Europe’s risk managers must urge caution over inflated ESG claims

European companies are falling over themselves to promote their ESG credentials as investors, credit rating agencies, regulatory bodies and even insurers are starting to take the whole matter very seriously. But risk and insurance managers will need to voice caution over inflated claims from CEOs to ensure their companies don’t face reputational damage. One example of this has emerged in the Netherlands. This week Dutch energy suppliers Greenchoice and Vattenfall were accused of misleading consumers about their sustainability records by the Netherlands Authority for Consumers & Markets (ACM). The regulator said that the two companies profiled themselves as “sustainable” using vague comparisons. “However, it was unclear on what basis they made the comparison and with whom or what they were comparing themselves. Consumers who want to make sustainable choices must be able to trust the claims that companies put on their websites are correct,” the ACM said. The companies acknowledged that they misinformed consumers. They also said they would adjust various sustainability claims and address how they substantiate those statements. Greenchoice will no longer use statements like “greenest energy movement in Netherlands” and “largest purchaser of solar energy” it said. “At least not without further substantiation,” the company added. ACM said the two suppliers have “committed to informing consumers more clearly in order to minimise the risk of misleading practices involving sustainability claims”. “In addition, they will make donations of €950,000 and €450,000…to different sustainable causes to compensate for their use of unclear and insufficiently substantiated sustainability claims. Vattenfall and Greenchoice have made these commitments following an ACM investigation. ACM will therefore not impose any sanctions,” said the consumer body. Cateautje Hijmans van den Bergh, member of the board at ACM, said consumers that wish to make sustainable choices must have confidence in the veracity of claims that businesses make on their websites. “We are pleased to see that these companies have acknowledged that they should have informed consumers more clearly about sustainability, and that they will adjust various sustainability claims and their substantiations. They will also take measures to inform their customers better in the future. We also welcome their commitment to donate generous sums of money to sustainable causes as compensations for their vague sustainability claims,” she said. ACM said it has seen many potentially misleading sustainability claims in the energy sector. That is why, in the spring of 2021, it asked energy suppliers to take a critical look at their ESG claims. This ultimately led to the censure of Greenchoice and Vattenfall. ACM has listed five rules of thumb for businesses that wish to make sustainability claims. These are: Make clear what sustainability benefit the product offers. Substantiate your sustainability claims with facts, and keep them up-to-date. Comparisons with other products, services, or companies must be fair. Be honest and specific about your company’s efforts with regard to sustainability. Make sure that visual claims and labels are useful to consumers, not confusing. “ACM will continue to keep a close watch on the energy sector. ACM cannot rule out that, if it establishes a violation in the future, it will impose fines,” added the consumer body. Another example of how ESG credentials are being more closely monitored came as the ACM and its Norwegian counterpart, the Norwegian Consumer Authority (NCA), recently issued guidelines for the clothing sector over the use of a material index in marketing communications. The two bodies explained that they have drawn up guidelines for how the clothing industry can use the Higg Material Sustainability Index (Higg MSI) in its communications involving sustainability claims targeting consumers. “Major clothing brands use the Higg MSI to bolster their sustainability claims of materials. However, without any explanation, the data from the Higg MSI about the used materials could be unclear to consumers, and can easily become misleading. In the guidelines, ACM and the NCA have put forward recommendations for improving the use of the Higg MSI in communication about sustainability claims of materials to consumers,” they said in a joint statement. Edwin van Houten, director of ACM’s consumer department, said: “We find it positive that the clothing industry is committed to making the environmental impact of its materials more transparent for consumers. This helps consumers make more sustainable choices. It is important that they do so properly so that consumers are not misled. With these guidelines, we explain how businesses can do just that.” The guidelines follow an investigation carried out by the NCA last spring into a Norwegian clothing company that used the Higg MSI to falsely bolster its ESG credentials. The NCA concluded that these sustainability claims were misleading, and demanded the company stop making then. Following the NCA’s investigation, the Sustainable Apparel Coalition (SAC), which is the organisation behind the Higg Index suite of five tools, decided to temporarily suspend the use of Higg MSI for communications over sustainability claims to consumers. The SAC, which represents some 250 clothing firms in Europe, subsequently contacted various European regulators, including ACM and the NCA, for further guidance. In response to these consultations, ACM and NCA decided to publish the guidelines about the Higg MSI.

Europe’s risk managers must urge caution over inflated ESG claims

Dutch and Norwegian consumer bodies on the case

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