The CMA is currently investigating the sustainability claims made by fashion businesses in the UK and earlier this month, published its advice to government following a public consultation. The consultation followed on from the publication in Autumn 2021 of the CMA’s Green Claims Code for businesses here.
What are the CMA’s recommendations?
“…we plan to shine a light on what [fashion] businesses can and can’t do under current competition and consumer laws, as well as advising the government on changes that will help people shop more sustainably.” Sara Cullen General Counsel at the Competition & Markets Authority
As the quote above makes clear, the CMA wants to make it easier for consumers to make choices based on sustainability. It recognises that terms such as “recycled” and “carbon neutral” can be misleading and that consumers would be helped if such terms were defined in law. In turn, this would support the Green Claims Code.
The CMA considers that fashion businesses can work together to reduce the impact which the industry has on the environment without breaching competition law. For example, currently, the pooling of resources or expertise to reduce waste by two or more fashion businesses or via a coordination of its members by a fashion trade association can give rise to an infringement of competition law.
The CMA believes that greater clarity concerning competition law and the issue of sustainability would provide businesses with confidence that competition law infringement would not take place.
In this respect, it is worth noting that under both UK and EU competition laws, an agreement between two or more businesses can be written or unwritten as well as formal or informal. Exemption from infringement of competition law can also be achieved where consumers receive what the CMA has described as a “fair share” of the resulting benefits. For example, higher quality goods or lower prices.
What is the CMA investigating?
The CMA believes that fashion businesses regularly make statements concerning the environmental characteristics of their goods and their businesses without justification or with a lack of evidence to support the claims being made.
The CMA points to entire lines being marked as “eco-friendly” or “sustainable” without brands or retailers being able to demonstrate that that the whole process (from manufacture to packaging, sale and delivery) is environmentally friendly.
Another instance is when unfair comparisons are made asserting that individual items are “better for the environment” when there is no statement as to how the particular item is better for the environment than another.
On this point, Cecilia Parker Aranha, Director of Consumer Protection at the CMA said: “I was really sceptical about anybody that’s making a sweeping claim that a product is “eco” or “sustainable” because the business has to really show that every element of the product from production through to disposal will be good for the environment, not harmful to the environment.
“The other thing I would watch is if they say that they’re “made with recycled fibres”. They’re often only made with 16% to 20% recycled fibres.”
What might the CMA do?
At the present time, the CMA is expected to publish in the near future a list of the worst offenders in the fashion industry.
Going forwards, having allowed the industry time to adjust the claims that are being made, it would be no surprise if the CMA sought to take advantage of existing legislation by encouraging Trading Standards to pursue a prosecution against a high-profile target in the industry.
How should companies respond?
- Businesses should be aware that existing consumer law allows actions to be pursued against them by consumers and Trading Standards if unsupported ESG claims are made about their goods. It follows that it is not a question of waiting for new legislation to pass through Parliament although in the event that there is new legislation, it is likely only to make it easier for claims to be pursued against businesses!
- On a B2B basis, increasingly retailers and franchisees are likely to require express warranties by brands and distributors as to the accuracy of environmental claims. Even where such warranties are not included in the sale contract it is possible that unsupported claims could result in goods not being of satisfactory quality and, as a result, giving rise to claims for damages for breach of an implied term of the contract for the sale of goods.
- Fashion businesses have an opportunity to check and make changes where necessary to their supply chains to ensure that environmental claims can be supported by evidence. In turn, this means putting in processes which will allow such evidence to be obtained and maintained. In so doing, they may well be able to steal a march on some competitors.
- Separately, fashion brands are likely to face growing requirements from major retailers to adjust their supply chains in order to ensure that the retailers can credibly make their own environmental claims.
- Conversely, brands which make false environmental claims or claims that cannot be sustained by evidence can be expected to suffer damage to their reputations.