend’, ‘ecological’, ‘environmentally correct’, ‘climate friendly’, ‘gentle on the environment’, ‘carbon friendly’, ‘energy efficient’, ‘biodegradable’, ‘biobased’ or similar statements that suggest or create the impression of excellent environmental performance. Such generic environmental claims should be prohibited when recognised excellent environmental performance cannot be demonstrated” (recital 9, Empowering Consumers Directive).
However, whether a term is a generic environmental claim is context-specific. If a sufficiently clear and prominent explanation accompanies the claim, it may be considered non-generic.
“For example, the claim ‘climate-friendly packaging’ would be a generic claim, whilst claiming that ‘100 % of energy used to produce this packaging comes from renewable sources’ would be a specific claim, which would not fall under this prohibition, without prejudice to other provisions of Directive 2005/29/EC remaining applicable to those specific claims” (recital 9, Empowering Consumers Directive).”
The Empowering Consumers Directive will be complemented by the proposed Green Claims Directive. The European Parliament adopted its first reading position on the proposed directive on 12 March 2024.
The Green Claims Directive seeks to:
The Green Claims Directive aims to regulate the substantiation and communication of green claims as well as regulate the proliferation of environmental labels. This is to ensure that consumers receive trustworthy, comparable, and verifiable environmental information.
This directive will set the minimum requirements for the substantiation and communication of voluntary environmental claims and use of environmental labels in business-to-consumer commercial practices (Article 1, Green Claims Directive). Green claims would have to be independently verified by an officially accredited, third-party verifier.
1. Communication of environmental claims
The proposed Green Claims Directive sets out that all environmental claims (Article 5):
Additionally, the Directive proposes that comparative environmental claims relating to an improvement of the environmental impacts/aspects/performance of the product compared to that of another product from the same trader or from a competing trader that is no longer active on the market or from a trader that no longer sells to consumers, must be based on evidence demonstrating that the improvement is significant and achieved in the last five years (Article 6).
2. Environmental labelling schemes
Building on the Empowering Consumer Directive, which bans environmental labels based on self-certification, the proposed Green Claims Directive provides additional safeguards to improve the quality of ecolabelling schemes. The proposed directive requires environmental labelling schemes to comply with the following requirements (Article 8(2)):
Article 8 also introduces additional provisions targeted at the proliferation of labelling schemes, notably:
3. Ex-ante verification of environmental claims and labelling schemes
The substantiation and communication of environmental claims and labels will have to be third party verified and certified before the claim is used in a commercial communication (Article 10). The verifier, an officially accredited, independent body, will perform this ex-ante verification of claims submitted by the company wishing to use it. Thereafter, the verifier will decide whether to issue a certificate of conformity.
The CPUT governs business-to-consumer advertising and marketing in the UK. Regulation 5 of the CPUT prohibits false and misleading commercial practices and Regulation 6 prohibits hiding or obfuscating material information.
The Advertising Guidance on The Environment: Misleading Claims and Social Responsibility published by the Committee of Advertising Practice (“CAP”), which offers guidance on interpreting and applying rule 11 of the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (“CAP Code”) and rule 9 of the UK Code of Broadcast Advertising (“BCAP Code”), states that businesses should:
The CAP Code applies to environment claims in non-broadcast marketing communications in the UK, including online, via social media, and in print. The BCAP Code, on the other hand, applies to environmental claims in all advertisements (including teleshopping, content on self-promotional television channels, television text and interactive TV advertisements) and programme sponsorship credits on radio and television services.
The Guidance on Making Environmental Claims on Goods and Services (2021) published by the Competition & Markets Authority (“CMA”) aims to help businesses in the UK understand and comply with their existing obligations under consumer protection law when making environmental claims.
The guidance sets out 6 principles to follow when making sustainability claims in the UK:
Based on these principles, the Green Claims Code Checklist provides useful guidance on the questions that a business should be able to answer for its claims in the affirmative:
The ACL prohibits conduct in trade or commerce that is misleading or deceptive, and also prohibits the making false or misleading representations about goods or services in the course of trade or commerce, including misrepresentations in promoting goods and services.
The law applies even if a business did not intend to mislead, or no one has suffered any loss or damage (i.e. a strict liability law).
When deciding if conduct is misleading or deceptive, or if a representation is false or misleading, ACL will ask the question whether the overall impression created would be misleading to the ordinary and reasonable consumer. Essentially, this means that any business that makes claims in relation to their business activity, goods or services must ensure that the claim is true and accurate, and not likely to give consumers the wrong impression.
Accordingly, all green claims must be substantiated. A lack of evidence to substantiate the claim may be deemed to be misleading to consumers and thereby breach the ACL.
A Guide for Making Environmental Claims was published by the Australian Competition and Consumer Commission (ACCC) to help business meet their obligations under the ACL in relation to making environmental claims. In summary, the guide sets out 8 principles to help businesses steer clear of ACL breaches:
The Environmental Claims Code was published by the Australian Association of National Advertisers (AANA) and provides valuable guidance as part of the advertising self-regulatory system. The Code seeks to improve consumer confidence by ensuring that advertisers uphold rigorous standards when making environmental assertions.
The Code provides that environmental claims in advertising or marketing communication:
It should be noted that environmental claims must:
In addition, environmental claims in advertising or marketing communication:
Recently, on 27 March 2024, the Treasury published the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. Schedule 4 of this Bill introduces new climate-related financial reporting requirements for in-scope entities, leveraging the existing financial reporting regime under the Corporations Act 2001. Under this Bill, in-scope entities will need to prepare a new ‘sustainability report’ for each financial year in addition to their financial reports.
The sustainability report for a financial year consists of:
The climate statements must be prepared according to the relevant sustainability standards issued by the Australian Accounting Standards Board (“AASB”).
There is no specific greenwashing law or code applicable in Singapore at the time of this article’s publication.
The Consumer Protection (Fair Trading) Act 2003 (“CPFTA”) is the sole legislation which applies to green claims and the CPFTA is aimed at protecting consumers against unfair practices generally. Section 4 of the CPFTA prescribes that it amounts to an “unfair practice” for a supplier to:
The court may order the following remedies for victims of unfair practices (s 7(5) CPFTA):
An aggrieved consumer has the right to sue the supplier for unfair practices and claim up to $30,000 or such other amount as the Minister may prescribe (s 6(6), CPFTA).
The CPFTA empowers the Competition and Consumer Commission of Singapore (“CCCS”) to deal with (suspected) breaches of section 4 in various ways, including investigating into the supplier (s 19, CPFTA), requiring documents to be produced (s 20, CPFTA), and entering premises with or without a warrant (s 21, 22 CPFTA).
Where a consumer has been induced to enter a transaction because of a false statement of fact, such as a greenwashing claim, made by the trader and has thereby suffered a loss, the consumer may bring a claim under common law or the Misrepresentation Act (“MA”).
Under the common law doctrine of misrepresentation, damages may be awarded to victims of greenwashing claims if the claims amount to fraudulent misrepresentation or negligent misrepresentation and loss can be proved. If fraudulent misrepresentation is established, all losses flowing directly from the transaction is recoverable. In contrast, if negligent misrepresentation is established, only losses that are reasonably foreseeable are recoverable. Where a greenwashing claim was innocently made (not negligently/fraudulently), the usual common law remedy is a recission of the contract.
Alternatively, a customer may bring a claim for misrepresentation under section 2(1) of the MA. Under s 2(1) MA, the party who made the misrepresentation is liable for the loss of the counterparty, notwithstanding that the former did not act fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.
Under s 2(2) of the MA, where misrepresentation has been made otherwise than fraudulently, the court or arbitrator may declare the contract subsisting and award damages instead of recission, if it would be equitable to do so.
The Securities and Futures Act 2001 (“SFA”) regulates the activities and institutions in the securities and derivatives industry. Section 199 of the SFA prohibits, inter alia, making false or misleading statements which are likely to (i) induce the subscription of securities, (ii) induce the sale or purchase of securities, or (iii) affect the market price of securities. A person who makes such a statement would be liable if they do not care whether the statement was true or false, or if the person knew or ought to have known that the statement was false or misleading.
The Singapore Code of Advertising Practice (“SCAP”) promotes high standards of ethics in advertising. Although the SCAP does not have the force of law, non-compliant advertisers may be sanctioned by the Advertising Standards Authority of Singapore.
The SCAP advocates for “truthful presentation” and states that advertisements should not mislead in any way by inaccuracy, ambiguity, exaggeration, or otherwise (Chapter II, clause 5.1). Crucially, advertisements should not misuse research results or quotations from technical and scientific publications, present statistics in a way that implies greater validity than they really have; or misuse scientific terms in a way that makes claims have any scientific basis which they do not really possess (clause 5.3, SCAP).
Specifically, Chapter IV, Appendix L of the SCAP provides rules specific to environmental claims:
SGX has published 27 core metrics relating to environmental, social and governance (“ESG”) factors to provide guidance for (i) issuers in providing ESG information, and (ii) investors in assessing ESG claims. Essentially, the core metrics set out the parameters for a common and standardised set of ESG metrics, creating better alignment between users and reporters of ESG information. These ESG metrics are quantitative in nature, applicable to most sectors and grounded in the present reporting landscape.
Whilst these metrics do not deal strictly with greenwashing, the SGX has implemented climate reporting requirements in a phased approach. This gives credence to the need to be transparent in setting ESG goals, and in reporting on the degree to which these aims are met. We believe that such requirements will go a long way to inculcate accountability and help combat greenwashing by issuers and global asset managers.
On 5 February 2024, it was queried in the Singapore Parliament as to the steps which CCCS will be taking to provide companies with clear guidelines on how to market their products so as to avoid unintentional greenwashing and unfair practices. In response, the Minister of Trade and Industry affirmed that the CCCS is in the midst of developing a set of guidelines to help companies make fair and accurate claims about the environmental attributes of their products. These guidelines are aimed at steering companies away from unintentional greenwashing that may constitute unfair practices under the Consumer Protection (Fair Trading) Act.
The CCCS guidelines being developed are likely going to help combat the following greenwashing problems identified in a study commissioned by the CCCS:
In a nutshell, the laws and guidelines in relation to greenwashing are aimed at addressing the following problems:
To address these problems, rules have been or will be formulated to:
There is no substitute for genuine conscionability and accountability in undertaking a sustainable business and selling a green product or service. Every little bit counts, and if business community can sensibly strategize, measure, verify, report and continue to track and improve, we think that the spectre of greenwashing claims will diminish.
This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute legal advice and is intended to provide general information only. Information in this article is accurate as of 6 May 2024.