Bates Wells convenes the Impact Counsels’ Forum, a regular meeting of senior lawyers and other leaders working at purpose-driven businesses including B Corps and impact investors. Recently, we were delighted to be joined by Debra Sobel, Co-Founder and CEO at Verity London, who set the frame for discussion of the regulatory framework around ‘green claims’ and greenwashing by outlining the components of ‘good purpose storytelling’. Together with Debra, in this article we distil our reflections on the opportunities for purpose-driven businesses in a world where all businesses are becoming subject to greater scrutiny of their green claims.
‘Good purpose storytelling’
Purpose-driven businesses – like all businesses – are operating in a landscape which is increasingly complex. There is more employee and public scrutiny on organisations’ sustainability claims, with companies being held to account over commitments to people and planet. The ESG regulatory and legislative landscape has been evolving at pace, and anti-greenwashing standards have been brought in to help ensure that companies’ sustainability claims are robust and substantiated. For example, rules recently introduced by the FCA are some of the most far reaching ever seen in the UK financial services sector, and the Competition and Markets Authority (“CMA”) has upped the ante on its scrutiny of the consumer aspects of greenwashing. We’ve also seen companies falling foul of greenwashing accusations – from H&M to HSBC, innocent drinks, Persil, Oatly, Volkswagen and Unilever.
It’s clear that we are no longer operating in an environment where businesses can put out purposeful platitudes or unsubstantiated claims. Brands can no longer state that they’re “responsible”, “sustainable” or “a force for good” without backing these claims up with a strategic approach and verifiable and accurate quantitative and qualitative evidence.
Given the above, there is some understandable concern and overwhelm from organisations of all sizes about what they can and can’t say. They don’t want to damage reputation, nor attract accusations of ‘purpose washing’. This may have caused many to ‘green hush’: to say nothing at all, for fear of getting it wrong. But purpose-driven businesses should be confidently telling their stories and able to celebrate success. Storytelling is a critical part of being able to shift the needle on key societal and environmental issues. When done well, it helps engage and inspire employees, clients, customers and partners, mobilise behaviour change and differentiate brand – whether you’re operating globally, nationally or at a local level.
Good purpose storytelling should feature some, if not all, of the following elements:
- Grounded in clear organisational strategy and understandable commitments
- Showing genuine intention and action to drive positive change
- Backed up with strong and robust data and science-based evidence which is capable of being substantiated
- Human, qualitative case studies and testimonials
- A clear narrative arc – showing the challenge, the initiative or activity and the outcomes, in language that is clear and unambiguous
- Demonstrates innovation and adaptation
- Includes accountability, transparency and analysis of progress and any barriers to progress
- Shows complete information – and doesn’t seek to hide or omit anything
- Set within the context of societal norms and planetary boundaries
To be able to achieve this and get purpose storytelling right, it’s important that:
- Internal teams work collaboratively and not in silo when it comes to communications. The marketing team should work on the messaging, governance and compliance functions play a critical role in shaping the narrative, sustainability and finance teams bring the data and evidence, and legal scrutinises sustainability claims.
- Everyone is fully aligned. All key stakeholders must understand and agree on the strategic approach, timeline and priorities of the business when it comes to purpose – and on how risk averse, or not, you are as an organisation.
- The Board feels confident in any content being put out, and in the clear responses to be given should there be any questions or comeback.
- An overarching story is developed articulating your ‘why’ – and how your actions and impacts can best be substantiated.
- Purpose is genuinely embedded and integrated across the entirety of the organisation, or there should be a commitment and plan to do so.
- Knowledge of the changing regulatory landscape is gained – across jurisdictions where necessary – to understand standards relating to green claims.
Purpose-driven businesses have a lot of good things to say about their work and the positive change they deliver for their people, the communities in which they operate and the environment. Leveraging this to tell their stories requires cross-departmental collaboration, clear and evidence-based storytelling, and working within the applicable regulatory frameworks and standards, some key aspects of which we discuss in more detail below.
The CMA’s dual consumer and competition law toolkit
The CMA has significantly increased its focus on consumer law communications in recent years. The CMA published the Green Claims Code to help businesses understand how to apply consumer protection laws relating to unfair commercial practices, particularly misleading claims. Using its consumer law toolkit, the CMA commenced investigations against fashion retailers ASOS, Boohoo and George at Asda, which resulted in those businesses making detailed, legally-binding undertakings to remedy their approach to their ‘green claims’. In parallel with its consumer law remit, the CMA addressed growing industry commentary that competition law was preventing collaboration in the interest of improving sustainability by issuing its guidance on environmental sustainability agreements.
Whilst green claims have been proliferating rapidly in recent years, these actions from the CMA appear to be encouraging businesses to take this area of regulation more seriously, and more developments are expected. The Digital Markets, Competition and Consumers Act 2024 (“DMCCA”) builds upon the previous EU-based unfair commercial practices framework, including misleading statements and omissions. While currently the CMA can only take action against businesses for misleading claims through the courts, when the relevant parts of the DMCCA come into force (possibly by spring 2025), the CMA will have direct powers of investigation, sanction and enforcement, including the power to fine up to 10% of global turnover. When organisations do not talk about their ‘green’ credentials in a clear and genuine way, this new regime may help to call them out.
Best practice points from the ASA
The main sets of rules applied by the Advertising Standards Authority (“ASA”) are the CAP and BCAP Codes that, respectively, cover non-broadcast and broadcast advertising. They are drafted by the industry and, in respect of misleading advertising, reflect consumer protection law. While the principles reflected in the Codes may often seem commonsense, there are many useful best practice points to draw from the examples presented in the ASA’s rulings, including:
- Claims must not mislead the consumer by action or omission – For example, HSBC advertised its financing in support of the low-carbon transition, but the ASA found that the ads were misleading for omitting information about HSBC’s considerable financing of heavy emitting industries (in contrast, certain ads by BP did make clear that the business was still invested in fossil fuels, but seeking to transition). Similarly, businesses should take care when making comparisons. Stating that a product is, in some aspect, ‘better than’ a competing product does not necessarily provide the consumer with enough information to make an informed decision and could therefore mislead.
- Consider the entirety of the advertisement – All aspects of the advertisement should be assessed, not just the text. Recent consumer research by the ASA into environmental claims in meat, dairy and plant-based food products indicated that the use of ‘green’ or ‘natural’ terminology or visual imagery in advertising contexts could lead to consumers making assumptions that may or may not be accurate.
- Substantiation and clear terminology – The more definitive the claim, the greater the level of substantiation required. The terminology used must also be sufficiently precise that consumers will understand the claim. For example, when using terms such as ‘net zero’ and ‘carbon neutral’, how is this calculated, how will the business evidence that its emissions have reached these goals, and will consumers understand the implications of such terms? The EU and the consumer protection authorities of several EU member states have taken action against 20 airlines including for potentially misleading consumers by using unsubstantiated terminology.
- Claims must be based on the full lifetime of the product – For example, the ASA found adverts by TIER Operations promoting e-scooters as an environmentally-friendly (rather than, more modestly, “environmentally friendlier”) mobility option did not provide the consumer with information about the full lifecycle of the product, such as the impacts of shipping from the manufacturer and of product disposal.
As consumers become more aware of greenwashing, we may see further regulatory developments introduced. A recent small study by Lancaster University suggests that the UK public may support regulation to introduce ‘traffic light labelling’ or a system of levies on advertising for high-carbon products. Meanwhile, businesses operating in EU member states may also need to consider regulatory developments implementing the Directive on Empowering Consumers for the Green Transition, which effectively makes greenwashing a specific prohibited activity, and the anticipated Green Claims Directive.
All businesses need to be developing a strategy for managing their green claims. However, if purpose-driven businesses can master telling their purpose-stories, they can stand out against businesses that are less sincere about their green credentials, as tighter regulation is implemented and brings greenwashing to light. This developing landscape can be an opportunity for purpose-driven businesses to lead, by demonstrating the genuine positive impact that business can have when it puts purpose at its core, alongside profit.