22 July 2021
As businesses seek to attract environmentally-minded and sustainability-focused consumers, many are increasingly finding themselves the targets of complaints alleging “greenwashing”. “Greenwashing” refers to the practice of companies promoting supposed environmental benefits or advertising their sustainability bona fides through advertising or labelling that is perceived as false, misleading or vague. Consumers and environmental groups alike have pressed forward on alleged “greenwashing” complaints against companies in a variety of industries, part of a rising wave of attention to environmental, social and governance (“ESG”) issues.
We take a look at the major trends in so-called “greenwashing” complaints across the United States, United Kingdom and EU, and Asia, particularly in relation to plastics and recycling issues.
United States: rising tide of lawsuits and potential government enforcement
From a US perspective, recent reporting has pointed potential “greenwashing” plaintiffs in a specific direction – the “recyclable” label on many plastic consumer goods. A report from National Public Radio and the Public Broadcasting Service asserts that many consumer plastic goods have had the label “recyclable” appended to them when in fact not all types of labelled plastics are recyclable. Public reports suggest that less than 10% of all waste plastic is recycled for a number of reasons, including because it is costly and impracticable for plastics manufacturers to collect, sort and melt down used plastic, and because plastic can only be reused once or twice due to the degradation of the material during the process. Another challenge for recycling plastics are regulatory changes in countries that have historically accepted the import of recycled post-consumer plastics but in the future may ban or greatly reduce the volume of plastic being imported. As a result, an increased amount of recyclable waste may remain in the originating country, with potentially limited recycling capacity. Nevertheless, the benefits of recycling have formed the focal point of numerous plastics-related public campaigns and advertising materials, prompting concerns in some cases that such statements may mislead consumers into believing in a much higher rate of recycling – and consequent environmental benefit – than actually could take place.
A related concern arises regarding the increasing use of “ecofriendly” packaging like compostable plastics and bio-degradable disposables, and whether these products perform as promised in real-world conditions (for example, if compostable products actually break down in landfill). Suits targeting products labelled as “recyclable,” “compostable” or “biodegradable” have been brought by regulators, consumers and other private plaintiffs in numerous US states (often in California and under California state law), including against several major US companies. In one recent example of litigation brought by private plaintiffs from December 2020, the environmental NGO Greenpeace, Inc. filed a lawsuit in California Superior Court alleging that a popular US retailer used “unlawful, unfair, and deceptive” business practices by incorrectly labelling and advertising its plastic products as recyclable, despite the fact that recycling facilities do not accept and cannot process these items, and there are no markets to reuse them. And from 2017-2018, California prosecutors entered into settlements with several major US companies totaling over US$3m to resolve enforcement actions under California state law relating to packaging labelled as “biodegradable” or “compostable.” Additionally, given President Biden’s focus on climate and ESG issues, the Federal Trade Commission (“FTC”) and Securities and Exchange Commission (“SEC”) are poised to play a larger role in so-called “greenwashing” claims. In connection with its authority to investigate unfair or deceptive consumer practices, the FTC published a non-binding “Green Guide” to provide guidance on environmental marketing claims. The Green Guide (see here for a summary published by the FTC) lays out the standard for when it is appropriate to make environmental claims with respect to carbon offsets, environmental certifications, recyclability, renewable energy, and source reduction. In addition, the Green Guide covers claims on whether a product is compostable, degradable, ozone-friendly, nontoxic, or free of certain substances. In March 2021, a group of environmental NGOs, citing the Green Guide, filed a complaint with the FTC alleging that a large U.S oil company engaged in unlawfully deceptive practices by using ads that overstate its investment in renewable energy, thus allegedly “misleading consumers on the climate and environmental impact of its operations.”
Meanwhile, the SEC has announced the formation of a new Climate and ESG Task Force, which is developing initiatives to proactively identify ESG-related misconduct, and, according to the agency’s 2021 Examination priorities, is focused on disclosures made in connection with financial products labelled as sustainable, socially responsible, impact, and ESG conscious.
With the Biden administration’s stated focus on ESG, and with increasing pressure exerted by environmental groups in this area, we can expect to see the SEC and FTC continue to take on the role of watchdog in respect of “greenwashing” claims, including potentially in relation to plastics recycling. Companies should consider carefully their public statements and product labelling in relation to environmental and sustainability-related issues, given the high-profile nature of many of these suits and the potential reputational impacts associated with them.
United Kingdom and the EU: regulatory focus on “misleading” advertisements amidst new regulations on single-use plastics
By way of contrast, the UK has seen fewer plastics claims brought against major companies than in the United States to date. Nevertheless, there is scope for civil claims arising in connection with misleading statements and an increasing regulatory focus on “greenwashing.”
First, the UK Advertising Standards Authority (“ASA”) has taken action in relation to misleading advertisements, in particular by tackling misleading low carbon emissions advertisements in a number of rulings. Further, in 2019, the ASA found that Ancol Pet Products Ltd had violated the UK Code of Non-broadcast Advertising and Direct and Promotional Marketing, by misleadingly characterising its dog waste bags as biodegradable: as the bags would not biodegrade in their most likely destination (ie in landfill or incineration), describing the bags as biodegradable was misleading to consumers.
Second, the UK Competition and Markets Authority (“CMA”) is also conducting an ongoing review into “eco-friendly” claims. The CMA has recently published its draft guidance, which is open for consultation until mid-July 2021, with final guidance set to be published in September 2021. The draft guidance sets out six principles to help businesses comply with consumer protection law when they make environmental claims.
In particular businesses should: (i) be truthful and accurate; (ii) be clear and unambiguous; (iii) not omit or hide important information; (iv) only make fair and meaningful comparisons; (v) consider the full life cycle of the product; and (vi) have evidence to substantiate their claims. Third, the UK is also debating the Environment Bill which, amongst other targets, aims to make the plastic recycling process more accessible and may include rules requiring firms that produce packaging to take responsibility for the products and materials that they put on the market. In a further move, the UK Treasury recently unveiled a task force (the Green Technical Advisory Group) aimed at ensuring it is easier to understand when an activity is truly “environmentally sustainable” by advising the government on how the EU’s green taxonomy should be adapted for the UK.
This evolving regulatory landscape with regard to plastics can be evidenced by a wave of new regulation targeting single-use plastics. By way of example, in October 2020, the UK introduced a ban on supplying plastic straws and stirrers and plasticstemmed cotton buds. In April 2021, the UK government also doubled the charge for single-use carrier bags in all retailers. These measures follow the UK’s ban in 2018 on the manufacture of products containing microbeads.
Looking ahead to 2022, the UK government plans to introduce a tax on plastic packaging that has less than 30% recycled content. This aims to encourage business to both use recyclable packaging, and also to use recycled plastics in such packaging. S
uch moves, focusing on both greenwashing claims and plastics more generally, indicate that environmental claims are in UK regulators’ sights for potential future enforcement action.
Plastics have also received attention at the EU level. The European Commission identified plastics as a priority area in its 2015 Circular Economy Action Plan, which aimed to significantly reduce single-use plastics and impose penalties for failing to comply. As part of this, the EU plans to make all plastic packaging on the EU market recyclable or reusable by 2030. Most topical, however, is the EU’s Single-Use Plastics Directive 2019, which had to be transposed by member states no later than 3 July 2021. This directive includes a ban on certain plastic products and importantly products made from oxo-degradable plastics (included because of a lack of consistent evidence about the speed of their breakdown in the environment, and fears that the ‘biodegradable’ label could be misleading consumers). Equally, to help combat greenwashing concerns, certain disposable plastic products that are placed on the market must carry a visible marking, informing customers about the presence of plastics in the product.
Asia: Links to global trade in post-consumer plastics
The historic practice of countries exporting waste for recycling offshore has also shifted in recent years, with particular implications for various Asian jurisdictions.
Commencing in January 2018, the PRC banned (through a policy known as “National Sword 2017”) the import of most postconsumer plastic, on the basis that a significant volume of this material was contaminated (with food, paper, plastic film or other materials) and hard or impossible to recycle. There were also concerns about pollution associated with the plastic recycling process, and an increasing awareness of the environmental impact of the post-consumer plastic import trade. Other jurisdictions in Asia have taken or are planning to take similar legislative action, including Malaysia which banned the import of certain waste plastics in 2019 and Thailand which committed to banning waste plastic imports by 2021.
These developments will place further pressure on the recycling capabilities in the originating countries, increasing the risk that theoretically recyclable plastic waste ends up in landfill or incinerated, and potential allegations of “greenwashing.”
The export of waste itself also poses a risk of legal action and/ or adverse comment in the countries in which such waste originates. For example, in the UK, a waste firm was successfully prosecuted by the UK Environment Agency for trying to export unsorted waste to the PRC. The Court of Appeal upheld the convictions, finding that waste must be categorised at the outset of its journey (rather than at its final destination). Neither the destination of the waste, nor the standard applied by the recipient of the waste, was relevant.
Looking ahead
ESG issues are increasingly taking centre stage for both regulators and investors, particularly in the wake of the global Covid-19 pandemic. “Greenwashing” will continue to be a salient issue for industries across jurisdictions, particularly in relation to plastics and recycling, as regulators, consumers and environmental groups keep up the pressure via lawsuits, regulatory complaints and other actions. Investors are also coming under increasing scrutiny over their involvement in the plastics industry, with a recent report discussing the main producers and funders of single-use plastics.
For further information, please contact:
Sarah Martin, Linklaters
sarah.martin@linklaters.com
