The CMA Greenwashing Review – Is this the year of reckoning for the fashion sector?

"Eco-fashion" and "sustainable fashion" have become buzzwords amongst fashion retailers in recent years, as consumers have become increasingly aware of sustainability concerns.

Shoppers are regularly searching for more environmentally friendly shopping options – a 2021 government survey demonstrated that 52 per cent of UK consumers based their purchasing decisions on a brand's eco-credentials. As a result, fashion brands have been quick to highlight to customers their ethical and eco-credentials, such as announcing initiatives to reduce carbon emissions, releasing "sustainable" ranges, and creating new roles for staff focused on sustainability issues.

However, fashion brands, both in the luxury and "fast fashion" sectors, have historically been found to make environmental claims that could be seen as misleading, known as "Greenwashing". Regulators and analysts have been racing to curb exaggerated sustainability claims:

September 2021 – the Green Claims Code was published by the UK Government. The Green Claims Code sets out how fashion businesses can communicate their "green" and sustainability credentials in an honest and accurate manner.

October 2021 – during the United Nations Climate Change Conference (COP 26), the UN Fashion Industry Charter for Climate Action proposed new commitments to achieve net-zero emissions by 2050, 100 per cent electricity from renewable sources across "owned and operated facilities", and the sourcing of environmentally friendly raw materials by 2030.

January 2022 – the UK's Competition and Markets Authority (CMA) announced that it would be reviewing environmental claims made by the fashion and retail sector to ensure that they follow Consumer Protection Law.

June 2022 – following the release of the Green Claims Code in September 2021, it was reported that approximately 25 per cent of greenwashing complaints made to the CMA were in relation to the fashion industry.

Now, companies in the fashion sector could face legal and financial penalties from regulators if they are found to engage in Greenwashing.

What will the CMA be investigating, and how?

In April 2022, the UK Government confirmed a plan to grant the CMA greater powers to impose sanctions on businesses (including those in the fashion sector) found to be in breach of consumer protection laws. In the UK, there are 34,000 businesses employed in the UK fashion and textile sector that will come under the proposed legislation. Following implementation of the plan, the CMA will:

proactively investigate specific industries, including the fashion sector.
take "appropriate action" where businesses are found to be Greenwashing.
such "appropriate action" could result in fines of up to 10 per cent of global annual turnover for the offending companies.

How can companies in the fashion sector avoid being penalised by the CMA?

These changes will mean that companies could now face severe financial penalties if their sustainability claims do not comply with the Green Claims Code.

In a nutshell, the Green Claims Code states that claims made by businesses in relation to their goods and or services should be:

Accurate and clear for all to understand, including where any caveats or conditions are included in the claim.
Up-to-date, and backed with credible evidence.
Telling the whole story of the product or service, and not omitting or hiding any important relevant information.
Free of any partially correct or incorrect aspects or conditions, and not misleading to customers or suppliers.
Reflective of the whole life cycle of the brand or product where general claims such as "eco-friendly, green or sustainable" are made.
Not over exaggerating the positive environmental impact of the product.
Fully accessible - i.e., information that really can’t fit into the claim can be easily accessed by customers in another way (QR code, website, etc.)

Comment

Greenwashing claims can seriously harm fashion brands from both a reputational and a financial perspective. If a brand loses the trust of its customers, it could take years to regain its position in the market. Financially, a fine from the CMA equating to 10 per cent of a brand's annual turnover could be economically crippling, and seriously derail any future business plans.

It is also important to regularly review the methodology a brand is using when measuring its eco-impact. In June 2022, an alliance of major fashion brands decided to pause their use of the "Higg Materials Sustainability Index" (a suite of tools used to measure garment sustainability), after critics questioned the methodology used within the tools, arguing that fashion companies employing such tools were Greenwashing.

It is yet to be seen how the CMA will enforce its enhanced powers against fashion brands in the UK, but to protect from such damage, businesses should remain vigilant about all sustainability claims they are making. These claims should be credible, able to be backed up, and easily understood by consumers. However, the responsibility for compliance ultimately lies with the fashion brand – and it is important not to end up on the wrong side of the eco-line.

More on Greenwashing

Read more of our recent content about greenwashing

Clifford Chance

ESG

Talking Tech