The Netherlands Authority for Consumers and Markets (Autoriteit Consument en Markt) (“ACM”) earlier announced that “energy & sustainability” would be a focus area. Recent publications have been a testament to this. The ACM has held businesses accountable for greenwashing. “Greenwashing” involves a business providing information on its environmental, social and governance (ESG) policies, or its products and practices, to present an environmentally responsible public image that masks harmful business practices. In essence, by making misleading or unsubstantiated sustainability claims businesses were found guilty of misleading consumers by giving the impression that they are more sustainable than they actually are.
Consumer behavior is an important factor in reaching the European and national climate goals set for 2030 and 2050. This has led to regulators taking a stronger stance towards businesses promoting their products using sustainability claims. This post discusses recent actions by the ACM and certain Dutch rules on misleading claims towards consumers which qualify as greenwashing.
In 2020, the European Commission launched its New Consumer Agenda and Circular Economy Action Plan. Part of this constitutes a proposal to amend the Unfair Commercial Practices Directive 2005/29/EC1 and the Consumer Rights Directive 2011/83/EU (see our blog post) as well as an initiative on substantiating green claims which was supposed to be included in the second Circular Economy Package in November 2022 but has been delayed and is now expected to be published in early 2023 (see our blog post). The Dutch government supports the EU’s proposal to provide better information to consumers and ensure they are better protected against unfair practices.
The intensified scrutiny by national regulators as well as the attention to greenwashing in the public domain is forcing companies to ensure that their ESG-related practices match their public statements. In any event, bold claims not supported by operational reality must be avoided at all times. This will urge companies to set up and have a further look at their internal systems to avoid the risk of greenwashing.
Investigation into specific industries
In its supervising role, the ACM enables consumers to make sustainable choices with confidence and protects businesses that undertake sustainability efforts against businesses competing unfairly by using misleading claims. In 2021, the ACM started investigating environmental claims of 170 companies in the energy, dairy and clothing sectors. The aim of this campaign was to motivate the companies active in these sectors to critically reflect on their environmental claims. In the end, in depth investigations took place into claims made by two energy sector related companies and six clothing sector companies.
Investigation showed that sporting goods retail chain Decathlon and clothing retail chain H&M offered their products using general terms such as “Ecodesign” and “Conscious”, without immediately and clearly specifying the sustainability benefits of such terms. More specifically, Decathlon used an “environmental labelling system” which functionality was not, or only scarcely, explained. H&M explicitly stated its intentions to work with more sustainable materials. At the same time, in ACM’s view, H&M does not provide any details on the current status of such intentions, thereby enabling the emergence of too rosy a picture of its eco credentials. Finally, ACM decided that the fact that H&M purchases the majority of the cotton used through the Better Cotton Initiative does not mean that all cotton used in each individual product is sustainable.
Consequently, in September 2022, Decathlon and H&M committed to the ACM to inform consumers more clearly to minimise the risk of misleading practices involving sustainability claims. In addition, Decathlon and H&M will make donations of EUR 400,000 and EUR 500,000, respectively, to different sustainable causes as compensation for the unsubstantiated sustainability claims. Finally, both retailers committed to adjusting their practices and the ACM will enforce compliance thereof over the next two years (see ACM decision here).
Similarly, energy suppliers Vattenfall and Greenchoice have made commitments to ACM promising to adjust or no longer use sustainability claims on their websites. In addition, Vattenfall and Greenchoice will make donations of EUR 950,000 and EUR 450,000, respectively, to different sustainable causes as compensation. Both energy suppliers presented themselves as sustainable through their use of comparisons, however, the ACM took the view that the basis and substance of such comparisons were unclear. The ACM has indicated that it will enforce compliance of both companies with the above commitments over the next two years (see ACM decision here).
Greenchoice sold gas as “green energy” by suggesting that the CO2 emissions caused by the gas were compensated by planting trees. According to ACM, the claim of Greenchoice being “the largest purchaser of solar energy in the Netherlands” could not be substantiated. Vattenfall suggested that it sold green energy only, which was not the case as a part of the energy sold was generated by fossil fuels. Finally, the use of the Sustainable Brand Index (SBI) by both companies, in ACM’s view, was misleading as the SBI demonstrates whether consumers consider a brand sustainable and not whether the company operating such brand is sustainable.
The ACM emphasises that businesses that wish to promote their products using sustainability claims must make sure that such claims are correct, clear, and verifiable. To this end, companies must adhere to the rules described in the ACM Guidelines regarding sustainability claims (see here).
Sustainability claims in advertising
ACM’s scrutiny of sustainability claims is part of a growing trend. In the Netherlands, the Foundation Advertising Code (Stichting Reclame Code) operates a self-regulation system of advertising, which entails compliance with the generic Dutch Advertising Code and the Environmental Advertising Code (Milieu Reclame Code) (“EAC”). These soft rules incorporate principles of the Dutch Civil Code on dishonest and misleading market practices. The opinions of the Advertising Code Committee (Reclame Code Commissie) (“ACC”) are not legally binding. However, the ACC in recent years has ordered a number of Dutch blue-chip companies to amend sustainability claims made as part of their advertising campaigns.
Particularly, based on the EAC, which applies to all advertising referring to environmental aspects, the ACC took the view that KLM and Shell have made misleading environmental claims. An example of this is the “Make a difference, drive CO2-neutral” campaign by Shell in relation to which. the ACC ruled that it had an environmentally misleading character. By the same token, KLM has been ordered by the ACC to amend multiple claims regarding “CO2 neutral” and “CO2ZERO”. The EAC requires that all environmental claims must be verifiably correct (aantoonbaar juist).
Although KLM altered its sustainability claims slightly, the CO2ZERO programme was continued. As a result, two NGOs (ClientEarth and Fossielvrij NL) initiated court proceedings in July 2022, on the basis of the Dutch Civil Code at the Amsterdam District Court, arguing that KLM’s environmental claims are misleading. The NGOs’ goal is to force KLM to stop advertising its the CO2ZERO programme as being fully CO2-neutral. No court decision has been made yet.
Interestingly, in October this year, the ACM carried out a survey which found that terms such as “carbon-neutral” are not properly understood. Only half of the consumers interviewed understood the difference between “carbon reduction” and “carbon offset”. The ACM concluded there is serious risk of deception when using general and vague terms such as “carbon-neutral” and “climate-neutral”. At the same time, businesses in various sectors use these general terms. The ACM confirmed that it would pay extra attention to the use of such claims, which could potentially result in enforcement action.