As the climate emergency accelerates, LIZ COX says companies are under greater pressure to be ESG compliant
Growing awareness of the climate emergency and warnings that we are dangerously close to exceeding the 1.5C global warming threshold, have led to greater scrutiny by regulators and prosecutors on the environmental, social and governance (ESG) credentials of businesses, such that investigations and enforcement in the ESG space last year hit an all-time high.
ESG issues remain high on company agendas in 2023 and failure to ensure that ESG is adequately addressed at both a strategic and operational level can create significant and wide-ranging risk for a business.
In the UK, there is no single regulator with responsibility for enforcement of ESG matters and it falls to numerous agencies to investigate them. Likewise, there is no single source of UK law and regulation on ESG.
This fragmented approach presents a challenge across all sectors for those seeking to manage compliance and navigate the requirements to protect against enforcement action. And the pressure on businesses to demonstrate ESG credentials mounts.
The E in ESG
In sectors identified as high-priority areas for consumer behaviour change by the UK Climate Change Committee, a number of recent publicity campaigns have triggered complaints to the Advertising Standards Authority (the ASA) one of the regulators whose remit includes ESG matters.
A common theme in the campaigns is an emphasis on positive environmental claims about specific aspects of the business’s products or services, where much of the wider business model is responsible for a significant amount of environmental harm.
Adverts by Anglian Water promoting its investment in environmental protection and improvement backfired when the ASA declared them to be misleading by omission, due to the failure of the company to acknowledge its poor history of releasing sewage into the environment.
Such recent complaints have led the Committee of Advertising Practice, which is responsible for writing UK advertising codes, to rewrite its guidance on “The Environment: Misleading Claims and Social Responsibility in Advertising”. The guidance is designed to help businesses get the balance right and, in turn, stop advertisers from making misleading environmental claims.
One new section, “Claims about initiatives designed to reduce environmental impact” sets out no fewer than 10 principles to be followed to ensure compliance with the rules. The guidance provides that where businesses are responsible for a significant amount of harmful emissions or other environmental harm, advertising by those businesses which references specific environmentally beneficial initiatives without including balancing information acknowledging related negative impacts, are more likely to mislead.
This is particularly the case in sectors where consumers are less likely to be aware of a business’s contribution to emissions or other environmental harm, such as businesses in the financial sector which contribute to funding high-carbon industries.
There is an abundance of laws and regulations to navigate, as well as the firm approach of the ASA and its partner regulator the Competition and Markets Authority (CMA) in tackling misleading green claims. The CMA is already deep into an investigation of fast fashion companies and beginning a key inquiry into the FMCG/packaged goods sector).
So perhaps it is not surprising that many businesses are choosing to remain silent about their green credentials. However, this tactic – known as “greenhushing” – seems unlikely to last, given the growing concerns about the future of our planet and its people, and the increasing, and rapidly developing, legal obligations reflecting those concerns which are being placed on businesses.
Conclusion
Managing ESG compliance is already a key challenge facing businesses and will continue to be so. It is also a challenge which becomes more complex when you consider divergence across markets, such as within Europe where member states are moving ahead with their own legislation as EU-wide rules are finalised.
Examples of this include the German Supply Chain Due Diligence Act that came into force in January, and statutory interventions in advertising that have been implemented in France.
In the UK, companies are getting to grips with the different approaches being adopted by Westminster and the devolved governments, such as the much-publicised, and now scrapped, deposit return schemes for drinks containers, in Scotland.
The UK Government has set legally binding net zero targets, and UK businesses and the advertising they undertake, have a part to play in driving consumer behaviour change to ensure those targets are met.
All businesses that advertise, have long known they need to be very accurate about any and all claims made, in order not to mislead consumers. The environment is no exception and ESG compliance is just a logical extension of what businesses have long been required to do.
It may be easy to think that ESG is mainly the concern of large organisations, such as the privatised water companies currently under particular scrutiny for their actions, but in fact any business of any size which is keen to share its green credentials, should think carefully about its approach, take good advice as necessary, and ensure that any promotion is balanced and recognises not only what it is doing, but also where it could do more.
Liz Cox is a legal director at Vialex
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