Last year the UK’s advertising watchdog, the Advertising Standards Authority (the “ASA”), for the first time banned two sustainability focused adverts issued by HSBC, setting a new tone for businesses when it comes to greenwashing risks in 2023. The move reflects a general hardening of public and regulatory attitudes about businesses making not-fully-substantiated or out-of-context sustainability claims, just as the pressure on companies to communicate their sustainability credentials increases.
The banned adverts consisted of two posters located at bus stops across London and Bristol ahead of COP 26 in which HSBC stated that they were: “aiming to provide up to $1 trillion in financing and investment globally to help our clients’ transition to net zero” and “helping to plant 2 million trees which will lock in 1.25 million tonnes of carbon over their lifetime”.
The ASA received 45 complaints, including from Adfree Cities, which argued that the adverts were misleading as they omitted significant information about HSBC’s contribution to carbon dioxide and greenhouse gas emissions. Adfree Cities filed similar complaints with the ASA against Barclays and Standard Chartered but these cases have since been closed.
HSBC defended the adverts, stating that they highlighted two of HSBC’s tangible and specific initiatives and did not seek to comment on HSBC’s broader green credentials. However, the ASA disagreed and held that the ads were misleading as, by making unqualified claims about its environmentally beneficial work, consumers would understand that HSBC was making a positive overall environmental contribution and not simultaneously continuing to finance investments in businesses and industries that emitted notable levels of carbon dioxide and greenhouse gases to a significant degree.
The ASA have continued to show an increased focus on dealing with greenwashing complaints. Analysis by The Independent found that the number of adverts banned by the ASA for greenwashing tripled in a year and a recent report issued the ASA on consumer understanding of environmental claims has found, among other points, that consumers have called for more transparency about offsetting in ads and for significant reform to simplify and standardise the definitions of commonly used terms, such as ‘carbon neutral’ and ‘net zero’.
A number of other UK regulators are taking an increasing interest in potential greenwashing. In July 2022, the CMA launched investigations into ASOS, Boohoo, and George at Asda, saying that should these companies’ green claims be misleading to customers, they would not “hesitate to take enforcement action – through the courts if necessary”. The FCA have also stated that “tackling greenwashing is a core regulatory priority” and in October 2022 issued a new Consultation Paper under which they propose new rules to help protect consumers from greenwashing, including restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used.
Looking overseas, foreign regulators are also beginning to crackdown on greenwashing claims. In 2021, the SEC’s enforcement division set up a climate and ESG taskforce which led to BNY Mellon Investment Adviser being fined $1.5m to resolve claims that it made material misstatements and omissions to investors regarding its ESG practice. In Germany, Deutsche Bank’s asset management unit, DWS, was raided earlier this year by the German financial regulator BaFin in connection with greenwashing allegations and is now being sued by a German consumer group for allegedly misrepresenting a fund’s green credentials. Further, ASIC, the Australian corporate regulator, recently issued a A$53,280 fine to Tlou Energy Limited, an ASX listed company which develops power projects in sub-Saharan Africa, after finding that it made false or misleading representations about its green credentials.
The ruling against HSBC is a reminder that a company’s ESG strategy (including its external communications strategy) will affect all areas of a business, and that over-emphasis of environmental credentials without proper context risks backfiring with the potential for greater consumer and public criticism, increased regulatory investigation from an growing number of regulators in numerous jurisdictions, and possible censure, fines and litigation. When reflecting on how best to mitigate these greenwashing risks, companies should take the following steps:
- Review governance, disclosure and reporting processes to ensure that all statements are made on a reasonable, verifiable basis and are supported by objective, up to date and accurate evidence.
- Consider how the claims made as part of a company’s ESG strategy will be understood by different recipients (e.g. consumers, investors, regulators).
- Avoid vague terminology and be aware that commonly used ESG-related terms often do not have an agreed singular meaning.
- Review statements and ESG strategies holistically across the business to ensure consistency of purpose and messaging, and consider carefully whether any claims could conflict or contradict other claims or actions taken by the business.