Consumer Interest in and Perception of Sustainability Claims

American consumers are increasingly concerned about sustainability when making purchasing decisions. About 61% of Americans believe that global climate change is affecting their local community and around 75% of American millennial consumers are changing their buying habits with the environment in mind. In fact, more than a quarter of Americans say they have “rewarded” companies that are working to reduce their environmental impact. Perhaps even more importantly, more than a fifth say they have “punished” companies that have practices that hurt the environment by avoiding their products. Studies have shown that 88% of consumers would like brands to help them be more environmentally friendly and ethical. In fact, sustainability-marketed products grew 2.1x faster than conventionally-marketed products and 2.7x faster than the overall CPG market between 2015-2021.

While this consumer interest has been met with increasing business investment in sustainability initiatives and accompanying marketing, there has also been a rise in consumer skepticism around what companies claim are the sustainability impacts of their products. For example, in the EU, a 2020 study found that 53% of environmental claims were vague or misleading while 40% were completely unsubstantiated. In the US, a similar consumer distrust has emerged. There has been a rise in consumer class actions around “greenwashing,” i.e. litigation challenging the increasingly common business practice of overinflating or fabricating a product’s sustainability benefits. Trends both in the US and abroad suggest that this attention to and skepticism around sustainability claims will only grow.

Need for the Green Guides

The Green Guides have long been a resource for brands crafting their sustainability narratives and marketing. They have also helped customers be more discerning of what they perceive and consume by providing advice on what types of claims are inherently deceptive or insufficient. Lastly, the Green Guides have equipped lawmakers with the tools to mitigate the impacts of false advertising by helping them regulate greenwashing.

Greenwashing results in several market inefficiencies and there needs to be a mechanism such as the Guides to help mitigate against it. First, when consumers are prevented access to appropriate information that is material to their purchasing decisions, they can make suboptimal choices. This, in turn, results in inefficient spending. Clearly recent studies have shown that having credible, verifiable information around the sustainability impacts of a product can play a material role in how customers choose what to buy. Therefore, there needs to be more guardrails in the Green Guides around how that information is conveyed and substantiated.

Second, as companies are increasingly sued for greenwashing, they constantly have to spend resources defending against such lawsuits, whether they are ultimately successful or not. This, in turn, results in an improper allocation of resources—money that could have been spent on innovation, expansion, and (importantly!) improving their sustainability impacts is instead diverted to legal expenses, managing any reputational fallout, and complying with applicable judicial or government orders. Having the Green Guides clearly articulate steps that companies can take to appropriately communicate their sustainability investments/benefits would help those companies reduce litigation and enforcement risk while allowing them to spend their capital on more important priorities.

Third, increasing greenwashing practices can mute the very real innovations companies are adopting to improve their sustainability impacts. This can be seen in two ways: (i) companies who are conscientious about how they track and report out on various sustainability measures may be drowned out by those with less scrupulous practices and/or otherwise be ignored by customers who distrust all sustainability claims; and (ii) companies, whether they are investing in sustainability or not, may be omitting such investments altogether in their reporting in a practice known as “green hushing.” For example, a 2022 survey found that one in four companies surveyed have set science-based emission reduction targets but do not plan to publicize them. Among companies’ motivations for staying silent are fears of increased scrutiny and potential greenwashing litigation. Having a robust framework, such as an updated set of Green Guides, for how to effectively advertise a company’s sustainability claims can further incentivize sustainability innovation and reporting.

Modifications for Improvement

While there are several reasons why the Green Guides need to exist, there are also several modifications that ought to be made to them that would improve how companies can make sustainability claims and how consumers can interpret them.

Enforcement

One of the primary issues with the Green Guides is that in their current form they are nonbinding. Many, though not all, states (ex. Maine, Minnesota, New York, and Rhode Island) have adopted the Green Guides’ voluntary standards as enforceable state law in an effort to combat greenwashing. Several other states’ laws, such as California, consider compliance with the Green Guides as a safe harbor for brands accused of greenwashing. The Guides are a useful, persuasive authority to consult when determining what reasonable consumers’ interpretation may be of specific terms. This resource needs to remain accessible to regulators, customers, and companies because the rising trend in greenwashing needs to be better mitigated.

However, given that the Green Guides are simply that, guides, they don’t inherently have the force of law. States and other regulators are free to adopt (or not) the Green Guides—in whole or in part—to enforce their guidance, resulting in an uneven application of the Green Guides and a piecemeal approach to regulating greenwashing in the United States. Consequently, the risks faced by and penalties imposed on a company for greenwashing can be wildly divergent in one US jurisdiction versus the next. As such, the updated Green Guides need to have a stronger, standardized enforcement mechanism to prevent greenwashing and increase corporate transparency and accountability to consumers. The Commission should adopt rulemaking with a concomitant enforcement body to give more teeth to the Green Guides. Better yet, the Commission should align with Congress and help enact legislative measures with more precise requirements around what companies can claim around sustainability and how they back up such claims. The Guides can help companies feel safe and encouraged to invest in and share the outcomes of their sustainability efforts. Without such a guiding framework, there will be an increasingly fragmented approach to sustainability marketing and, with it, a never-ending cycle of greenwashing lawsuits and the market inefficiencies and foregone sustainability efforts that come with companies defending against them. American consumers need to be better protected from marketing hype and misleading information that would otherwise impact their purchasing decisions.

Claim Substantiation

The Green Guides currently require companies to ensure their sustainability claims are “truthful, not misleading, and supported by a reasonable basis.” In particular, this reasonable basis requires “competent and reliable scientific evidence,” involving research “conducted and evaluated in an objective manner by qualified persons and are generally accepted in the profession to yield accurate and reliable results.” Despite such guidance, companies are often not clear on how they must be able to substantiate their claims. For example, there is ambiguity about where and in what form such substantiation must exist, how often this substantiation needs to be updated, and how such substantiation may be communicated to consumers. In fact, many greenwashing lawsuits hinge on what constitutes a “reasonable” interpretation of the support or substantiation a company uses to justify its sustainability claims. Therefore, a key opportunity exists for the Green Guides to clarify the kind of substantiation required for certain claims (ex. carbon footprints calculated with GHG Protocol compatible methodology) and the specific mechanisms through which such claims should be communicated (ex. requiring CPG manufacturers with on-pack claims to have an easily-accessible “Learn more here” QR code that takes consumers to their substantiation).

Previously, the Green Guides may have purposely left it up to companies to determine the specific manner in which they substantiated their sustainability claims. After all, ten years ago, this was still a nascent area and greater flexibility could afford greater innovation. However, without a clear and concrete direction from the FTC now, companies may interpret what constitutes a “reasonable basis” differently from one another and greenwashing claims may persist.

Use of More Granular Data

Often, companies rely on overbroad data to support their specific sustainability claims. For example, having spoken to a myriad of prospects and clients, we know many food brands estimate their GHG emissions using solutions that are built on global average emission factors, i.e. a single, global average value for carbon emissions for a particular crop. Or even more broadly than that, HowGood has seen global averages for a group of taxonomically similar crops. This means, even when companies are making sustainability claims supported by what they understand is competent and reliable scientific evidence, such claims can be inaccurate, or, worse, misleading. In our experience, the use of global average data in calculating carbon emissions for food can diverge by as much as 23 to 47%! Therefore, the Commission should identify this issue explicitly in the Green Guides and it should recommend companies use the most granular primary data they can find when substantiating their claims.

Articulating a Stance on Certain Claims not Currently Covered by the Green Guides

In addition to the general recommendations we make above, we would also like to identify certain specific claims that the Commission needs to address in the next iteration of the Green Guides. These are claims that have proliferated recently and/or have been misapplied and misconstrued.

“Carbon Neutral”

The Commission must spell out more clearly what kind of substantiation a company must use to substantiate a “carbon neutral” claim. In particular, the Commission should limit–or forbid entirely— a company’s use of offsets to achieve such a claim. In the event the Commission chooses to limit but nevertheless allow the use of offsets, then it must require that companies use such offsets within their own supply chains.

“Regenerative”

A claim that something is “regenerative” has become much more common of late. The Commission should specifically address what can or cannot be claimed as a regenerative practice. In particular, the Commission should require that the term be associated with a net positive improvement in sustainability outcomes and require that such improvement be substantiated with detailed descriptions of the nature and type of initiatives a company is undertaking towards regeneration.

“Humanely Raised”

This is another increasingly common claim that brands make around the animal-derived inputs in their products. This claim is too qualitative on its own. The Commission should either prohibit its use or outline detailed, specific practices that the underlying farm must undertake to qualify for such a claim.

“Deforestation-Free”

Many companies claim their supply chains are “deforestation-free” but tend to support such a claim by cherry-picking data from a particularly good year rather than looking at the holistic and historical impact of that business on deforestation. The Commission should require companies making claims around deforestation to anchor it to specific and ongoing commitments. For example, it could require companies to state and support the claim “Deforestation-free since [year].”

Harmonizing the Guides with Other International Frameworks

While there is a global trend toward making and regulating sustainability claims, we particularly would like to draw the Commission’s attention to the European Commission’s recently proposed “Green Claims Directive.” This Directive would require all businesses making sustainability claims to not only substantiate them with scientific evidence, but such evidence would need to be verified by independent third parties. The Directive, though in its proposal phase, is part of an overarching strategy called the European Green Deal, which is a detailed plan to combat climate change and environmental degradation while promoting regenerative economic growth.

The EU’s Green Claims Directive would arm consumers with more reliable information when deciding what to buy; level the playing field for companies touting their sustainability bona fides by standardizing what types of claims can be made and how; increase competition among those firms investing in environmental sustainability; and push greater accountability across global value chains, incentivizing companies outside the EU to contribute to the green transition if they want to operate in or otherwise contribute to the EU market.

It is important for the Commission, and American lawmakers more generally, to be sensitive to the business and policy trends in other countries, given American trade and the national economy depend on US companies’ ability to sell goods on the international market. For American companies trying to do business in the EU, compliance with this Directive will require measuring and communicating the environmental impacts of their products in a way they have not had to do domestically. As for US consumers themselves, seeing their European counterparts armed with credible, verified purchasing information they don’t have, may not only mobilize them to demand the same but further litigate those unfounded or inadequate sustainability claims they do see.

As such, the Commission should consider harmonizing its approach to sustainability claims with that of the EU, thereby protecting both US enterprise and customers.

Conclusion

We appreciate the FTC’s continued work on ensuring customers are appropriately informed when making purchasing decisions and developing guidance for companies to communicate their sustainability commitments and actions more clearly. We look forward to continued dialogue and opportunities to work with the FTC in improving consumer understanding and awareness of the issues affecting the planet.

Respectfully,

Ramya Ravishankar
General Counsel
HowGood, Inc.