Analysis of reporting by FTSE 100 firms indicates that the UK’s largest businesses have not published sufficient details of actionable steps to match their promises on reaching net zero.
The study by EY found that while 78% of FTSE 100 companies have disclosed partially-developed plans that include public targets to achieve net zero emissions by 2050, they have not yet adequately outlined how they will reach these targets, and so are missing key current Transition Plan Taskforce (TPT) framework requirements around strategy and execution.
This news comes as both the EU and UK are stepping up greenwashing regulations, as analysed by associate Elisa Wahnon below.
What is the Transition Plan Taskforce?
Established by the UK government, the TPT intends to lay out the “gold standard” for private sector firms to measure their climate transition plans against. It follows the government’s pledge at COP26 that by the end of 2023, all UK listed businesses to publish decarbonisation plans in order to achieve net zero emissions by 2050.
Commercial Litigation partner Elaina Bailes spoke to ESG Clarity in the light of the EY report, commenting: “Reporting requirements around climate transition plans are only going to get more stringent for large companies. The EY research shows that many are lagging behind in terms of both what they need to do and how to report what they are doing accurately with sufficient detail. Companies can at present opt to publish only the highest level information, but when this changes and they have to go into more detail, some may find themselves exposed to risk of shareholder activism and litigation.
Indeed, the very fact that EY have prepared this report shows the level of scrutiny that companies will face on these plans. Where published information on climate transition plans is misleading or omits material facts, this could affect company share price and result in claims by shareholders. Directors could face actions similar to ClientEarth v Shell for breach of directors duties.”
Greenwashing crackdown in the EU and UK
On 22 March 2023 the European Commission published its proposal for a ‘Green Claims Directive’. The proposed Directive seeks to ensure that environmental claims made by traders about their products are properly substantiated and transparently communicated to consumers. It aims to tackle greenwashing by making sure that environmental claims are reliable, comparable and verifiable by third parties.
If passed, the Green Claims Directive would mean that competent authorities in each member state would be responsible for ensuring compliance, with the power to investigate and impose penalties for infringements. People with a “legitimate interest” could submit complaints to the competent authorities if they believe a trader is failing to comply with the Directive.
In the UK, tackling greenwashing is firmly on the agenda of regulators of various sectors where the potential for greenwashing arises.
In the finance industry, the Financial Conduct Authority (FCA) is looking to tackle exaggerated, misleading or unsubstantiated sustainability-related claims made by fund managers about their investment products. It aims to introduce three categories of sustainable investment product labels underpinned by objective criteria, as well as a general “anti-greenwashing” rule reiterating that sustainability-related claims must be clear, fair and not misleading. The FCA’s consultation closed in January 2023 and the policy statement is expected in Q3.
The Competition and Markets Authority (CMA) is handling potential greenwashing in claims made by businesses to consumers. Earlier this year it launched an investigation into ASOS, Boohoo and Asda to scrutinise their environmental claims about fashion products. The CMA is also investigating green claims made about household essentials.
Meanwhile, the Advertising Standards Agency continues to clamp down on misleading environmental claims. Last year the ASA carried out a number of formal investigations into companies that had made misleading green claims in their adverts (including HSBC, Innocent and TIER Operations).
Conclusion
The green agendas of the various regulatory bodies in the UK are shining a much-needed light on the issue of greenwashing in the market. Investigations and penalties issued by regulators may assist consumers, investors and activists in civil claims seeking redress for losses suffered as a result of greenwashing. Taken together with increased scrutiny on reporting, the pressure is on for businesses to disclose more information and back up their ‘green’ statements with evidence.
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