In October 2022, the Advertising Standards Authority (the ASA) ruled for the first time that a bank had misrepresented its green credentials and engaged in so-called “greenwashing“. In this blog post, we consider how banks and financial services institutions can fall within the remit of the ASA’s advertising codes and the potential risks associated with making “environmental” claims.
The ASA’s role
In the UK, the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (the CAP Code) is the rule book for non-broadcast marketing adverts (i.e. marketing communications other than TV or radio adverts). The CAP Code applies to all adverts aimed at “consumers“, anyone who is likely to see a given marketing communication (whether in the course of business or not). The central principle for all marketing communications under the CAP Code “is that they should be legal, decent, honest and truthful” (Rule 1.1).
While banks and financial services institutions may not see themselves as “marketers“, to the extent that they produce any marketing communications, including adverts in newspapers and marketing on their websites, they fall within the scope of the CAP Code. One notable exception is that the CAP Code does not apply to “investor relations” material, information addressed to members of the financial community who might be interested in the company’s stock or financial stability.
The CAP Code is designed to be self-regulatory, but the ASA is the independent body that endorses and administers it to ensure that the self-regulatory system works in the public interest. The ASA, therefore, investigates and rules on complaints from consumers or businesses under the CAP Code.
Environmental claims are a particular focus area for the ASA currently, particularly since the development of its Environment and Climate Change Project. The ASA notes that the project “sends a clear signal that the ASA will be shining a brighter regulatory spotlight on advertising issues that relate to climate change and the environment in the coming months and years“.
Specific requirements for environmental claims are set out at Rule 11 of the CAP Code. In particular:
- The basis of environmental claims must be clear. Unqualified claims could mislead if they omit significant information (Rule 11.1).
- The meaning of all terms used in marketing communications must be clear to consumers (Rule 11.2).
- Absolute claims must be supported by a high level of substantiation. Comparative claims such as “greener” or “friendlier” can be justified, for example, if the advertised product provides a total environmental benefit over that of the marketer’s previous product or competitor products and the basis of the comparison is clear (Rule 11.3).
However, marketers should also be aware of the general prohibitions on misleading advertising, which are equally applicable to environmental claims.
Similar provisions are also contained in the UK Code of Broadcast Advertising, which applies to adverts on radio and television series, but environmental claims have so far most commonly been brought under the CAP Code.
Rule 3 of the CAP Code generally considers the potential for marketing communications to mislead consumers. Importantly, the ASA takes into account the impression created by marketing communications, as well as specific claims and rules on the basis of the likely effect on consumers, as opposed to the marketer’s intentions. Particular rules that may be relevant to environmental claims include:
- Marketing communications must not materially mislead or be likely to do so (Rule 3.1).
- Marketing communications must not mislead the consumer by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner (Rule 3.3).
- Marketing communications must state significant limitations and qualifications. Qualifications may clarify but must not contradict the claims that they qualify (Rule 3.9).
Implications of non-compliance
If the ASA considers there may be a breach of the CAP Code, it gives the marketer an opportunity to respond (usually in writing). The burden of proof is on the marketer to show that its claims comply with the CAP Code.
The ASA cannot impose legally binding penalties, but its findings are published on its website and often attract a lot of press attention. A negative finding can therefore be a strong deterrent to marketers, particularly in the field of environmental claims as banks face increased public pressure to reduce or halt their financing of oil and gas production.
ASA’s ruling against a bank
The ASA’s recent ruling centred on two adverts which ran on high streets in October 2021, in the run‑up to COP26. The adverts highlighted how the bank in question had invested $1 trillion in financing and investment globally to help its clients hit climate targets and how the bank was helping to plant two million trees. Complainants argued that the adverts omitted significant information about the bank’s contribution to carbon dioxide and greenhouse gas emissions through its other financing commitments.
The ASA upheld the complaint on the basis of CAP Code Rules 3.1 and 3.3 (misleading advertising) and Rule 11.1 (the basis of environmental claims must be clear). The ASA considered that consumers would understand the claims to mean that the bank was making a positive overall environmental contribution as a company and was committed to ensuring its business and lending model would help support businesses’ transition to models which supported net zero targets. Notably, the ASA found that the use of imagery from the natural world, including the image of waves crashing on a beach, contributed to that impression. However, the ASA referred to the bank’s annual reports to demonstrate the bank’s current financed emissions and continuing commitment to financing thermal coal mining, which it did not consider consumers would know. This was found to be “material information that was likely to affect consumers’ understanding of the ads’ overall message“.
Banks have faced increasing scrutiny over the last year in relation to their climate commitments. Earlier this year, ShareAction accused 24 banks in the Net Zero Banking Alliance of pumping billions of dollars into new oil and gas production despite being part of a green banking group and Adfree Cities (one of the complainants in the ASA case) said it has made similar greenwashing-by-omission complaints against two further banks’ social media adverts.
While banks and financial service institutions will be keen to advertise their long-term commitments to net zero and their financing of projects assisting in the transition to a lower-carbon economy, there is a difficult balance to be struck in respect of their marketing communications to avoid complaints that they are misleading consumers. In particular, thought needs to be given to any necessary qualifications or disclosures (admittedly not what the ad man or woman wants to be concentrating on when devising their advertising concept), and clearly it is dangerous to seek to impute any general knowledge to consumers as to what existing customers or positions banks may have on their books. In this case, the ASA ruled that any future adverts featuring environmental claims must be adequately qualified and must not omit material information about the bank’s contribution to carbon dioxide and greenhouse gas emissions. This ruling is likely to have read-across implications for other banks which are contemplating advertising their green credentials.
So far, the adverts in question are consumer issues, but any negative press around a company’s climate impact will likely concern shareholders particularly as many banks have now passed climate change resolutions. Negative press may therefore lead to an increased risk of activist claims or shareholder reaction.