The New Anti-Greenwashing Rule: An Analysis

UK’s new anti-greenwashing rule is due to come into force in May 2024 after the consultation period ends this Friday, on the 26th January.

Greenwashing is a marketing technique where companies exaggerate or make downright false representations about how “green” they are. It can also occur where a company spends more resources to advertising that they are “environmentally friendly” than actually being environmentally friendly, or where the images on a product mislead the consumer by suggesting the product is more environmentally friendly than it is.[1] For this reason, the term “greenwashing” is often described as a “deceitful marketing gimmick”[2], which can be summarised as “an attempt to capitalize on the growing demand for environmentally sound products”.[3]

The Financial Conduct Authority (FCA) introduced the new “anti-greenwashing rule” in their “Environmental, Social and Governance sourcebook” (ESG) published on 28th November 2023,[4] along with a guidance consultation to support its implementation.[5] In the FCA’s words, this rule was introduced “to help ensure that sustainability-related claims made by authorised firms about their products and services are fair, clear and not misleading, and are consistent with the sustainability characteristics of the product or service.”[6] It will also enable the FCA to challenge the firms that they consider are using greenwashing techniques that mislead the consumers and take action if appropriate.[7] The FCA will receive responses to the proposals set out on the Guidance within this week. On the 26th January, the consultation period will officially end. The finalised guidance on the anti-greenwashing rule is intended to come into force on 31st May 2024, thus bringing the anti-greenwashing rule to effect.[8]

The rule states that any claim must be “fair, clear and not misleading”. Justifiably, not making false representations about the products or services they sell is the least that can be expected from a company. It is doubtless that consumers have the right to know, and should have the right to know, the true impact of their products to the environment.  

Yet, the expected increase in civil litigation and the legal challenges companies might face at court should not go unnoticed. As Murdoch and Fulton from DLA Piper acknowledge, the new rule will create a “gulf” between the legal remedies provided to private persons and those that are provided to corporate entities. This is because private persons who have suffered loss due to greenwashing are covered under s. 138D of the Financial Services and Markets Act 2000, whereas corporate entities would have to resort to the more “conventional remedies” under the Misrepresentation Act 1967 or the common law.[9] They state that this could lead to a rise in civil litigation against firms.

Moreover, several terms used in the Guidance, as Murdoch and Fulton argue, are likely to present challenges to firms in terms of construction.[10] Terms such as, “complete”, “clearly presented” and “capable of being substantiated” can be ambiguous, after all.

The position of this article is in agreement that the new anti-greenwashing rule can get very technical at court and come to depend greatly on legal construction. In fact, the “cost and risk of making sustainability-related claims”[11] can deter companies from making advertisement in the UK, or from making “green” claims even when they are, in truth, environmentally friendly. Since, even if they ultimately win their case, they would understandably not want to make headlines next to the words “greenwashing” and “investigation” due to reputation damage concerns arising from this.

In sum, the UK’s diligence in providing consumers a safe and trustworthy environment is arguably truly admirable, rational, and just. However, it should be noted that such scrutiny can have adverse effects in terms of increasing the amount of civil litigation and deterring companies from making advertisement, however unintended. It will ultimately be up to the courts to find the balance.

[1] A recent example is the investigation brought against Unilever, the company behind brands such as Dove, Marmite and Cif, in December 2023. Among the concerns the Competition and Markets Authority (CMA) had about Unilever was the claim that the green leaves on products could mislead the consumers as to how “green” the company is; https://www.theguardian.com/business/2023/dec/12/dove-marmite-unilever-investigated-uk-greenwashing

[2] https://www.businessnewsdaily.com/10946-greenwashing.html

[3] https://www.investopedia.com/terms/g/greenwashing.asp

[4] The rule can be found in section 4.3.1: https://www.handbook.fca.org.uk/handbook/ESG.pdf

[5] Titled, “Guidance on the Anti-Greenwashing Rule”: https://www.fca.org.uk/publication/guidance-consultation/gc23-3.pdf

[6] Guidance, para. 1.6.

[7] Ibid.

[8] https://www.allenovery.com/en-gb/global/news-and-insights/publications/fca-launches-guidance-consultation-on-anti-greenwashing-rule

[9] https://www.dlapiper.com/en/insights/publications/2024/01/the-fcas-anti-greenwashing-rule-a-perilous-tightrope-for-businesses

[10] Ibid.

[11] Ibid.