While academics and others may be asking whether it is time to “say RIP to ESG,” the fact is that though some observers may be done with ESG, ESG is not done with us. A recent action by a U.K. regulator shows that companies remain susceptible to investigations and other regulatory actions for their sustainability and other product or business-related claims. In a December 12, 2023 press release (here), the U.K. Competition and Markets Authority (CMA) announced that it has started a formal investigation into the London-based consumer products company Unilever to examine the company’s “green” claims about “a number” of its products.
As discussed below, this latest regulatory action underscores the fact that companies seeking to burnish their green credentials could be subject to scrutiny and even possible regulatory action. A December 13, 2023, Wall Street Journal article about the CMA’s investigation can be found here.
Background
The Competition and Markets Authority is the competition regulator in the United Kingdom, responsible for strengthening business competition and preventing and reducing anti-competitive activities. Unilever is a multinational British consumer products company. In January 2023, the CMA announced that it has launched an initiative to investigate companies claims that their products were “eco-friendly” or “sustainable” based on a concern that in at least some cases consumers may be being misled.
On December 12, 2023, as part of the previously announced initiative, and as part of a further initiative to look into the sustainability claims of manufacturers and distributors of “fast-moving consumer goods” (such as food and drink, toiletries, and personal care items), the CMA announced that it would be looking into environmental and sustainability claims made by Unilever. The CMA said its investigation follows “concerns around whether Unilever is marketing certain products, within some brands, to customers as environmentally friendly.” The CMA said that its “initial review uncovered a range of concerning practices,” as a result of which it was launching a formal investigation.
Specifically, the CMA said it was looking into whether certain statements about the environmental qualities of Unilever’s products may be “vague and broad” so as to potentially “mislead shoppers regarding the environmental impacts of those products”; and whether some claims about product ingredients may “exaggerate how “natural’ a product is, and so may create an inaccurate or misleading impression.”
The CMA also said it is looking into whether environmental claims about a single aspect of a product may “suggest it is environmentally friendly as a whole”; whether certain green claims, particularly with respect to recyclability, may be unclear because they fail to specify whether they relate to all or part of a product, or packaging; and whether Unilever’s use of colors and imagery my create the overall impression that products are more environmentally friendly than they actually are.
The CMA’s press release quotes its CEO as saying, among other things, that “we’re worried many products are being mislead by so-called ‘green’ product that aren’t what they seem.” She is quoted as saying further that “we’ll be drilling down into these claims to see if they measure up. If we find they’re greenwashing, we’ll take action to make sure shoppers are protected.”
The Wall Street Journal article to which I linked above states that Unilever plans to cooperate with the investigation, but it refutes that its product claims were in any way misleading. The company also said it was “surprised and disappointed” by the announcement.
Discussion
It is interesting to me as a sideline observer that the CMA has chosen to put out a press release when all that has happened is that the agency has decided to launch an investigation. The agency has not reached any conclusions that Unilever has violated any applicable laws. While the agency’s press release does emphasize that the agency is only “in the initial stage of its investigation” and that “it should not be assumed that the business under investigation has broken consumer protection law,” this precautionary disclaimer is not even in the body of the press release, but instead is relegated to an endnote at the end of the text. In my view, Unilever should be excused if they feel that they have been ambushed.
As this matter is only in investigation, and in fact the investigation has only just begun, many steps may lie ahead, and in fact one of the possible outcomes may be the agency’s conclusion that Unilever did nothing wrong. The press release states that the CMA will now use its information-gathering powers to obtain further evidence and that how the case unfolds “will depend on what the evidence shows.” Possible outcomes, according to the press release, included “securing undertakings from Unilever that commit the firm to change the way it operates; taking the company to court; or closing the case without further action.”
Readers may be interested to note that the agency leading the charge here is not the U.K. Financial Conduct Authority, which is the agency responsible for regulating and policing U.K. financial markets. Rather, the investigative agency here is the Competition and Markets Authority. The relevant point in understanding which regulator is the active agency here is that the parties potentially harmed by the possibly misleading product claims are not investors but instead are consumers. Even though the operative regulator is not the financial markets supervisory authority, the action by the consumer protection regulator does show how sustainability claims can create potential liability exposures for companies.
The CMA’s investigative initiative, and the signal it is obviously intended to send to Unilever as well as to other companies, shows one of the reasons for which companies increasingly have felt it prudent to back away from “sustainability” and other ESG-related claims. The process by which companies increasingly find it prudent to take a lower-profile on ESG topics is now so prevalent that the process even has a name – it has been called “greenhushing,” and it is backed by statistical analyses showing that companies have significantly quieted down about “sustainability” initiatives and other ESG-related moves. The Journal article to which I linked above even notes that Unilever’s new CEO has publicly “made a point of shifting away from the company’s wide-ranging focus on sustainability.”
My final observation about the CMA’s investigative initiative is that this is yet one more example showing that it is not the ESG laggards that are attracting litigation and regulatory attention; rather, it is the companies that seek to burnish or tout their ESG credentials that are attracting the attention. This phenomenon may confound some observers that companies that are supposedly “good” on ESG should command some extra credit or consideration, but it is the reality based on the available facts.
By the way, this is not the first time that Unilever has found itself facing claims about ESG-related activities. Readers may recall that, as discussed here, in June 2022, Unilever was hit with a securities class action lawsuit based on allegations that political activism of its Ben and Jerry’s subsidiary had drawn negative attention to the company and caused its share price to decline. As discussed here, the lawsuit ultimately was dismissed.