UK authorities have the power to fine a tenth of businesses' global turnover if greenwashing has been proven, and a recent report finds that almost half of big businesses in the UK are at risk.
ADVERTISEMENTIn the UK, four out of 10 large businesses face hefty fines for greenwashing in 2024, as a major toughening up of consumer protection law from the Competitions and Markets Authority (CMA) and the EU comes into force.
According to a new analysis of sustainability by the AI-driven compliance platform Compare Ethics, businesses are not mitigating the real risk yet, which includes a fast-changing environment in which every sustainable claim has to be thoroughly verified, among others.
With the changing regulations across the UK and the EU, "it's no longer just as simple as thinking about a tick box from a regulator compliance exercise," said Abbie Morris, CEO of Compare Ethics.
Watchdogs are cracking down on rulebreakers
In 2020, a range of consumer protection agencies came together globally and conducted an independent survey. They found that 40% of international businesses had made misleading environmental claims.
In the UK, Unilever and Boohoo, among others, came to the attention of the CMA over the last two years. Underlining their determination to crack down on wrongdoers, the CMA has spent £1.3 million (€1.52 million) and an estimated 29,471 working hours on its probes into greenwashing between September 2021 and January 2024, as reported by the Financial News.
Some of their findings highlighted the use by firms of vague language.
The CMA also found that the language used by Asos, Boohoo and George was "too broad and vague", suggesting a more sustainable fabrication of some clothes than was actually the case.
Such green claims need to be thoroughly proved. Otherwise, businesses could face a hefty penalty. The CMA has the power to fine companies up to 10% of their global turnover.
However, for the next few months, it will need to pursue court proceedings before it can impose fines until the incoming Digital Markets, Competition and Consumers Bill comes into force. That will allow the CMA to directly enforce penalties.
The end of the Greenwashing era
Greenwashing may not be intentional. In the UK, the term lacks legal definition on top of a fast-changing regulatory environment, in which companies will need to meet a raft of changes over the next two to three years.
The EU has recently banned greenwashing via the Empowering Consumers for the Green Transition Directive. There is also the newly passed Green Claims Directive which requires that green claims in the European market be verified by an independent third party.
The Green Claims Directive is part of the EU’s Green Deal - a package of more than 70 regulations that UK retail businesses looking to export abroad will also have to contend with in the next 12-36 months.
If not, they could see some 1.6 million UK goods getting stuck at the EU border, according to the CEO, adding later that it represents some £193 billion (€225.5 billion) worth of goods.
EU Member States have also just voted to support the Corporate Sustainability Due Diligence Directive (CSDDD) which will hold companies to account for environmental and human rights damages in their value chains.
This means that certain businesses (with a turnover of more than €450 million) who want to label their products as sustainably made will need to make sure that their supplier, even if based in Bangladesh, is really working under the conditions it should be working over there.
Meanwhile, the real risk this changing regulatory minefield holds for businesses is currently being overlooked by C suite, claims the CEO.
"It's no longer just as simple as thinking about a tick box from a regulator compliance exercise," said Morris. "Right now, every environmental claim needs to be checked before it goes out the door. But the reality is, it is not."
What is the risk for businesses?
Compare Ethics expects an increasing number of fines for greenwashing during the next 12-18 months.
ADVERTISEMENT"We're starting to see that not only are regulators holding companies to account, but increasingly, investors will actively sue your business if you're not taking it seriously, because they themselves have their own regulatory pressure that they need to respond to," warned the CEO.
She added that there is a rise in the amount European consumer protection bodies and the number of legal firms that refer companies to those authorities.
According to Compare Ethics's analysis, many large businesses aren't adequately investing in the procedures needed to comply with the new sustainability regulations in the EU and the UK.
The necessary investment for an average business is £500,000-£1 million (€1.17 million) per year if it chooses to manually carry out the verification of all the green claims. Building the technology would cost £2-4 million and it would be another £1-2 million to maintain the system.
It can take months, if not years, to collect the right data, set up necessary verification systems, and report back to relevant regulators, said Morris, adding that many UK businesses are at risk of seeing products stuck at the border if they do not urgently verify their entire product supply chains, among other necessary steps.
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