Consumer markets sector: Ethical marketing claims

As global attention focusses on corporations, mainly in the high carbon output energy and mining sectors, engaging in greenwashing, brand owners, FMCG actors and manufacturers and retailers in the food, beverage and luxury goods sectors should not lose sight of a similar risk.

Greenwashing is just a sub-set of what can be described as ethical marketing claims. This refers to claims made by a corporation to inflate the sense of “doing the right thing” and moral or ethical superiority. Other claims in this category include claims about ethical food production practices, “cruelty free” claims and sustainability claims.

All of these claims, when made unfairly and without justification, can distort the market into which goods are being sold. Competitors and consumers alike can suffer harm by false claims made by one or more market actor.

Rarely, however, does a market participant set out to mislead and deceive by making false claims. Often a claim is made with no wrong intent; or the claim starts out being made accurately enough but through the process of taking the claim to market, it loses relevant context or qualification and ends up being inadvertently misleading.

The risk to companies in the consumer markets sector, where very high volumes of advertising claims are made daily, is much greater than a simple disgruntled competitor or consumer. Class actions, regulatory investigation and prosecution, reputational damage and competitor litigation are all obvious risks, and all can be extremely damaging to brand equity and a balance sheet.

The regulatory risk is particularly acute in the current environment. Regulators, particularly those with an anti-trust or trade practices remit, are increasingly cooperating across borders. Brand owners with a global presence that come under the regulatory spotlight in one jurisdiction, will almost certainly come under the same spotlight in another. And many regulators around the globe have declared a particular focus on greenwashing and other ethical claims.

The large energy companies are increasingly adopting a globally consistent approach to responding to greenwashing risk. That is sound practice, and consumer markets businesses should assess their risk in a similar way. A class action or regulatory intervention in one jurisdiction may very well fuel a similar class action or regulatory intervention in another.