11 Reasons Why Prioritising Green Claims Compliance is Good for Business

The UK’s Green Claims Code and EU’s Green Claims Directive place many more rules around what you can and can’t say in your green claims. The latter also requires all claims to be independently verified by a certified third party.

But when it comes to green claims compliance—ensuring that the environmental claims you’re making satisfy these new regulations—too many businesses are kicking the can down the road. All too often, senior leaders don't see a direct link to their company’s bottom line. There's always something more pressing, and the task gets pushed to the bottom of the pile.

This is a dangerous strategy. From a purely commercial perspective, there’s so much to lose by doing nothing, and so much to gain competitively by investing today. Let things slip, and you’ll expose yourself to everything from expensive legal action and fines to increased operating costs. But make it a priority, and you’ll enjoy more investment opportunities, wholesale advantage, and more.

Below, we outline the main reasons why getting on top of your green claims compliance should be a high priority for your retail brand. And to illustrate that what we’re saying is not hypothetical, we’ve included tangible examples of these risks and opportunities at play in the industry.

Struggling to get your leadership on board? We’ve created a free two-page summary showing why investing in a sustainability compliance solution makes commercial sense. Download it, share it with your team, and get in touch if you have any questions about next steps.

The risks of not investing in green claims compliance

Neglecting green claims compliance can have severe repercussions for your business. Allowing things to slip can expose your company to a multitude of risks, including potential legal actions, substantial fines, and increased operational costs. These issues can significantly impact your bottom line.

Expensive legal action

Failing to comply with green claims regulations can result in significant legal costs. The Green Claims Directive, for instance, allows for third-party complaints, which can lead to legal action against companies that fail to comply.

For example:

• In February 2024, the climate group Stand.earth filed a greenwashing complaint against Lululemon with Canada’s Competition Bureau. They claimed that the company's "Be Planet" messaging was misleading to consumers.
• In December 2023, the UK's Competition and Markets Authority (CMA) launched an investigation into Unilever. The investigation centred on concerns that Unilever might be overstating the environmental benefits of certain products through vague claims, unclear statements about recyclability, and the use of 'natural' images and logos.
• Over the past few years, H&M has faced legal action in several markets. Allegations have ranged from poor working conditions in Myanmar to being sued in New York for misleading sustainability marketing.
• In February 2024, investors suing Oatly sought approval for a $9.25 million settlement, alleging that shares were "artificially pumped" due to greenwashing.

Hefty fines

Non-compliance can also result in significant financial penalties in different regions. In the UK, for example, the CMA will soon have the authority to impose fines of up to 10% of a company's global revenue for violations of consumer laws, including greenwashing.

Similarly, the forthcoming EU Green Claims Directive will impose procurement bans, revenue losses, and fines of up to 4% of annual turnover on companies that break the rules. For instance, a company with 250+ employees and a turnover of £28 million, at risk of non-compliance in three member states, could face a fine of up to £3.4 million.

Other institutions have already issued significant fines. For example:

• In 2022, Keurig Canada was fined $2.2 million for making misleading claims about the recyclability of its coffee pods following a complaint by environmental law organisation Ecojustice.
• Also in 2022, US retailers Kohl’s and Walmart paid a $5.5 million collective settlement for marketing products as bamboo, when they were actually made from rayon.
• In 2019, Truly Organic faced fines of $1.76 million for misleading claims about ‘organic’ products.

Increased operating costs

Being found guilty of greenwashing can also result in significant operational costs for your business. These costs can arise from goods being stuck at borders (demurrage) or from having to retract claims already on the market, such as those printed on tags.

For example:

• In September 2022, H&M and Decathlon were ordered to remove sustainability-related labels from their products and websites following an investigation by the Netherlands Authority for Consumers and Markets (ACM). This kind of task would be disruptive, expensive, and time-consuming.
• The UK’s Competition and Markets Authority has spent £1.3 million and an estimated 29,471 staff hours on its greenwashing inquiries. This figure provides a sense of the time and resources that brands would need to allocate in response to these kinds of investigations.

Reputational damage

Consumers are increasingly conscious of the sustainability credentials of brands. Failing to meet these expectations can erode your customers trust, leading to decreased sales and market share. In a highly competitive market, this is a risk most brands cannot afford to take.

According to a study published in the Harvard Business Review, companies perceived as greenwashing suffer, on average, a 1.34% drop in their ACSI customer satisfaction score. A change of just one unit in this measurement of customer satisfaction has been estimated to result in a 0.032 units change in net earnings per share (EPS) and a 0.40 units change in return on investment (ROI).

Reduced investor confidence

Institutional investors and shareholders closely scrutinise companies’ sustainability credentials when making investment decisions. In the UK, this scrutiny has been intensified by investors' need to comply with new FCA anti-greenwashing rules. Non-compliance will deter investors and negatively impact company valuations.

For example, in August 2022, Boohoo’s stock dropped by 37% amid greenwashing investigations by the CMA—the biggest month-on-month percentage decline since the pandemic hit in March 2020.

Access to markets

Non-compliance with green claims requirements will severely restrict your companies' ability to access international markets. When the EU’s Green Claims Directive comes into effect, the number of regulations requiring independent verification will increase significantly. This change will heighten the likelihood of goods getting stuck at the border, resulting in costly delays.

For instance, the average UK retailer exports approximately £1.6 million worth of goods to the EU. If their goods are held up at the border, they could face a cost burden of £153,853. For a UK retailer exporting around £20 million of goods to the EU, this cost burden could escalate to £1,878,620.

The opportunities of investing in sustainability compliance

On the flip side, businesses that prioritise sustainability compliance early can reap significant rewards. Embracing these practices not only mitigates your risks but also opens up numerous opportunities for growth and competitive advantage, as we explore below.

Competitiveness

Companies that invest in sustainable practices—and crucially, market these credentials compliantly—have a distinct advantage in capturing a larger customer base.

According to 2022 research, companies that prioritise ESG factors saw profits rise by 9.1% between 2019 and 2022. Companies that disregarded ESG importance experienced only a 3.7% profit growth during the same period.

FARFETCH’s 2023 Conscious Luxury Trends Report also highlights the increasing global demand for conscious products. In 2022, 27% of FARFETCH customers purchased at least one 'Conscious' product, up from 16% in 2021. Conscious sales also grew 16% faster than overall sales on their marketplace, and there was a 78% year-on-year increase in Conscious-related search terms.

These findings show how sustainability compliance will not only enhance your company's competitive edge but also aligns with growing consumer demand, driving increased sales and profitability.

More investment opportunities

Just as poor sustainability credentials can deter potential investors, verified green claims can attract socially responsible ones and enhance your relationships with existing shareholders. This can lead to better access to capital and higher stock valuations.

Indeed, research by MCSI shows that companies with high ESG scores have lower costs of capital compared to those with poor ESG scores. McKinsey also reports that top ESG performers grow faster and have valuations 10 to 20 percent higher than their peers—while Moore Global found that 84% of companies focusing on ESG principles saw improvements in attracting external investment.

Supply chain resilience

Focusing on sustainability helps you build long-term, ethical, and transparent relationships with your suppliers. This approach makes you less vulnerable to supply chain disruptions.

By prioritising sustainable practices, you can ensure that your supply chains are more robust and adaptable to change. Ethical sourcing and transparent dealings with suppliers help mitigate risks such as labour strikes, environmental violations, and geopolitical tensions. Sustainable practices also give you better visibility into your supply chain operations, enabling you to anticipate and address potential issues before they escalate.

This resilience not only helps maintain smooth operations but also enhances your reputation and trustworthiness among consumers and investors.

Better employee engagement

Being able to confidently identify as a sustainable business can be a huge driver of employee engagement, retention, and acquisition.

Research from Deloitte’s Consumer Industry Center shows that 85% of employees working for retail sustainability leaders feel a sense of accomplishment in their work, and 84% are inspired by their company’s vision and values. In contrast, only 57% and 22% of employees at companies with weak sustainability programs feel the same way.

The survey also found that 72% of employees at companies with strong sustainability programs rarely think about looking for another job, and 79% plan to stay in their roles for the next couple of years. On the other hand, only 40% of employees at companies with poor sustainability practices are as committed to their current positions.

These insights show that strong sustainability initiatives not only make your employees happier but also increase their loyalty and reduce turnover, helping you maintain a motivated and stable workforce.

Wholesale advantage

Wholesale partners in the EU are increasingly demanding more sustainable products and setting strong targets to deliver this. As a result, retailers are starting to give preferential treatment to brands that can clearly demonstrate their green claims credentials.

For example:

• Selfridges has announced that by the end of 2025, ten key materials in their supply chain must come from certified sustainable sources. Anyone wishing to supply to or work with Selfridges will need to comply with these requirements by 31st December 2025.
• Brown Thomas has pledged that by 2025, all their priority materials will come from certified and sustainable sources.
• By 2030, Farfetch has committed to selling 100% ‘conscious products’.

These commitments illustrate that sustainability is becoming a key factor for wholesale partnerships. Brands that can meet these sustainability standards will have a significant advantage in securing and maintaining these valuable relationships.

Get ahead on your green claims compliance

Getting on top of your green claims compliance isn’t just a nice-to-have; it’s essential for brands that want to succeed in today’s market. And while navigating sustainability compliance may seem like a daunting task, there are platforms out there to make the process simpler.

Compare Ethics’ AI-driven compliance platform and advisory services can help you simplify, streamline, and scale your green claims compliantly. By leveraging our tools, you can avoid the pitfalls of non-compliance and make the most of the many opportunities that come with being a sustainability leader.

Ready for start automating your green claims compliance? Get in touch to find out more.

Struggling to convince colleagues to invest? Check out our downloadable Business Case for Green Claims Compliance resource. Not only does this two-page document summarise the overwhelming benefits of prioritising green claims compliance, we’ve included tangible examples of the risks and opportunities to illustrate the point.