Are Misleading Sustainability Claims Fashionable? Regulators Don’t Think So

Authors: MLT Aikins ESG practice group

With consumers and investors demanding companies take sustainability seriously, you may be tempted to exaggerate just how sustainable your company really is. But as two major retailers recently found out, that approach could land you in some hot water.

On September 13, the Netherlands Authority for Consumers and Markets (ACM) announced that retail giants H&M and Decathlon would adjust or no longer use sustainability claims on their clothing and websites following an investigation by the Dutch regulator.

The ACM found that both companies used terms such as “ecodesign” and “conscious” without clearly specifying how their products were sustainable. The ACM requires companies to make sustainability claims that are correct, clear and verifiable to avoid misleading consumers.

“Consumers that wish to make sustainable choices must be able to have confidence in the veracity of the claims that businesses make on their products or websites,” ACM board member Cateautje Hijmans van den Bergh said in a statement. “We are pleased to see that these companies have acknowledged that they should have informed consumers more clearly about the sustainability aspects of their products, and that they will adjust various sustainability claims and their substantiations.”

H&M and Decathlon avoided sanctions by agreeing to change their marketing practices and donating substantial sums (€500,000 and €400,000, respectively) to sustainable causes.

Implications for Canadian Companies

This case is one of many examples of a global crackdown on greenwashing – and one that clearly illustrates sustainability claims are about more than just marketing.

In terms of the impacts on Canadian companies, most trends on the ESG litigation and enforcement front begin in Europe and are then replicated in North America shortly thereafter. This might be such a case. Does your company’s sustainability report use the words like “sustainable,” “eco” or “conscious” as adjectives? If so, how confident are you that those terms are accurate, and could you substantiate those claims if asked to do so by a regulator or stakeholder? As more jurisdictions transition ESG disclosures from voluntary to mandatory, the stakes are even higher.

As we discussed in a previous blog, regulators are taking aim at what they view as false or misleading sustainability claims. Earlier this year, the U.S. Securities and Exchange Commission charged a Brazilian mining company over its sustainability disclosure, and German police raided the offices of Deutsche Bank to investigate greenwashing allegations about its asset management division.

You could be losing more than customers by making exaggerated claims – you could be losing investors. CPP Investments and other institutional investors around the world have committed to managing net-zero investment portfolios by the year 2050. If you want access to investor capital, feel-good marketing and unsubstantiated claims won’t impress anyone – you need a plan with real, measurable targets and substantiated performance to back up any claims.

The lawyers in our ESG practice group have wide-ranging experience advising businesses in a variety of industries on sustainability disclosure. We can help you prepare for upcoming mandatory ESG disclosure and take steps to avoid litigation and enforcement actions. Contact us to learn more.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.