Many food brands today are walking a tightrope when it comes to making sustainability claims - trying to communicate the action they are taking without overstating their efforts and exposing themselves to allegations of greenwashing, or - worse still - potential lawsuits.
In the US, the FTC (Federal Trade Commission) Green Guides exist for this very purpose - to help companies avoid making environmental claims that mislead consumers. With consumer interest in environmentally friendly products growing, the guides, which were last updated in 2012, are currently undergoing a 10-year review.
On Wednesday, Ramya Ravishankar, general counsel with research company and sustainability data provider HowGood, told a webinar audience how companies can follow this guidance to communicate sustainability claims and what regulatory changes are round the corner.
Green Guides: The standard for sustainability marketing in the US
She explained why they should be adhered to even though the Green Guides are advisory and cannot be legally enforced.
“The Green Guides don’t have the force of law but in the last few years they have become the standard for sustainability marketing in the USA,” she said.
“They indicate how the FTC considers unfair and deceptive advertising with respect to sustainability, and other regulatory bodies and enforcement bodies look to these as a resource - federal and state courts as well as the NAD [National Advertising Division] - all of whom have some enforcement and jurisdictional oversight over how advertising is conducted.”
Ravishankar added that in some states, such as California, if a brand can show compliance with the Green Guides, it can draw on that in its defence in court, making the guidance a useful tool in reducing the potential impact of litigation.
The Green Guides provide guidance for making all sorts of sustainability-related claims, from compostable and degradable to recyclable, refillable and ozone-friendly, describing certifications and handling carbon offsets and lifecycle assessments. However, according to Ravishankar, it is the communication of ‘General Environmental Benefit Claims’ that gives rise to the most challenges.
Misleading claims can be direct or implied
“The guidance says that it is deceptive to misrepresent - either directly or by implication - that an offering has a green or general environmental benefit,” she said.
Here, Ravishankar said brands needed to think not just about the words on page but also the context of their advertising.
“A brand will be caught by this even if it doesn’t say a single word about being ‘eco-friendly’ but presents the product with images that suggest it is green.”
She said the key to making responsible claims was keeping all the possible interpretations in mind and qualifying the claims; the way in which claims were qualified should be prominent and easy for the consumer to access.
What is really at stake?
The legal risks of non-compliant claims ranged from government investigations to NGO litigation, and lawsuits brought by consumers, investors, competitors, and industry associations.
With regard to consumer lawsuits she said the stakes were even higher when consumers joined together in a class action.
“These class actions involve going to court. They can take months, even years, they are public and sometimes the allegations are embarrassing and damaging, whether they are true or not,” she warned.
Investors could also join together and bring a lawsuit that might trigger the attention of the Securities and Exchange Commission, she said.
Industry lawsuits could come from a competitor brand demanding data to back up claims, or from a trade association concerned about claims that could impact the industry as a whole, she said.
“These are all legal risks. This doesn’t even touch on the reputational and commercial risks,” she added.
What can companies do?
There were a number of ‘best practices’ companies can follow, starting with qualifying claims using simple language.
“All the claims you make should be underpinned by strong policies and risk management systems, credible data and standards,” she said.
Secondly, companies should be very clear about which aspects of their claims are aspirational and which are factual.
“A lot of brands get tripped up over targets they have set for the future that manifest as the current status of the company,” she noted.
Next, companies should avoid overstating the significance or benefit of their claims and be clear about the context of their claims.
To back up claims, companies should choose a reliable data provider who can substantiate claims with credible governance, complies with sustainability standards and regularly reviews and updates its data sources.
For companies in the food industry, she said that meant working with a data provider who can provide crop- and location-specific data.
“If you tell them your product requires tomatoes that are greenhouse grown not field grown, they need to adapt their data to that change in location,” she said, adding: “You also need to make sure they are accounting for the impacts of both raw materials and processed ingredients in your supply chain.”
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What’s around the corner?
The FTC consultation period for the Green Guides review closed in April and Ravishankar said updated guidance was likely to be published in the next 12 months.
She said she was expecting changes in the definitions of what constitutes a viable claim around recyclability, compostability and carbon neutrality, and some sort of provision for legal enforcement.
“Regulatory bodies and states can choose to adopt some or all of the Green Guides when assessing false advertising claims but the guides themselves don’t have any force of law, so if companies ignore them there is no enforcement mechanism attached. I hope this is provided as it would gives brands more clarity over what is at risk,” she said.
Ravishankar said she also expected the update to deliver greater oversight and enforcement for greenwashing.
“There has been a huge trend towards suing companies over environmental claims that customers or stakeholders don’t think are sufficiently backed up. There has also been increased NGO activism, and the Securities and Exchange Commission has started an ESG focused taskforce that proactively identified ESG related misconduct to ensure investors can rely on companies’ statements on sustainability,” she explained.
International regulatory pressure builds
The FTC is not alone in updating and tightening up its guidance on environmental claims - regulatory bodies all over the world are increasing pressure on companies to claim responsibly.
Ravishankar said that the Australian Securities and Investments Commission had been clear that its enforcement activities were going to focus on greenwashing and improper sustainability claims, and that it had already taken action against a few companies on alleged misstatements they had made around their sustainability commitments.
In Europe, meanwhile, she said the EU Green Deal was a big priority for the food industry, with several directives at various stages of implementation.
“There are all kinds of changes underway and we expect this to continue as players become more sophisticated in the sustainability claims space,” she said.