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The Law Society has published “milestone” guidance that suggests law firms may be able to refuse to act for clients whose business contradicts net zero targets or the firm’s own stance on climate change.

The new guidance also advises firms to look at their own environmental practices and warns against greenwashing (making untruthful or misleading statements about how eco-friendly a product or service is) instead of implementing credible environmental practices.

The publication is the first time guidance of this kind has been issued to solicitors. However, at the bar, the climate debate has recently made headlines as over 100 lawyers signed a pledge refusing to act for companies supporting new fossil fuel projects or to prosecute peaceful climate change protesters.

The pledge triggered a debate over the ‘cab rank rule’ which sets out barristers’ obligation to represent everyone. It does not apply to solicitors, but many law firms are experiencing increasing pressure to go green.

For students selecting a law firm, green credentials appear to play an increasingly important role. Over in the US, a group of aspiring lawyers launched a boycott of US law firm Gibson Dunn in 2021 over the firm’s “record of furthering climate change and environmental injustice”.

Lubna Shuja, president of the Law Society, said:

“The effects of climate change — even on legal practices – are wide-ranging and constantly evolving. Solicitors should be aware of this changing landscape and its potential impact upon their organisations, as well as on the legal advice they provide.

“We encourage solicitors to take the initiative to understand and pre-empt the climate legal risks with the help of our guidance. This will ensure they can continue to run their businesses and advise their clients competently and compliantly,” she added.

Responding, The City of London Law Society (CLLS) said it welcomed the move and recognised the vital importance of the matters addressed in the guidance for themselves and their clients.

“For many years City law firms have actively engaged with their own operational impacts and with businesses and clients in thoughtful discussion and planning in order to address the pressing demands of climate challenges in a commercial world and, where appropriate, to assist businesses in promoting the transition away from a fossil fuel-based economy,” the Society said.

It added: “City solicitors play an important and active part in helping to understand and meet the scale of the challenge posed by climate change, and the related legal, policy, social and economic changes they bring for businesses and clients. The Guidance brings information on a complex range of considerations for practising lawyers together in one place. It will provide a reference point for solicitors looking to understand the legal profession’s collective response, and be of particular help to those practising in the most relevant areas and those looking to get more actively involved in that response.”

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Spring/summer 2022 saw green come back in, not just in terms of jeans and accessories but also in terms of consumers becoming more environmentally conscious.

Brands responded to this, purporting to meet various ‘green’ targets and began to lure shoppers in with environmental, social and governance (ESG) campaigns that seemingly showed them as pioneers of environmentally friendly production lines, responsibly sourced fabrics and more relaxed targets and hours for garment-makers. While shoppers may take these slogans and taglines as gospel, competition authorities such as the Competition and Markets Authority (CMA) were not so sure. On 29 July 2022, the CMA launched investigations into three large, high-profile retailers. It is important to note that all three investigations remain open as of the date of publication, with no final decisions or sanctions being imposed yet. As a result, it should not be presumed that any company under investigation has violated any laws pertaining to consumer protection.

After the CMA announced their ongoing investigations, the term ‘greenwashing’ entered the mainstream. Fundamentally, the CMA champions the premise that consumers deserve to know where they are buying from. The Consumer Protection from Unfair Trading Regulations 2008 is the primary consumer protection law that applies to the CMA’s Green Claims Code. A general restriction against unfair business practices is found in the CPRs, as well as particular prohibitions against deceptive conduct and omissions reporting.

So, what characterises fast-fashion products and what are the environmental implications of their production? Fast fashion items are characterised by rapid turnover times, where celebrities’ styles and designer clothes are replicated in a matter of weeks or even days. According to a Business Insider investigation, fashion production produces 10% of all global carbon emissions, which is more than the European Union. Additionally, 85% of all textiles end up in landfills each year, water sources are dehydrated, and rivers and streams become polluted.

The increasing data available relating to the impact of the fast fashion industry culminated in the CMA beginning an investigation in January 2022 into the industry, where consumers spend an estimated £54 billion annually. They immediately identified issues with potentially deceptive green claims. These included several businesses giving the impression that their goods were “sustainable” or better for the environment, such as by making generalisations about the use of recycled materials in new clothing, with little to no details about the foundation for those assertions or precisely which products they related to.

Sarah Cardell, the interim chief executive of the CMA, has stated that: “People who want to ‘buy green’ should be able to do so confident that they aren’t being misled. Eco-friendly and sustainable products can play a role in tackling climate change, but only if they are genuine.” With this in mind, the CMA wants to identify whether the wording of campaigns used by the brands being investigated are too vague and if the business criteria developed to decide which products to include in these collections are lower than consumers might expect. It has been identified, for example, that some garments featured within such collections contain as little as 20% recycled materials. There are also concerns about the robustness of their fabric accreditation schemes and how their more ‘green’ collections sit within their broader business model and production processes.

Staying within but also looking beyond the UK, the fast fashion industry is coming under further scrutiny by key stakeholders, no matter the extent of their greenwashing. Recently, there has been a large amount of media attention surrounding the fast fashion brand Shein. Originating as SheInside.com, the relatively young brand now has a $100 billion valuation. However, it has been subject to negative press surrounding working conditions, with a BBC report exposing “enormous pressure” on workers to produce garments quickly across long hours. Near-identical items are listed on their app at a fraction of their competitors’ prices, with designs matching other leading brands. With 5,000 products appearing on their site daily, global attitudes towards fast fashion have seen a growing shift from capitalist consumerism to social responsibility. This is significant because if demand decreases, so will investment, with global markets fluctuating with shoppers’ changing motivations. Nevertheless, large investors have financially contributed to Shein’s success. In preparing to make initial public offerings in the US as early as 2024, the brand has recognised the importance of improving its ESG factors.

As per a 2022 Channel 4 documentary ‘Untold: Inside the Shein Machine’, whilst policies are supposedly in place with contracted factories, their implementation reportedly falls short of being in practice. The documentary showcased workers allegedly having to meet garment targets, with the expectation that they would work until they met this, even though it would often take them several more hours than those stipulated in their contract. Undercover workers were also apparently told that should any garments fail quality testing, their pay would be docked on a per-garment basis.

For companies to succeed in public offerings in the US, they need to ensure proper working conditions and respond to a more consciously-minded consumer. Future exponential growth will rely on transparency in supply chains and respond to chances to partner with more sustainable brands. Failing to engage with opportunities to make packaging eco-friendly or use renewable energy, for example, could result in poor financial performance for some stakeholders and the loss of others for brands.

In response to the documentary Shein defended its “on-demand production model”, stating that unlike the wider retail industry who average 25%-40% unsold inventory, they have reduced theirs down to a “single digit” percentage. Shein also advised that they “engage industry leading third-party agencies… to conduct regular audits” and sever business relations with factories who do not “remediate… violations… [within] a specific time-frame”.

Shein’s full statement in response to Channel 4’s documentary was as follows: “Shein’s business model is built on the premise of reduced production waste and on-demand production… The average unsold inventory level of the industry is between 25%-40%, whereas Shein has reduced it to a single digit.”

Specifically on the matter of working hours they said, “Shein is absolutely committed to empowering our ecosystem partners… which includes our Supplier Code of Conduct that complies with the core conventions of the International Labour Organisation. Shein engages industry leading third-party agencies… to conduct regular audits of supplier’s industries to ensure compliance. Suppliers are given a specific timeframe in which to remediate the violations, failing which, Shein takes immediate action against the supplier, including terminating the partnership.”

When it came to claims of design theft by independent designers in the documentary, they said, “When legitimate complaints are raised by valid IP rights holders, Shein promptly addresses the situation.”

Whilst Shein clearly has policies coming from those in its head office, unless these are actioned, its business model that theoretically “empower[s]… ecosystem partners” falls short of increasing ESG scrutiny.

To conclude, there is increasing pressure on fast fashion brands to advertise any green claims honestly and transparently. With greenwashing becoming an area that the CMA is swiftly cracking down on and consumers increasingly becoming aware of how the clothes they buy may have been manufactured, there is hope that fast fashion brands will innovate. There is increasing recognition among those dominating the industry that they must lessen their environmental and social shortcomings so that any claims by them are evidenced.

Charlotte Cheshire is a recent LPC and LLM graduate from The University of Law, having completed her undergraduate degree in law from Newcastle University. She now works as a mergers and acquisitions paralegal at KPMG UK in their northern deal advisory team.

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Companies commonly employ sustainability as a strategy since it is a requirement brought on by globalisation. However, sustainability is more than just a passing fad, and society as a whole is moving toward greater social responsibility. Sustainability is a value that companies integrate into their operations due to their environmental, social, economic and governance effects.

It is necessary for corporate operations because of its effects on the environment and society, but it also plays an important role that promotes the organisation to success. Notably, governments have a substantial role in promoting corporate sustainability by making regulation.

The UK also has enacted many regulations so that companies can be managed in accordance with sustainability criteria. But does the UK’s regulatory curve really promote sustainability in many of the regulations governing the operation of companies?

Mandatory reporting — not for everyone!

The transition to mandatory reporting with regulatory instruments has been made from a time when there was no legally binding regulation on sustainability reporting and when businesses decided cooperatively what information to disclose in their sustainability reports and the degree to which these reports complied with sustainable development policies and requirements.

To ensure that large corporations and limited liability partnerships take into account the financial threats and opportunities that climate change presents in their corporate governance strategies, the UK government regulated the Task Force on Climate-Related Financial Disclosures aligned mandatory climate change reporting requirements. In this way, these strict legal measures support the UK’s green economy while aiding businesses in achieving sustainability goals with an awareness of the environment.

It is important to note, however, that these restrictions do not apply to small and medium-sized businesses (SMEs). Examining how such firms’ CEOs comprehend and respond to climate change-related challenges may provide critical hints on how other SMEs may be pushed to do the same, given that SMEs account for the bulk of the company population in the UK. As a result, removing SMEs from the application area of required disclosure regulations makes it harder to accomplish the regulatory framework’s sustainability goal.

Prevention of greenwashing

Another precaution taken by the UK is to avoid greenwashing, which refers to disinformation produced by a corporation to enhance its image as environmentally responsible while discussing its intentions on climate concerns, which can frequently mislead stakeholders’ perspectives on businesses. Therefore, the company’s sustainability ambitions may deteriorate. In light of these considerations, as many governments deal with the issue, the UK has also implemented legislative measures to guarantee businesses avoid it.

A claim under the Green Claims Code may include not just sustainable products, but also services or activities carried out in accordance with sustainable business standards. Furthermore, the Competition and Markets Authority (CMA) created the Guidance on Green Claims Code to avoid greenwashing and help firms in compliance with legal obligations, notably consumer law, when asserting environmental claims. The fundamental goal of this guidance is to strengthen the reputation and, eventually, the sustainability of the companies by gaining the confidence of consumers, namely the stakeholders.

Although the regulations are not statutorily enforceable, the CMA considers that failing to comply with the applicable regulatory framework should be considered significant evidence of a violation of consumer law. As a result, firms may face legal ramifications from the CMA and Trading Standards. This situation can naturally create a deterrent effect for companies.

Director’s duties

Section 172 of the Companies Act 2006 requires directors of UK enterprises to consider, among other things, employee profits, the obligations to build business relationships, the consequences of corporate operations on society, the environment, and the company image while carrying out responsibilities. A director’s principal obligation, on the other hand, is to promote the company’s success in order to protect the interests of the shareholders.

The UK now takes an approach that fundamentally imposes shareholder precedence in directors’ duty, while also recognising the need to respect other interests. Indeed, authorities seek to encourage transparency and accountability while also ensuring that corporate actions have good social and environmental consequences and that stakeholders’ basic rights are maintained. The prior obligation to act in the best interests of the corporation has been replaced in the hard law approach by section 172, which requires a director to “act in a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”.

Tackling modern slavery

It is critical to be mindful of stakeholders’ interests and create a positive influence in the outside world while assisting businesses to define and articulate the concept of economically sustainable development. Under the Modern Slavery Act of 2015, firms must submit an annual report describing their efforts to avoid modern slavery in their operations and supply networks. On the one hand, reporting requirements can assist companies in developing a strong awareness of the threats and implications of their primary operations on corporate social responsibility; on the other hand, the publication of these management strategies assists shareholders in allocating investment to more sustainable, responsible companies, bolstering the financial system’s long-term sustainability.

Ece Gorgun Balci is a qualified lawyer in Turkey and an LLM student at Brunel University, London. She is interested in international commercial law, international arbitration, company law and media law, and is an aspiring solicitor in the UK.

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What is ‘greenwashing’?

The essence of ‘greenwashing’ is making an untruthful or misleading statement about how eco-friendly a product or service is. Companies are unlikely to tell outright lies but they might make claims which are quite subtly deceptive. Imagine, for example, a new appliance which is said to be more energy efficient than its rivals, with no mention of the fact that it uses more water too. Or an aerosol which is advertised as free from chlorofluorocarbons (CFCs), even though it would be illegal to use these chemicals anyway. In each scenario, a consumer is likely to believe, erroneously, that the product in question is better for the environment than alternatives.

Greenwashing is not a recent phenomenon; it has existed in some form since at least the 1980s. However, there are signs that the problem has become especially acute. In January, the International Consumer Protection and Enforcement Network investigated almost 500 websites making product sustainability claims and found that in 40% of cases there was a risk of consumers being misled. This is of real concern when UK shoppers alone spend over £41 billion on sustainable goods each year and there has been a global shift towards greener purchasing decisions amid the COVID-19 pandemic.

The legal position

There is no specific anti-greenwashing legislation in the UK. Having said this, many misleading environmental claims will fall foul of the restrictions contained in the Consumer Protection from Unfair Trading Regulations 2008. In particular, instances of greenwashing are likely to contravene Regulation 5, which prohibits false and misleading commercial practices, or Regulation 6, which prohibits commercial practices serving to hide or obfuscate material information. It is worth bearing in mind that a deceptive eco-claim will only constitute an offence under either regulation if it causes or is likely to cause consumers to enter into a transaction when they would not otherwise have done so. The situation is broadly similar in the EU, under Articles 6 and 7 of the Unfair Commercial Practices Directive 2005, in the US, under §5 of the Federal Trade Commission Act 1914, and in Australia, under Section 18 of the Competition and Consumer Act 2010.

Alternatively, in some circumstances, it might be possible to bring a claim for fraudulent misrepresentation against an alleged greenwasher. There are precedents for this on both sides of the Atlantic. In the Californian case of DeWind v Glenmore Wind Farm, a developer was sued for having overstated the energy potential of a wind farm site, which, according to the claimant, gave the impression that the project was economically viable when this was not true. The claim was ultimately dismissed. Misrepresentation is also the basis for a class action brought against Volkswagen in the UK relating to the “dieselgate” scandal. The car manufacturer is alleged to have programmed diesel vehicles to artificially lower their nitrogen oxide output to cheat emissions tests. As well as an apparent breach of air pollution laws, this practice is said to have led buyers to believe they were getting a cleaner car than was in fact the case. Lawyers at Slater & Gordon, Leigh Day and Freshfields are all advising on the claim, which a Law Society report predicts will pave the way for further greenwashing class actions over the next 30 years.

Other legal grounds for challenging deceptive green marketing are more speculative. Depending on the context, consumers who receive a product which is less sustainable than advertised could pursue a claim for breach of contract on the basis that the product is not of satisfactory quality. Furthermore, it has been argued that greenwashing by companies with a large market share could be tackled as an abuse of dominant position contrary to EU competition law rules. In reality, this is doubtful unless those rules are radically rewritten, which, with the exception perhaps of competition enforcers in Greece, few in Europe have the desire to do.

In terms of remedies, the exact consequences for companies who have engaged in greenwashing will vary depending on the jurisdiction. Consumers will usually be entitled to either cancel the relevant contract or receive compensation, with damages also available if loss has been suffered. In addition, some competition authorities have the power to issue substantial fines for violations of consumer protection rules; this is an important deterrent given that it will not often be worth consumers’ while to bring legal action themselves.

What action is being taken?

A number of regulatory bodies have highlighted greenwashing as one of their focus areas for 2021. The UK’s Competition and Markets Authority (CMA) is currently investigating whether sustainability claims are being used to deceive consumers and held a consultation on the subject at the end of last year. Misleading green marketing is high on the agenda in France and the Netherlands too, particularly in relation to the energy sector. There is also a push at EU level to create a standardised methodology for justifying eco-claims; this is intended to deliver on a commitment in the EU Green Deal to improve access to “reliable, comparable and verifiable information” on the environmental impact of products marketed as sustainable.

Moreover, the last couple of years have seen firms called out more readily for exaggerating their eco-credentials. In the UK, Ryanair was reprimanded for declaring itself to be Europe’s “lowest emissions airline”: a contention it based on old and incomplete data. Similarly, Italy’s competition authority fined ENI, an oil and gas company, €5 million for alleging that its “Diesel+” fuel had 40% lower greenhouse gas emissions than competing products without adducing sufficient evidence to back this up. Meanwhile, beauty brand Truly Organic was hit with a $1.76 million penalty by the US Federal Trade Commission after it was found to be advertising certain products as vegan when they contained honey and lactose.

In defence of these, and other companies, greenwashing is not always easy to avoid. The consumer, tort and contract law rules discussed above are very general and establish only that sellers must not mislead buyers. They do not offer any insight as to what a misleading sustainability claim looks like or how it could be amended, qualified or better substantiated. Little wonder there is a growing fear of “greenhushing”, where retailers whose products are genuinely eco-friendly avoid drawing attention to this fact in case they are caught out on a legal technicality. Some regulators have responded by producing detailed guidelines to help firms lawfully advertise the environmental advantages of their products. The US “Green Guides”, which have been around for almost three decades, set out when terms such as “recyclable” and “non-toxic” can be used by way of illustrative examples. Dutch competition officials have now drawn up five rules of thumb for environmental marketing, while the CMA has indicated it might follow suit and update its own guidance.

Beyond consumer protection…

Concerns about greenwashing are not unique to the consumer context. Similar problems have arisen in sustainable finance. Almost $270 billion worth of “green bonds” were issued in 2020 by the likes of Daimler and JP Morgan Chase, plus several sovereign states, as record demand from investors drove down borrowing costs. Issuers are supposed to spend the bond proceeds on projects to reduce their environmental impact but some of these projects make very little difference. A green bond issue might be described as funding eco-sensitive offices, for example, when the issuer simply intends to fit a handful of solar panels to regular buildings.

In an attempt to limit the scope for greenwashing, non-governmental organisations such as the Climate Bonds Initiative and the International Capital Markets Association have suggested minimum criteria which must be met in order to use the green bond label. There are also proposals for a voluntary EU Green Bond Standard under which companies issuing green bonds would have to explain how they plan to use the money raised and exactly what benefits will accrue to the environment as a result.

Sustainable investment funds have come under scrutiny as well. From this month, EU asset managers have to state how they are measuring their investments against a range of environmental, social and governance factors or, if they are not, to explain why. A series of further rules will be phased in gradually, culminating in a requirement for investment firms to collect and publish sustainability data on the companies they buy into. It would seem, then, that organisations involved in greenwashing in any form are in for a rude awakening. Unfortunately for them, money will no longer grow on trees.

Matthew Unsworth graduated in law with a first class honours from the LSE. He is a future trainee solicitor at a London-based US law firm and is currently completing the LPC at BPP Law School. Matthew has an interest in competition/antitrust and emerging companies.

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