2022 has started with the fashion industry’s dirty laundry being aired, after the Competition and Markets Authority’s (‘CMA’) announcement last week that it has begun a review of environmental claims in the sector.

The review comes as no surprise, with the regulator clearly signposting that so-called ‘greenwashing’ across all sectors of the economy was within its sights.  Its guidance published in September last year, which set out principles that are designed to help businesses comply with the law when making green claims, was something of a warning shot to all areas of the economy.

Subsequent attempts to divert the CMA’s attention from the fashion industry have clearly been insufficient.  Now, the sector must coordinate a sophisticated response to this regulatory attention in order to ensure that any further regulatory action is proportionate and workable.  Given the clear commitment by the CMA and the Government to drive hard towards Net Zero, this will require a unique engagement strategy that takes account of this regulatory and political attention.

The CMA’s review focuses on claims that individual items of clothing are sustainable or better for the environment, claims about use of recycled materials in new clothing and the practice of entire ranges of clothing within stores being branded as ‘sustainable’.  It will look to determine whether or not businesses are complying with consumer protection, such as the Consumer Protection from Unfair Trading Regulations 2008 (‘Regulations’).

If the regulator does identify businesses that it thinks are ‘greenwashing’, it may take enforcement action.  Offences under the Regulations are punishable by a fine without upper limit and/or a custodial sentence of up to two years – and that’s before the reputational damage of any sanction is taken into account.

A new age of regulatory attention

The increasingly PR-savvy CMA’s decision to launch this review provides yet more insight into the lens through which the competition and consumer regulator views its role.  The CMA’s clear energy in this space has been evident in the establishment of a Green Claims Code and an allied campaign to make it known to industry, and publication of a checklist last year that was designed to get different sectors of the economy to take the regulator’s concerns seriously.

While the organisation functions independent of any political influence on an operational basis, it hardly acts in a vacuum.  Instead, the CMA reads the same newspapers as the rest of us and seeks to contribute to overarching Government policy.

That helps to explain how the CMA’s strategic objectives, which define and guide the organisation when prioritising its workload, are formulated.  The Annual Plan for 2021/22 shows that supporting the transition to a low carbon economy is one of the CMA’s focuses – which just so happens to be the Government’s, too – and this latest move is clearly in line with that strategy.

The sector would therefore be wise to not shape its messaging as being ‘why us?’ – this new focus is here to stay – and instead seek to ensure that the CMA takes a view of the sector and wider economy that is proportionate.  Supply chains have many dimensions, and comparisons between different products can be complex.  If the CMA truly does want to support the transition to a low carbon economy, it should ensure that companies are making reliable claims, but it should do so in a way that still encourages companies to make their products greener.

Moving forward

Internal resource-building amongst companies in a way that allows them to develop, measure and regularly update green initiatives should demonstrate the sector’s willingness to pull in the same direction as the regulator.  Similarly, a firm’s commitment to transparency when things do inevitably go wrong shows that a mature and upfront approach is being taken to the challenge.

The broadening scrutiny that is applied to green claims – no longer just from regulators but now also shareholders, customers, staff and competitors – will act as something of a guardrail to claims going forward.  Environmental, Social and Governance factors are becoming an increasingly critical aspect of audit and a company’s independent validation, and the market is alert to ensuring the probity of such claims.

In addition, the Churchill Gowns v Ede and Ravenscroft litigation before the Competition Appeal Tribunal this month has included a fraud counter-claim that the Claimant had made false legal claims in relation to its eco-fabric: competitors are taking note, too.

Both of these trends should be taken into account by the CMA when considering just what levers it needs to pull – or whether the market is already moving in the right direction.

The CMA is seeking views and experiences on these issues here.  DRD is on hand to help companies and trade bodies respond and organise open-minded discussions with regulators and political decision-makers.