CMS Competition Law and Sustainable Development Series Part 2 – Green claims

Hungary

As part of the CMS Competition Law and Sustainable Development Series, in this segment we pe into the consumer protection version of “greenwashing” and highlight a few important recent cases.

What exactly is “greenwashing”?

Meriam-Webster recently defined “greenwashing” as “the act or practice of making a product, policy, activity, etc. appear to be more environmentally friendly or less environmentally damaging than it really is.”

As a result of the global trend towards prioritizing sustainable practices and healthier lifestyles, people are increasingly taking into account environmental and health considerations when purchasing a product or service. Competition authorities have begun to crack down on false “green” or “healthy” claims as they may result in consumers being misled about the actual contents and effects of a given product or service. This is known as the consumer protection version of “greenwashing”.

Another type of greenwashing also exists in competition law, which we will refer to as the antitrust version of greenwashing. The antitrust version encompasses situations where the parties admit that their actions were against the law (i.e., merger distorting competition or cartel), but will try to acquit themselves by stating they acted in such a manner for a “green” cause or for the benefit of the environment. This article is limited to the “consumer-focused” version of greenwashing as we will focus on the antitrust version in the next articles of the series.

Is greenwashing regulated by law?

It is becoming increasingly popular among EU member states to create soft-law (i.e., guidance) regarding greenwashing:

  • In the Netherlands, the Authority for Consumers & Markets (“ACM”) published a guideline on sustainability claims which includes five rules of thumb.
  • In Denmark, the Danish Consumer Ombudsman released a follow-up to their 2014 guidelines on “use of environmental and ethical assertions” which includes several key principles regarding “green claims”.
  • The Competition and Markets Authority (“CMA”) in the UK has published soft-law guidelines.
  • The Gazdasági Versenyhivatal (“GVH”) in Hungary has also issued soft-law guidelines.

While the soft-law regulations may vary by country and regulatory agency, we can draw a few common points from them. First, green claims must be presented in a clear, specific, accurate and unambiguous manner. Second, green claims must be supported by evidence. (e.g., independent test results, research). The GVH guidelines also provide practical examples. For instance, if an advertiser uses the phrase “made from recycled materials” on its packaging, but this is only true for the packaging itself, it can deceive the customer. Similarly, if an undertaking engages in conduct that promotes sustainability, but is also required by law, it cannot claim said conduct stems from the company’s own decision or policy.

The process of creating soft-law is generally preceded by agencies analyzing a multitude of cases and drawing conclusions on best practices and tips to combat illegal conduct. The inverse has happened so far with greenwashing as agencies are issuing soft-law guidelines while actual relevant cases remain infrequent. Despite this unusual pattern, we can reasonably conclude that the agencies are using said soft-law guidelines as a preparatory step in anticipation of a greater number of upcoming cases.

Are there any agency and local court decisions and practices that can be informative to businesses with regard to greenwashing trends?

  • Many agencies have begun screening certain sectors or websites to tackle unlawful green claims.
    • In January 2021, the European Commission and national consumer authorities released the results of a screening of websites for “greenwashing” which included a sweep of hundreds of websites that had online green claims from various business sectors (e.g. garment manufacturing, cosmetics, and household equipment). The result of this sweep was the determination that in 42% of the investigated cases the green claims were exaggerated, false, or deceptive and could potentially qualify as unfair commercial practices under EU rules. As a result of the sweep, national authorities contacted the companies concerned to point out the issues detected and to ensure that these are amended where necessary.
    • In January 2021, the CMA initiated a review of environmental claims in the fashion retail sector. The review was followed in July by the announcement that the CMA has opened an investigation into three fashion brands to scrutinise their “green” claims. The investigation is still ongoing.
    • In May 2021, the ACM launched investigations into misleading sustainability claims in the energy, dairy product, and clothing sectors. As a result, several companies were contacted and urged to check their dubious green claims. Seemingly, this approach was effective as both Decathlon and H&M issued commitments to change their claims, improve their practices, and donate to sustainable causes as a form of compensation. Importantly, the ACM closed its investigations of these companies following said commitment. Accordingly, this example indicates that companies that proactively undertake and implement such commitments are likely to avoid further agency scrutiny at this time.
  • Notable agency and local court decisions.
    • Italy’s first greenwashing case between corporations is noteworthy because it may reflect a future trend where competing undertakings file greenwashing grievances against one another in order to prevent competitors from gaining an unfair advantage based on false “green” claims. Here, plaintiff Alcantara brought a case against its competitor Miko before the local Court of Gorizia in Friuli-Venezia Giulia. During the proceedings, Alcantara requested an interim injunction preventing Miko from continuing to make vague “green claims” regarding their suede-like microfiber product. The Court ruled that these statements were indeed vague, generic, false, and non-verifiable and needed to be immediately removed from any website, social media platform, tv advertisement, and other promotional material. The Court also ordered Miko to publish the Court's decision on its website for 60 days.
    • In recent years, the GVH has also rendered decisions related to greenwashing issues. One such decision was against Spártai Vitamin, a dietary supplement company. The company used “100% natural” and other natural-source-indicating claims on their product’s packaging without having the ability to support their claims. The GVH fined the company and prohibited it from continuing its illegal conduct. Another GVH decision was issued against FOX CONSULTING, a company advertising bio solarium services using the phrases “green bio”, “with the power of nature”, “special light”, as well as other green/healthy claims. The GVH found the company guilty of unfair trade practices towards consumers and stated that its “green claims” were unlawful, untrue, and deceptive. The GVH fined the company for violating applicable laws while also prohibiting it from continuing its illegal commercial practices. The GVH found it worrisome to label a service (i.e., a solarium) as being healthy without justification, particularly since current scientific research indicates solariums can be harmful to one’s health.

The above examples suggest agencies have so far been employing a “soft approach” (i.e. instead of initiating a large number of cases or imposing significant fines, they are reviewing websites and sending warning letters to change conduct). Should this transitional period end, it is presumable the agencies will have a more rigid and strict approach.

What is the takeaway from the above?

The rules of “greenwashing” and “green claims” are getting more and more attention EU-wide. As there are currently only general guidelines on the topic and a small number of relevant cases available in the EU, companies are strongly advised to take proactive compliance measures and seek expert legal support when deciding to use “green claims” in the promotion of their products and services.

Based on the above decisions and trends, companies currently benefit from the opportunity to change their non-conforming commercial practices, without being subject to significant penalties, in order to comply with greenwashing soft-laws before they become consolidated regulations. The window for this opportunity may be rapidly closing. Accordingly, companies should:

  • carefully review all public communications and marketing materials to ensure they comply with currently available greenwashing soft-laws (see CMS’ previous article for best practices);
  • develop internal guidelines relating to the drafting of public correspondence and marketing materials dealing with “green” or “environmental” claims;
  • conduct periodic internal training sessions on the dos and don’ts of “green” and “environmental” claims.

For more information on EU and Hungarian competition law, contact your CMS client partner or local CMS experts.