Rebecca Ironmonger provides a legal update following the passing of the Digital Markets, Competition, and Consumers Act 2024 (“DMCC Act”) earlier this year and explores the potential impacts of this piece of legislation on businesses.
In May 2024, the Digital Markets, Competition, and Consumers Act 2024 (DMCC Act) became law, heralding significant changes for businesses involved in eco-labelling and green claims. This legislation enhances the enforcement powers of the Competition and Markets Authority (CMA) to tackle consumer law breaches more effectively. While only the provisions related to the creation of regulations under the Act are currently in force, the impending changes demand attention from businesses engaged in environmental marketing.
Key provisions and CMA's new powers
The DMCC Act covers a broad range of topics, but its implications for eco-labelling and green claims are particularly noteworthy. The act introduces criminal offences for traders who engage in unfair commercial practices through misleading actions or omissions. It also establishes a due diligence defence for businesses and classifies offences as 'either way,' meaning they can be tried in either the Magistrates' Court or the Crown Court, with penalties including unlimited fines and custodial sentences.
A pivotal change is the CMA's new authority to serve enforcement notices and impose monetary penalties directly, without needing court intervention. Currently, the CMA can investigate, issue decisions, and accept undertakings but must seek a court order to impose monetary penalties. Under the new regime, the CMA can impose fines up to £300,000 or 10% of turnover for certain breaches, and £150,000 or 5% of turnover for others, significantly increasing the stakes for non-compliance.
Challenges in defining the 'average consumer'
One major challenge the CMA faces is the concept of the 'average consumer.' Determining what constitutes a misleading claim involves considering the perspective of an average consumer, but this is not only inherently subjective but is a moveable feast as consumer views change over time. The CMA must navigate questions about the knowledge and values of an average consumer and what they might find misleading. This ambiguity adds complexity both for those making claims who must seek to make clear and accurate claims against this shifting backdrop and to the CMA who must make enforcement decisions. What is compliant one day may be non-compliant the next.
The role of the Green Claims Code
The Green Claims Code remains the CMA’s benchmark for assessing eco-claims. This code stipulates that all environmental claims must be truthful, clear, up-to-date substantiated by credible evidence, reflect the product's entire lifecycle, be accessible to consumers, and avoid misleading omissions or exaggerations. Adherence to these standards is rigorous, where even minor wording changes can alter a claim’s clarity or accuracy, posing compliance challenges for businesses.
Currently, adding an eco-label to a product remains voluntary in the UK, though the EU is considering making it mandatory in the future. The UK government has provided guidance on the use of green claims, closely aligning with the CMA’s Green Claims Code. This code mandates transparency, accuracy, and up-to-date evidence for any environmental claims made by businesses. Despite the lack of mandatory eco-labelling, businesses must comply with these stringent guidelines to avoid accusations of greenwashing — a practice where companies falsely claim environmental benefits. It is noteworthy that greenwashing can also arise by omission so saying nothing (greenhushing) can be equally problematic as making a false claim.
Efforts to standardise eco-labelling practices are underway. The Food Data Transparency Partnership, a collaboration between the private sector and the government, aims to standardise methodologies and data sources for reporting Scope 3 emissions within the food industry. This initiative is crucial as it seeks to establish a mandatory methodology for voluntary eco-labels. Such standardisation would likely integrate into the Green Claims Code, enhancing the CMA’s decision-making process and providing greater certainty for consumers and businesses.
Implications for businesses
Businesses must prepare for the CMA's increased enforcement capabilities by thoroughly reviewing their environmental claims and labels to ensure compliance with the Green Claims Code. Misleading or unsubstantiated claims not only risk financial penalties but also damage consumer trust and brand reputation. Given the CMA's authority to impose significant fines, businesses are likely to opt for compliance over legal challenges.
To navigate the evolving landscape, businesses should avoid common mistakes such as making vague or generic claims like 'carbon neutral' without detailed evidence. Claims must be specific, backed by up-to-date, credible evidence, and verifiable. Transparency and accuracy are critical, as misleading claims can lead to severe penalties, including fines and reputational damage.
The consequences of non-compliance can be severe. The CMA, along with local weights and measures authorities and Trading Standards, has the power to investigate and take action against businesses making misleading or false claims. It is a criminal offence to make a misleading claim, and businesses found in violation can face prosecution. Additionally, the Proceeds of Crime Act may be invoked in cases where a premium has been charged due to false green claims, potentially requiring businesses to surrender profits earned from such claims.
Consumer expectations and greenwashing
Consumer interest in environmentally friendly products has surged, prompting businesses to highlight their environmental credentials through eco-labels and green claims. However, the rise in such claims has also led to an increase in greenwashing, where businesses exaggerate or falsify their environmental impact to attract eco-conscious consumers. This deceptive practice undermines genuine sustainability efforts and erodes consumer trust.
Under the Green Claims Code, one of the key requirements is that businesses must have up-to-date and credible evidence to support their environmental claims. This evidence must be robust and verifiable to withstand scrutiny from both regulators and consumers. Businesses should establish clear, transparent documentation and auditing processes to substantiate their claims effectively.
Looking Ahead
As the DMCC Act's full provisions come into force, the landscape of eco-labelling and green claims will be significantly reshaped. Businesses must proactively ensure their claims comply with the Green Claims Code to avoid hefty penalties and legal scrutiny. The CMA's enhanced powers underscore the importance of transparent, accurate environmental marketing. Companies are advised to consult regulatory experts to navigate these changes effectively and maintain compliance with evolving legal standards.
If you are concerned about eco-labelling and green claims for your products or services and would like some legal advice, please contact our Regulatory Team.