Can the CMA protect consumers from product greenwashing?

As consumer demand for more sustainable and ethical choices increases, so does the potential for companies to make spurious environmental claims, also known as 'greenwashing'. What powers does the Competition and Markets Authority have to combat this?

26 May 2021

The ethical consumer market in the UK has increased four-fold since 1999, and now is conservatively estimated at over £40bn per annum. Consumers are actively changing their behaviours in favour of more sustainable and ethical choices. As a result, companies are increasingly creating or adapting their offerings to appeal to these consumer preferences. This brings business opportunities, but also scope for consumer detriment, with the potential for companies to make spurious environmental or ethical claims. New markets are also likely to develop with increasing pace, powered by growing demand for new products, such as electric vehicles.

The Competition and Markets Authority (CMA) is the UK’s competition regulator. Expectations around the CMA’s role and functions regarding consumer protection have been rising for some time. The CMA has responded by increasingly emphasising its work in this area, along with research and enforcement, expanding on its ‘core’ functions relating to competition law enforcement, with many of its recent activities having a ‘green’ focus.

Does the CMA’s current toolkit match up with these expectations?

Regulation and consumers in the green economy

The CMA and sector regulators are becoming increasingly alert to consumer protection in relation to green issues. In the energy sector, Ofgem intends to undertake work to ensure consumers are not misled by over-inflated claims for ‘green energy’ tariffs. Indeed, the UK Government has made transparency a key pillar of its strategy for the wider reform of energy tariffs, as part of its proposals under the Energy White Paper.

Similarly, the CMA has undertaken research to inform its ongoing work into misleading ‘eco-friendly’ claims, sometimes referred to as ‘greenwashing’. Some initial findings suggest that up to 40% of ‘green’ claims on firms’ websites could be misleading.

The CMA has already published guidance for businesses around the competition law risks of businesses collaborating with each other on sustainability initiatives, partly due to concerns that competition law could be perceived as a barrier to companies seeking such collaboration.

As part of the CMA’s overall work on misleading environmental claims, in May it published draft consumer protection law guidance on the subject for consultation. This sets out six principles designed to give businesses more clarity on how the CMA thinks the law translates into practice around environmental claims. The CMA intends to publish the final guidance in September 2021.

Separately, the CMA is also conducting a market study into the development of the market for electric vehicle charging infrastructure. While the CMA has stopped short of further investigating the market under its competition law powers, we can expect some specific remedies for the market which will be published in summer 2021.

Many of these initiatives point to the CMA’s strategic objective of giving green issues a higher priority, taken from its Annual Plan:

“We will increasingly devote and prioritise our resources to providing advice and support to central, local and devolved government on the impact of policies on competition and consumers in relation to climate change and sustainability.”

It is clear that this is on the CMA’s radar. It is willing to be active in this area. It is also clear that much of this is squarely focused on ‘research’ and ‘guidance’. So what might the future hold?

Is the CMA a green champion for ethical consumers?

At first glance, the CMA doesn’t come across as a natural ‘eco champion’ for the UK consumer. But recent activities show that it is more than willing to take an active look into consumer issues stemming from sustainability activities of businesses, and the trend towards the ‘greening’ of the economy.

So how does its current regulatory toolkit tackle this? The CMA’s ‘big hitting’ competition law enforcement powers focus on just that – competition law concerns. Although the ultimate objective of this enforcement is to protect consumers, the CMA’s civil consumer law powers are weak by comparison. For example, to bring a case under consumer law, the CMA must go through the civil courts. This is in contrast to its investigatory and enforcement powers under the Competition Act and Enterprise Act, which are extensive.

This seems increasingly at odds with the expectations many have placed at the CMA’s doorstep around consumer protection, and the growing number of consumer-focused initiatives that go beyond the ‘traditional’ walls of its competition law enforcement role. This includes not only its work on environmental issues, but also recent work on securing assurances from companies in online advertising, court action in relation to the care homes sector, and warnings to companies on customer refunds in the package holiday market. We also await the commencement in law of the CMA’s new Digital Markets Unit – which has already been established and is preparing for its new role ahead of its formal creation in statute – another string to the CMA’s bow.

There have long been calls for formally strengthening the CMA’s consumer powers in successive reports (see Lord Tyrie’s proposals, and the Penrose Report). This seems to be the direction of travel. Overall, we may be on the cusp of a transformation in the way consumer protection is enforced in the UK, not only in relation to green and environmental issues, but beyond.

For further information, please contact Scott Rodger, a Solicitor in our regulation and markets team, or your usual Shepherd and Wedderburn contact.