Food and drink companies have been warned they could face a new greenwashing probe backed by the threat of “eye-watering” fines of up to 10% of global turnover, The Grocer can reveal.
The sector is on a state of high alert after the Competition & Markets Authority (CMA) this week announced it would put consumer rights and prosecution of unfair activities “front and centre” in the new Digital Markets, Competition and Consumers Act.
Draconian new rules, which come into force form 6 April, give the CMA powers to fine companies without going to court if they decide they are in breach. It puts consumer protection laws on par with the CMA’s work in enforcement of competition law, which has previously been viewed as a far more powerful deterrent.
The Grocer has learned that law companies across the sector have been beefing up their legislation teams in preparation for the step-change. Sources have said the regulations will shift the CMA’s powers on consumer matters from “weak to non-existent” to the prospect of fines that could run into hundreds of millions.
The CMA has said in the coming weeks it will set out in more detail on what its initial priority areas will be for enforcement, but several leading lawyers have told The Grocer they believe the controversial issue of “greenwashing” practices is likely to be one of those on the watchdog’s agenda.
The CMA published a new code in September 2021 to clamp down on companies using words, logos, branding or advertising that misled customers over the eco claims.
In 2023 the body announced it was expanding its probe to look at practices in the fmcg sector, including with regard to labelling of products as ‘sustainable’ or ‘better’ for the environment with no evidence, as well as misleading claims about the use of recycled materials.
In November last year the CMA announced it had closed an investigation into environmental claims made by Unilever, over concerns the global consumer brand giant had been overstating the environmental attributes of some of its products, after the fmcg giant made changes to its practices.
Katrina Anderson, a regulatory lawyer at Mills & Reeve, told The Grocer the CMA’s new powers were a source of huge concern for the industry and all eyes were now on what areas it would pinpoint for action.
“The CMA’s new enforcement powers will apply in relation to all investigations into consumer and advertising law,” she said. “So if the CMA decides to launch a greenwashing investigation into the food and beverage sector, or investigate the use of consumer reviews to promote food and drink products, after 6 April these powers will be available.
“Enforcement could take the form of civil fines of up to 10% of turnover, but equally the CMA is still free to pursue traditional remedies including criminal prosecution and agreeing undertakings.”
Tom Smith, a competition and consumer lawyer at Geradin Partners and former CMA legal director, said: “I do think greenwashing is an area of particular interest.
“The CMA has strong new powers to impose large fines for breaches of consumer protection law, and businesses have been worrying about getting snared for minor mistakes.
“The CMA is signalling that it aims to be proportionate in exercising its powers, and doesn’t intend to go after minor mistakes, at least at first. This gives businesses a little bit of comfort, but they would be well advised to make sure they are prepared. Practices such as drip pricing, reference pricing, customer reviews and greenwashing are frequently raised issues.”
The CMA’s CEO Sarah Cardell this week said the use of fake reviews was one area being looked at, as well as the practices of so-called drip pricing, where shoppers are shown an initial price for an item or service on a website, only to find additional fees.
Marc Shrimpling, a partner at law firm Osborne Clarke, said: “For years the CMA have had consumer enforcement as part of their remit, but there has been a huge disparity between the enforcement powers it has compared to the area of competition law.
“They have in effect tried to shame retailers into better behaviour and hope the shame of being a ‘rip-off retailer’ would have an effect.
“But from 6 April the consumer protection powers level up the competition enforcement powers.
“Absolutely that could be greenwashing, it could be misleading pricing, other forms of unfair terms, unbalanced presentation of pricing.
“In principle the CMA could now pursue those in a way which is on a par with its competition law powers, and the spectre of these new powers is now going to be hanging over companies.”
The CMA’s move comes despite the government last month publishing a strategic steer for the body, in which it stressed its role in helping to promote “growth” in the UK, which was widely interpreted as a signal that the CMA would become more pro-business when it came to areas such as business mergers.
“The CMA’s new direct enforcement powers mean it will be able to decide whether key consumer protection laws have been breached without having to take businesses to court, and we will be able to take direct action to tackle these breaches including through fines and redress,” Cardell told TechUK’s policy conference.
“Our purpose, and our statutory mandate to promote competition and protect consumers, are unchanged. Those fundamentals remain front and centre in the draft steer.
“But they are firmly situated within the government’s number-one priority of growth and investment, providing helpful clarity to guide the CMA as we independently carry out our statutory functions.”
Cardell added: “We have heard loud and clear that businesses – large and small – want to do the right thing for their customers and many are working hard to ensure they comply. But for smaller businesses especially, the compliance burden must be proportionate.”
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