CMA in agreement with LOCSTALK's concept of "compliant communications" in latest open letter for UK fashion retail sector

In essence encouraging "compliant communications", the Competition and Markets Authority tightened its grip on fashion retail sector mandating more accuracy and transparency in their green claims

Exactly one month ago, I started talking ad nauseam about the need to have “compliant communications”, emphasising it as the need of the hour especially in the fashion retail sector. Which essentially means aligning legal expertise, fact checking and due diligence with marketing strategies to maximise a business’ positive impact and minimise potential legal claims.

This concept was reflected clearly in one of the historic moves by a UK Government body - Competition and Markets Authority (CMA).Concluding its first greenwashing enforcement case, the CMA accepted legally binding commitments from ASOS, Boohoo and George at Asda while the fashion industry as a whole has been issued an open letter warning of significant fines for retailers misleading consumers on green credentials.

For me, what began as a way of developing thought leadership and lobbying for effective legislations and augment stakeholder engagement in the sector, has started showing its own positive impact in tangible ways.

CMA’s Greenwashing investigation

Yesterday, at the culmination of its year and a half long greenwashing investigation into 3 fashion brands - ASOS, Boohoo and George at Asda, to scrutinise their ‘green’ claims, the CMA accepted their undertakings with a promise to course correct and also released an open letter to the fashion retail sector.

7 months before this investigation, in January 2022 the CMA had issued a statement declaring its intentions behind this affirmative action -

It is estimated that UK consumers spend ￡54 billion annually on clothing and footwear, and this is expected to continue to grow in the coming years. According to some estimates, fashion is responsible for between 2 and 8% of global carbon emissions. More and more people are trying to choose more environmentally sustainable options when buying clothes. More and more fashion businesses are making environmental claims.

In July 2022, the CMA expressed its concerns about the way the above mentioned firms’ products, including clothing, footwear, and accessories, were being marketed to customers as “eco-friendly”. They launched their investigation explaining how the consumers were being charged a premium for these products, without there being an veracity to these claims

The said fashion retailers were under scrutiny for whether these companies were misleading customers about the eco - friendliness of their clothing lines.

Specifically, the CMA examined five main issues :

1. Vague sustainability claims : for terms such as "Responsible Edit" or "Ready for the Future" that created an unearned impression of eco-friendliness.
2. Misleading product selection : here they looked into the question that - whether the criteria used by some of these businesses to decide which products to include in these collections may be lower than customers might reasonably expect from their descriptions and overall presentation – for example, some products may contain as little as 20% recycled fabric.
3. Inaccurate collection inclusion: they checked if some products are included in eco-collections despite not meeting the companies' own criteria.
4. Lack of transparency: checked if there's enough information provided about fabrics and materials used in eco-friendly products, eg. for the companies’ eco ranges- information was missing about what the fabric is made from.
5. Potentially misleading accreditations: examined if claims about fabric certifications are unclear about which products they apply to, such as a lack of clarity as to whether the accreditation applies to particular products or to the businesses’ wider practices.

Green Claims Code, 2021

In September 2021, the CMA developed the Green Claims Code – a set of guidelines for companies to follow when making environmental claims about their products, services or operations. It sets out 6 key points to check your environmental claims are genuinely green.

The CMA greenwashing investigation mentioned above, was in continuation of their efforts to take cognisance of the barrage of misleading claims floating around and misleading shoppers. But fashion retail is not the only sector they are investigating, CMA’s wider investigation into misleading environmental claims is ongoing and other sectors will come under review in due course. For instance, another sector that the CMA is watching closely is - tech. A hot topic is their investigation on whether the partnership/merger between Microsoft and OpenAI, including recent developments, results in the creation of a relevant merger situation and, if so, the impact of the partnership on competition in the UK.

Consumer Protection from Unfair Trading Regulations, 2008

The key piece of consumer protection legislation relevant to the CMA’s Green Claims Code, and to the enforcement cases announced today, is the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). The CPRs contain a general prohibition against unfair commercial practices and specific prohibitions against misleading actions and misleading omissions.

Schedule 1 of the regulation explicitly prohibits 31 specific practices that are always considered to be unfair, and create further offences for aggressive practices. They prohibit 'misleading actions' and 'misleading omissions' that cause, or are likely to cause, the average consumer to take a 'transactional decision' they would not have taken otherwise. They apply to commercial practices relating to products (which includes goods, services and digital content) before, during and after a contract is made.

The three noteworthy provisions in the context of this greenwashing investigation are -

Provision 5 that prohibits giving false information to, or deceiving, consumers.

Provision 6 which prohibits giving insufficient information about a product. It is a breach of the CPRs to fail to give consumers the information they need to make an informed choice in relation to a product if this would cause, or be likely to cause, the average consumer to take a transactional decision they would not have taken otherwise.

Provision 7 that prohibits aggressive commercial practices that intimidate or exploit consumers, restricting their ability to make free or informed choices.

Another interesting inclusion in the CPRs is the concept of 'transactional decision'.It means any decision taken by the consumer concerning the purchasing of the product or whether to exercise a contractual right in relation to the product, including decisions not to act. This does not only relate to pre-shopping but includes after-sales and continues for the lifetime of the product.

Undertaking by ASOS, Boohoo and George at Asda

All three companies have signed formal agreements to use only accurate and clear green claims and alter their marketing strategies for good. These undertakings by - ASOS, Boohoo and George at Asda respectively were secured by the CMA. By way of these duly signed documents, these companies committed to change the way they display, describe, and marketed their green credentials, meaning millions of customers can expect to see clear and accurate green claims.

These undertakings are essentially legally binding agreements that outline specific rules the companies must follow. It is important to note that they have no become a precedent for any company that is greenwashing and not adhering to transparent and accurate reporting protocols.

They set a precedent for the fashion industry, urging other retailers to review their practices and ensure their environmental claims are clear, accurate, and verifiable. The key points mentioned below are essentially actionable points for every entrepreneur in the fashion retail sector, arising out of these undertakings. One can cover their bases by understanding where they lack and how they want to strategise for the future.

Begin here :

• Truthful and clear green claims: All environmental claims must be accurate and not mislead customers. Key information about the eco-friendly aspects of a product should be easy to understand and readily visible.
• Specificity in material claims: Terms like "sustainable" or "eco" are no longer enough. Brands must use specific terms like "organic" or "recycled" for materials and clearly state the percentage of these materials used. A product can't be labelled as eco-friendly unless it meets specific criteria.
• Transparency in green ranges: The companies must clearly define the standards used to include products in their eco-friendly collections. This includes minimum requirements like a certain percentage of recycled materials. Products that don't meet the criteria cannot be labelled as part of a sustainable range.
• No misleading imagery: Using nature imagery or green logos to suggest a product is eco-friendly when it's not is prohibited.
• Accurate product filters: Search filters based on eco-friendly attributes (e.g., recycled) must only show products that genuinely meet those criteria.
• Substantiated environmental targets: Any claims about environmental goals must be backed by a clear plan with details on what the target is, the deadline for achievement, and the strategies to reach it. Customers should be able to access this information easily.
• Truthful accreditation claims: Statements regarding certifications or eco-standards cannot be misleading. They must clarify whether the accreditation applies to specific products or the company's overall practices.
• Reporting and improvement: The companies are required to submit regular reports to the CMA on how they're adhering to these commitments and take steps to improve their internal processes for making environmental claims.

Open Letter by CMA

Along with accepting undertakings, the CMA released an open letter addressed for stakeholders operating in the fashion retail sector, advising them to review their claims.

“Following our action, the millions of people who shop with these well-known businesses can now have confidence in the green claims they see..This also marks a turning point for the industry. The commitments set a benchmark for how fashion retailers should be marketing their products, and we expect the sector as a whole – from high street to designer brands – to take note and review their own practices.” - Sarah Cardell, Chief Executive at the CMA

This comes as a buoyant wave for the LOCSTALK Newsletter as well. We regularly refer to “compliant communications”, “Changemakers Equation = Law + Story” and lay emphasis on making the governments a part of the equation. Specifically, while discussing the NY Fashion Act, we stressed the importance of increasing stakeholder engagement and balancing the essential element of accountability between designers/producers, consumers and governments. From a compliance perspective, the open letter urges fashion entrepreneurs to review the Green Claims Code and the undertakings by the investigated retailers. The CMA also mentioned that further guidance specific to the fashion industry is in the works and shall be released soon. In the meantime, companies must begin implementing robust processes, which are needed to ensure compliance with consumer protection law.

In terms of enforcement, businesses are expected to promptly revise practices to comply with the law. The CMA will continue to monitor and may take enforcement action (including fines) against non-compliant businesses. The proposed legislation - Digital Markets, Competition and Consumers Bill (DMCC) could potentially authorise financial penalties for breaches. This bill, which has just passed its third reading at the House of Lords, shall levy significant monetary penalties, either by the court or by the CMA, where parties are found to be in breach of certain consumer protection legislation. Such penalties may be up to 10% of a business’ worldwide turnover.

Laying emphasis once again on “compliant communications”, it is strongly recommended for businesses to avoid sharing claims or stories without proper legal verification. The potential negative consequences far outweigh any potential benefits. Instead, companies should build a reputation for transparency, accuracy, and ethical communication. As an attorney I would refrain from giving a blanket advice without getting into the merits of a case but I will say this - if unsure about a story/claim's accuracy (down to a 101%), it's best to err on the side of caution and refrain from sharing it before running it by your legal counsel.

In conclusion of this topic, one must remember that an open letter like this one has far reaching ramifications for both, regional entrepreneurs and the international players doing business globally in the sector. The letter applies directly to businesses operating in the UK fashion retail sector, regardless of their nationality. So, international designers and fashion retail companies selling in the UK would be impacted if they make environmental claims about their products.

We will be watching the developments at CMA and talk about the vital role of compliant communications in ensuring a positive impact, more in the coming editions.

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