On 29 July 2022, the Competition and Markets Authority announced that it was investigating the sustainability claims made by ASOS, Asda, and Boohoo about the eco-friendly nature of their fashion products. This follows earlier announcements by the CMA here and here and is part of a wider investigation by the CMA into misleading environmental claims.
Key areas of scrutiny include the use of vague language implying that collections are more eco-friendly than they are, sustainability criteria being lower than a consumer would reasonably expect, and lack of information on fabric composition provided to customers.
But what happens if the CMA’s investigation finds that these brands have broken consumer protection laws? What penalties will they face? What should other fashion brands be wary of?
Key legislation
The main legislation relevant to the CMA’s investigations is the Consumer Protection from Unfair Trading Regulations 2008 (“CPUT”).
Prohibitions
CPUT prohibits misleading actions and misleading omissions, as well as providing general prohibition against unfair commercial practices.
Misleading Actions
In short, this is where false claims are made by brands about their goods or services.
There are three categories of prohibited misleading actions, the most relevant being where a commercial practice:
- contains false information; or
- deceives, or is likely to deceive the average consumer -even where factually correct,
to the extent that it causes a consumer to make a “transactional decision” that, but for the misleading action, the consumer would not have taken.
This could include whether to buy a product, or even merely whether to click on to a website to browse a ‘green’ clothing collection.
The false information or deception can relate to:
- the main characteristics of the product. For example, the percentage of recycled material from which the product is made: or
- the extent of the trader’s commitments. For example, a statement claiming “We’re committed to being 90% carbon neutral by 2024”.
Misleading Omissions
Omissions are often much trickier to prove than actions. Indeed there has yet to be a court action where a misleading omission has been successfully proven under CPUT.
A commercial practice will constitute a misleading omission where it:
- omits or hides material information;
- provides material information in a manner which is unclear, unintelligible, ambiguous or untimely; or
- fails to identify its commercial intent, unless this is already apparent from the context,
to the extent that it causes a consumer to make a transactional decision.
“Material information” relates to (i) the information needed by a customer to make an informed transactional decision, and (ii) information required for advertising and marketing as a result of retained EU legislation. Where a product is being offered for sale, this can also include the main characteristics of the product and details regarding the seller.
It should also be noted that a misleading omission may also constitute a misleading action where it deceives a consumer into making a transactional decision.
Unfair Commercial Practices
This is a fall-back offence for the broader commercial practices not covered under misleading actions or omissions and ensures the CMA can still prosecute other misleading, aggressive or prohibited practices. However, if a misleading omission or action is successfully proven, it will also be an offence under this general prohibition.
This prohibition includes any commercial practice which:
- breaches professional diligence requirements (the reasonable standard of special skill and care of the seller to the consumer); and
- materially impacts (or is likely to) the economic behaviour of the average consumer regarding the product.
Penalties
When an offence is committed, the CMA and Trading Standards can seek wide ranging penalties under CPUT. On summary conviction, an unlimited fine can be imposed. On conviction on indictment, an offender may be subject to an unlimited fine, up to two years imprisonment, or both.
In addition to these penalties, fashion brands that are exposed for making misleading environmental claims may find themselves subject to consumers exercising a right of redress or adverse publicity and scrutiny or both.
Who can be liable?
Alongside companies, CPUT provides for penalties to be imposed on directors as well as managers.
Other actions
Over the last few years securities litigation has been on the rise. This is where a public company, which has acted in breach of the law that results in a drop in its share price and a loss being incurred by its shareholders, may be sued by its shareholders.
In addition, a derivative action may be brought by a shareholder against a company as a result of an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.
This should be of particular concern to those fashion businesses which are public companies and are found to have infringed the Green Claims Code.
This follows the start earlier this year of a derivative action by ClientEarth against the board of directors of Shell plc. In this case, ClientEarth contends that the board has failed to adopt and implement a climate strategy that aligns with the goal of the UN Paris Agreement (to limit the global temperature increase in this century to 1.5°C) and prepare the company for the inevitable transition to net-zero emissions.
The rise of securities litigation, of litigation funders, as well as of actions being taken by environmental charities in the UK and the EU, it is an issue which companies should take seriously.
Take home points
- Fashion brands should be wary of making environmental claims that cannot be quantified at risk of breaching the CMA’s Green Claims Code and committing an offence under CPUT.
- Businesses looking to make green claims should be able to point to their own compliance procedures and be prepared to have them subject to verification.
- Under CPUT, a trader does not necessarily need knowledge of the offence to be guilty of committing one. The fact that both companies as well as directors and managers can be prosecuted means it is vital for brands to be protecting employees as well as the brand and ensuring that greenwashing does not occur.
- This is particularly relevant in the social media age where public opinion can change quickly and have an even greater impact on profitability.
Contact us
If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak with your usual Fox Williams contact.
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