ESG, Sustainability and Greenwashing: A Legal Guide for Advisers

Environmental, social and governance claims have moved from marketing copy to a live source of legal liability. UK regulators now treat an unsubstantiated "eco-friendly" label, a vague "carbon neutral" pledge or an overstated sustainability report with the same seriousness as a misleading price claim, and the consequences for corporate clients range from consumer enforcement action to shareholder litigation and reputational damage that outlasts any campaign. For solicitors advising commercial and corporate clients, ESG and greenwashing risk now sits alongside competition law, financial promotions and directors' duties as core advisory territory.

What "Greenwashing" Means in a Legal Context

"Greenwashing" is not a defined legal term in UK statute, but it describes a recognisable pattern that regulators do act against: presenting a product, service, brand or entire business as more environmentally beneficial than the evidence supports. That can happen through outright false statements, but more commonly through vague or unqualified language ("eco", "green", "sustainable", "carbon neutral"), selective disclosure that omits an inconvenient fact, or claims that are technically true but create a misleading overall impression. The legal exposure comes from several overlapping regimes — consumer protection law, financial services regulation, advertising codes, company reporting obligations and, increasingly, civil litigation — rather than from a single "greenwashing law".

The CMA's Green Claims Code

The Competition and Markets Authority published its Green Claims Code in September 2021, setting out how the existing Consumer Protection from Unfair Trading Regulations 2008 apply to environmental claims made to consumers. The Code distils compliance into six principles. Advisers should treat these as the baseline checklist for any client-facing sustainability claim:

• Truthful and accurate — a claim must not be false or give a false impression, even if individual words are technically correct.
• Clear and unambiguous — the claim should be understood by a reasonable consumer without needing specialist knowledge.
• Not omit or hide important information — material facts that would change a consumer's understanding cannot be left out.
• Comparisons must be fair and meaningful — comparisons against competitors or previous versions of a product need a like-for-like basis.
• Consider the full life cycle of the product or service — a claim about one stage (e.g. recyclable packaging) should not imply the whole product or supply chain is environmentally sound.
• Substantiated — claims must be backed by robust, credible and up-to-date evidence, available on request.

The Code applies to any business making environmental claims to UK consumers, regardless of sector, and sits underneath the CMA's general consumer enforcement powers.

CMA Enforcement Activity

The CMA has followed the Code with targeted sector work rather than a scattergun approach. Its most prominent action was a formal investigation opened in July 2022 into the fashion retailers ASOS, Boohoo and George at Asda, examining whether "green" product ranges and sustainability claims were misleading consumers. The CMA closed that investigation in January 2024, concluding it would not pursue formal enforcement against the three retailers but noting improvements each had made to their claims and labelling during the review, and confirming it would continue to monitor the sector. The exercise itself sent a clear signal: retailers making sweeping "conscious" or "eco" collection claims should expect scrutiny of the substantiation behind them, not just the wording.

The enforcement landscape has since strengthened. The Digital Markets, Competition and Consumers Act 2024 gives the CMA direct enforcement powers for consumer protection breaches — including misleading environmental claims — allowing it to determine infringements and impose fines of up to 10% of global turnover itself, without first going to court. Advisers should treat green claims risk as materially higher today than when the Code was first published, because the CMA's practical ability to bite has changed even where the underlying legal standard has not.

The FCA's Sustainability Disclosure Requirements and Anti-Greenwashing Rule

For FCA-regulated firms — asset managers, advisers and other financial services businesses — a parallel regime applies on top of general consumer law. Following its policy statement PS23/16, the FCA introduced an anti-greenwashing rule, set out in its ESG sourcebook, which took effect on 31 May 2024. The rule requires that any reference to the sustainability characteristics of a product or service by an FCA-authorised firm must be fair, clear and not misleading, and must be consistent with the sustainability profile of the product or service — a standard that closely mirrors the CMA's principles but carries the FCA's own supervisory and enforcement toolkit behind it.

The anti-greenwashing rule sits alongside the wider Sustainability Disclosure Requirements (SDR) framework, which introduced a set of investment product labels (Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals), restrictions on the use of sustainability-related terms in fund names and marketing, and consumer-facing and detailed disclosure obligations that were phased in through 2024 and into 2025. For solicitors advising asset managers, fund promoters or corporates issuing sustainability-linked financial products, the SDR regime should now be a standard item on any product governance or financial promotions review.

The Advertising Standards Authority and Environmental Claims

Outside financial services, the Advertising Standards Authority (ASA) and its code-writing body, the Committee of Advertising Practice, apply the CAP Code's environmental claims rules to all UK advertising. The ASA has been willing to uphold complaints against well-known brands where environmental claims created a misleading overall impression, even without any single false statement. Two rulings from October 2022 remain instructive for advisers: the ASA banned HSBC advertisements for highlighting the bank's environmental initiatives while omitting its continued financing of fossil fuel projects, and separately banned Innocent Drinks advertisements that implied drinking the product was straightforwardly good for the planet, without adequately substantiating that impression against the environmental impact of its packaging and production. Both cases illustrate the ASA's core concern: an advertisement can be factually accurate in its individual claims and still be banned if the overall impression it creates is not adequately substantiated or is materially incomplete.

Beyond Green Claims: Wider ESG Legal Advisory Work

Supply Chain Due Diligence and Modern Slavery

ESG advisory work increasingly overlaps with supply chain due diligence obligations, particularly under the Modern Slavery Act 2015. Clients making social sustainability claims — "ethically sourced", "fair labour", "responsible supply chain" — need due diligence evidence that matches the claim, and the same CMA principles on substantiation and omission apply to social claims as to environmental ones.

Climate Disclosure Under the Companies Act 2006

Large UK companies and LLPs are subject to climate-related financial disclosure requirements within their strategic report, following amendments that took effect for financial years beginning on or after 6 April 2022. These requirements draw heavily on the Taskforce on Climate-related Financial Disclosures (TCFD) framework, requiring in-scope entities to disclose governance arrangements, the actual and potential impacts of climate-related risks and opportunities, risk management processes, and relevant metrics and targets. Where a strategic report makes climate commitments or transition claims that are not supported by the disclosed risk assessment, that inconsistency is itself a legal exposure — both under companies legislation and as a potential greenwashing claim in its own right, since investors and stakeholders may rely on the strategic report as a substantiated statement.

Directors' Duties and Climate Risk Under Section 172

Section 172 of the Companies Act 2006 requires directors to promote the success of the company while having regard to a list of factors that now routinely includes the impact of operations on the environment and the company's reputation for high standards of business conduct. Climate risk is increasingly framed as a matter directors must factor into that duty, not a peripheral CSR concern. The unsuccessful attempt by ClientEarth to bring a derivative claim against Shell's directors in 2023, alleging a failure to properly manage climate risk in breach of directors' duties, did not succeed in obtaining permission to proceed — but it demonstrated that activist shareholders and NGOs are prepared to use directors' duties litigation as a climate accountability tool, and that boards should be able to evidence a reasoned, documented approach to climate risk. For clients navigating board-level ESG governance alongside other duties, our directors' duties guide covers the wider Companies Act 2006 duties framework.

Practical Guidance for Advising Clients on Defensible Claims

When a corporate client asks for sign-off on marketing copy, a sustainability report or an ESG-linked financing document, a consistent review process reduces risk substantially:

• Map every environmental or social claim against the CMA's six principles before it is finalised, not after a complaint arrives.
• Insist on a documented evidence file for each claim — methodology, data sources and any relevant certification — that can be produced quickly if challenged.
• Scrutinise absolute or unqualified terms ("carbon neutral", "100% sustainable", "zero waste") particularly closely; these carry the highest litigation and enforcement risk because they are easiest to disprove with a single counterexample.
• Check consistency across all client-facing documents — website, packaging, investor materials and the strategic report should tell the same substantiated story.
• For FCA-regulated clients, run sustainability-related product claims through the anti-greenwashing rule and SDR labelling requirements as a distinct compliance step, separate from general consumer-facing marketing review.
• Build a litigation and reputational risk assessment into any significant ESG claim, considering not just regulatory enforcement but activist shareholder action, NGO campaigns and potential claims by competitors under passing-off or malicious falsehood principles.

Managing Greenwashing Litigation and Reputational Risk

Climate and greenwashing litigation against UK companies and their directors is a growing area, driven by NGOs, activist investors and, increasingly, competitors seeking to challenge rivals' claims through advertising complaints or trading standards referrals. Advisers should treat a greenwashing complaint — whether from the ASA, the CMA, a shareholder or a campaign group — as a multi-track problem: the underlying regulatory exposure, the strategic report and directors' duties dimension, and the reputational fallout, which frequently causes more commercial damage than any fine. Early, well-documented substantiation is the most effective defence in all three respects, and it is far cheaper to build before a claim is published than to reconstruct after a regulator or campaigner has already asked the question.

Keeping Skills Current

ESG and greenwashing regulation is developing quickly across consumer law, financial services and company reporting, and solicitors advising in this area need to keep pace with CMA, FCA and ASA guidance as it evolves. Learnsignal's CPD course hub includes structured courses covering ESG, sustainability reporting and related regulatory developments for legal professionals who need to maintain their annual CPD requirements while staying current on a fast-moving area of practice.

Frequently Asked Questions

Is greenwashing illegal in the UK?

There is no single "anti-greenwashing law", but misleading environmental claims can breach the Consumer Protection from Unfair Trading Regulations 2008 (enforced by the CMA), the CAP/BCAP advertising codes (enforced by the ASA), and, for FCA-regulated firms, the FCA's anti-greenwashing rule. Claims that misstate a company's position in statutory filings can also raise Companies Act 2006 and directors' duties issues.

Does the Green Claims Code have the force of law?

The Code itself is CMA guidance, not legislation, but it explains how existing consumer protection law applies to environmental claims. Acting inconsistently with the Code is strong evidence that a claim may breach the underlying Regulations, and the CMA now has direct fining powers under the Digital Markets, Competition and Consumers Act 2024 to enforce those Regulations.

Who does the FCA's anti-greenwashing rule apply to?

It applies to all FCA-authorised firms that make claims about the sustainability characteristics of a product or service, not only asset managers operating labelled funds. Any regulated firm referencing sustainability in marketing, product literature or client communications should assess its claims against the rule.

What is the biggest greenwashing risk for corporate clients right now?

Unqualified, absolute claims — "carbon neutral", "100% sustainable", "net zero" — made without a clear, documented evidential basis. These are the easiest claims for a regulator, competitor or campaigner to challenge, and the CMA's strengthened enforcement powers make the consequences of getting them wrong more significant than before.

Greenwashing risk sits at the intersection of consumer law, financial regulation, company reporting and directors' duties, which is exactly why it rewards a genuinely cross-disciplinary CPD approach. Explore Learnsignal's CPD courses for legal professionals to build ESG and sustainability regulation into your ongoing development plan.