Meeting in the middle on green claims

Posted October 12, 2022
by David Stallibrass

How firms can best interact with the CMA

Not all heroes wear capes. The UK Competition and Markets Authority (CMA) has been on a two year mission to use its consumer enforcement powers to make markets work well, not just for consumers and businesses, but for the planet. Its focus on ensuring consumers can trust firms’ environmental claims is likely to maximise the impact of the UK’s consumer protection regime on one the most important policy challenges of the 21st century.

However, the CMA will run into both substantive and practical challenges in applying an injunctive and thinly-litigated consumer regime to relatively complex and novel goods and services. And a lack of clarity can mean risk for progressive firms.

We look at the work the CMA has done to date, the challenges the CMA is likely to face, and what firms can do to ensure the challenges are overcome. It is in everyone's interests for the CMA to get it right.

Walking the green line

In September 2021, after a year of consultation and internal discussion, the CMA published a 56 page guidance note on environmental claims on goods and services. The note sets out how the CMA would evaluate environmental claims. If the CMA opens a case, reputational damage can be done even if it is ultimately for the courts to determine if a claim might be misleading and thus unlawful under consumer protection regulations.

Aware of this, the CMA has followed up its general guidance with industry specific interventions. In July 2022, the CMA opened an investigation into ASOS, Boohoo and Asda (the George range) in order to ‘get to the bottom’ of whether the firms’ claims were misleading customers. In September 2022, the CMA opened a ‘call for information’ on whether green heating and insulation claims by manufacturers or installers might also be misleading. Further sector-specific investigations are likely.

Substantive and practical challenges

The CMA work on green claims should be welcomed. However, the nature of the consumer protection regime in the UK means the CMA is faced with a number of substantive and practical challenges that, in turn, will affect the way businesses may wish to respond to any concerns the CMA raises.

For a claim to be unlawful it has to be relevant to the transactional decision or an average consumer. There is significant uncertainty about each of these concepts: What is enough for it to be ‘relevant’? What decisions count as ‘transactional’? Who is the ‘average’ consumer? This lack of clarity means that firms under investigation may benefit from challenging internal assumptions before determining their engagement strategy.

Further, the CMA needs to be careful that overenforcement doesn’t lead to perfection becoming the enemy of the good. If the CMA decides that firms can only make a broad environmental claim about a product if it has very high environmental standards, products with merely ‘better than the average’ standards may struggle to thrive in the market. Firms that take the time to carry out market testing, for example via focus groups, will likely reduce the risk of running into issues down the line.

Practically, consumer protection regulations in the UK are enforced through injunction -  the CMA asks for a change in behaviour, and can only go to court if the request for change is denied. To the CMA’s advantage, due to the risk of reputational damage, firms have a strong incentive to agree to change behaviour if they want to avoid reputation damage, even if they think they might ultimately win in court. The CMA has been making use of its public profile to highlight its green claims work. Interim CEO of the CMA, Sarah Cardell, has written an article on the CMA’s activity and raised it in a high-profile speech about the future of the competition regime. Whilst powerful, there is a risk that this use of soft power further exacerbates the risk of overenforcement. ASOS and Asda have already dropped green ranges under investigation, meaning there is now no way to identify the ‘better than average’ products in their stores.  

We can work it out

The CMA is taking a clear, principled approach to green claims. Its evidence-based approach will set precedent for other, less well resourced enforcers such as local Trading Standards. However, it is not without its challenges for both the CMA and business.

Unless and until the regime is updated, as BEIS and others are proposing, challenges are inherent in balancing future focus, innovation and consumer protection. The CMA is handling the challenges well, consulting widely and communicating in a clear and measured way. 

For firms developing their products and services with a green mentality, or already interacting with the CMA on these issues, a similar approach is required. Active and constructive engagement will minimise the chance of unnecessary reputational damage, and ensure their industries, and their consumers are doing their bit in one of the most important struggles of the 21st century.