Net Zero Claims in UK Advertising: What Companies Need to Know About the Risk of Greenwashing

As part of the transition to a low carbon economy, businesses are increasingly seeking to highlight their environmental credentials to consumers via advertising and marketing communications, including informing consumers of their net zero targets. In turn, they are facing an increased level of scrutiny from regulators and nongovernmental organizations seeking to hold them accountable for making environmental claims that may mislead consumers.

In an effort to improve businesses’ understanding of how to comply with the requirements of the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (the CAP Code), on February 10, 2023, the Committee of Advertising Practice (the CAP) published an update to its guidance The environment: misleading claims and social responsibility in advertising (the Guidance) to include specific advice on making carbon neutral and net zero claims in UK advertising. The CAP Guidance update follows recent publication by the UK Competition and Markets Authority (CMA) of the Green Claims Code and its Guidance on environmental claims on goods and services (the CMA Guidance), which are intended to help businesses comply with their consumer protection law obligations when making green claims, principally under the Consumer Protection from Unfair Trading Regulations 2008 (CPUT).

In this Sidley Update, we provide a brief overview of UK consumer protection law and the latest guidance, with a specific focus on carbon neutral or net zero claims in advertising and marketing communications. We offer some practical suggestions for businesses communicating with consumers about their net zero claims and targets in order to mitigate against the increasing risk of greenwashing claims.

Background

Under English law, there is no specific cause of action for, or law governing, greenwashing (by which we mean a company exaggerating its green credentials, or misleading consumers about the environmental impact of its activities). Instead, regulators and claimants use a combination of advertising and consumer and business protection laws and regulations, as well as other guidelines and codes to bring enforcement action or complaints, including under the following:¹

• CPUT, which contains the key legal requirements governing business-to-consumer advertising and marketing in the UK. CPUT prohibits (among other things) misleading actions and omissions, and imposes criminal liability on traders for engaging in certain commercial practices. The CMA has the power to bring enforcement action under CPUT through the courts and is conducting a review into green claims, focusing on sectors such as fashion and fast-moving consumer goods. The CMA has indicated that it intends to target the travel and transport sector.

• The CAP Code, which applies to nonbroadcast marketing communications in the UK,² including online, via social media, and in print, and contains a number of general rules, and rules specific to environmental claims. The CAP Code’s sister organization, the Advertising Standards Agency (ASA), is primarily responsible for enforcing the CAP Code, and consumers and interested groups can complain to the ASA when they believe there has been a breach of the CAP Code. Although the ASA cannot impose fines, its rulings are public and can therefore cause reputational damage to businesses that are subject to adverse findings.

The UK legal and regulatory framework applicable to environmental advertising and marketing claims is fast-developing. The UK government will shortly bring forward the new Digital Markets, Competition and Consumer Bill and is expected to empower the CMA to enforce UK consumer law through administrative proceedings and fine companies up to 10% of their global turnover for breaches rather than the CMA having to take enforcement action through the courts.

The Financial Conduct Authority has just completed a consultation on a package of new rules to address greenwashing; the package is likely to be finalized by the middle of this year (including a general “antigreenwashing” rule) (see our detailed Sidley Update here).

Outside of the UK, the EU will shortly present a draft Green Claims Directive that will set out detailed requirements for the substantiation and communication of environmental claims. The EU has also already presented a draft Corporate Sustainability Due Diligence Directive, which aims to improve corporate governance practices, increase corporate accountability for adverse environmental effects, and improve access to remedies for those affected by such adverse effects.

The CAP Code Guidance Relating to Net Zero Claims

The CAP developed the Guidance based on the CAP Code and previous ASA rulings, and the Guidance does not constitute new rules or bind the ASA. However, businesses and marketing agencies will welcome the Guidance as a useful means of better understanding the requirements of the CAP Code as they relate to carbon neutral or net zero claims.

The Guidance draws on the principles contained in the CMA Guidance and provides that to reduce the risk of misleading consumers in making carbon neutral and net zero claims, businesses should seek to:

1. avoid using unqualified carbon neutral, net zero or similar claims, and include information explaining the basis for such claims;
2. include accurate information about whether (and the degree to which) they are actively reducing their own carbon emissions or relying on carbon offsetting;
3. base claims relating to future carbon neutrality or net zero goals on a verifiable strategy to deliver the goal;
4. ensure that claims based on carbon offsetting comply with standards of evidence for objective claims as set out in the Guidance, and include information about any offsetting schemes used; and
5. specify the scope of the claim, and any related qualifying information, sufficiently clearly for consumers to be able to see and understand the scope and qualifications easily. For example, the Guidance states that a claim that an electric vehicle generates “zero emissions” may be acceptable “if the ad makes clear that the claim relates to driving only.”

The Guidance further notes that the independent statutory body that advises the UK and devolved governments on emissions targets, the Climate Change Committee, has emphasized that to meet net zero targets, consumer behavior must change. The Guidance therefore explains that the ASA could consider complaints under the social responsibility rules contained in the CAP Code in light of the “increased focus on the role of consumer behavior change to achieve net zero targets.” This may include, for example, marketing that trivializes consumer behavior that is likely to result in pollution or that encourages consumers to disregard the environmental impact of their actions.

Practical Steps for Businesses

As outlined above, UK and EU regulators’ focus on carbon neutral, net zero, and similar claims by businesses in their advertising is increasing. The ASA also intends to monitor the impact of the Guidance on such claims and will take proactive action to address unqualified claims being made by some organizations of which it is already aware.

Accordingly, to mitigate against the increased risk of greenwashing-related issues in advertising, there are several practical steps businesses may wish to take in relation to any carbon neutral and net zero claims made in their marketing communications and generally:

1. Conduct an audit of current advertising and marketing communications for any carbon neutral, net zero, or similar claims or targets, including by identifying how the business substantiates them (including any reliance on carbon-offsetting schemes). Where businesses make claims regarding carbon neutral or net zero targets, the business should review the specific wording used and ensure that it accurately and clearly conveys the scope and basis of a commitment, and provides any necessary qualifications (including in relation to offsets). Businesses should consider whether the scope of any claims relate to, for example, the company as a whole or are limited to a particular product or service. Claims which omit information about either the business’s own contribution to greenhouse gas emissions or its financing of other carbon-intensive businesses may be problematic in certain circumstances.

In addition, to the extent that an advertising or marketing communication entails any comparison to a benchmark, the benchmark used should be appropriate and clear and the comparison should be supported by necessary evidence (see further point 2 below).

2. Ensure net zero or similar claims are properly substantiated by appropriate evidence. The CAP Code contains a general requirement to substantiate properly advertising claims and the CMA Guidance contains the same principle regarding environmental claims. The CAP Code also makes clear that unqualified claims must be supported by a higher level of substantiation. Where there may be issues substantiating net zero claims or targets by reference to evidence, businesses should consider whether to make the claim at all. Businesses should also consider developing a verifiable strategy for forward-looking claims and ensuring appropriate internal governance to monitor the status of existing net zero or similar claims.

3. Consider integrating scrutiny of net zero claims in any existing due diligence processes. Businesses engaged in M&A should consider conducting due diligence of any net zero claims made by companies they intend to acquire, including the extent to which the target intends to use carbon offsets to reach its net zero goals.

4. Seek legal advice where appropriate. As outlined above, the legal and regulatory framework regarding net zero or similar claims in advertising and marketing communications is fast-developing and complex; it differs among jurisdictions and may differ among sectors. Where businesses are making (or intend to make) such claims in their marketing communications, they should seek legal advice in addition to consulting with their marketing experts. If the business intends to disseminate communications in multiple jurisdictions, the business should undertake a similar analysis as outlined at point 1 above, given that applicable standards and requirements may vary across jurisdictions.

¹The Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises have also provided a basis for non-governmental organizations to bring greenwashing complaints in the UK but are not covered in detail in this update.

²The CAP has published a separate code covering broadcast advertising, the UK Code of Broadcast Advertising.