The Government’s target to reduce UK carbon emissions to net zero by 2050 has resulted in substantial changes to business policy and legislation which seeks to improve the environmental impact of businesses.
Whilst we await the Environmental Bill to pass through parliament, our environment, energy and utilities sector draws attention to the latest green updates for businesses. Alex Walmsley, solicitor at Harrison Drury, sets out five key developments which businesses need to consider over the course of this year.
1. Greenwashing : Misleading claims that goods and services are ‘green’
In 2020 the Competition and Markets Authority (CMA) launched a consultation on the impact of ‘eco-friendly’ claims in the promotion of goods and services. Whilst we await the CMA’s full review in the summer of 2021, it is anticipated that ‘eco claims’ will be the subject of increased regulation and scrutiny to protect consumers and other businesses from inaccurate or misleading claims about a business’s environmental credentials.
Environmental claims in advertising are the subject of regulation by both the CMA and the Advertising Standards Authority (ASA) but there are also other legislative requirements to which false or misleading environmental claims often referred to as ‘greenwashing’, may fall foul.
Organisations need to ensure that any claims they make relating to their product or service being ‘green’, ‘eco-friendly’ or ‘net zero’ are substantiated. This may require a review of the whole business’s practices (not just the individual product or service) and potentially those of the organisations which they are connected to (i.e. suppliers and couriers). If it transpires a business is not meeting its claims, the business may be liable to its customers.
In light of the growing interest and advertisement of environmental credentials, we encourage businesses to seek legal guidance on this point, particularly if they are considering making claims about their carbon neutrality.
2. Plastic Packaging Tax
As from April 2022, the Government will introduce the new Plastic Packaging Tax. The tax will apply to plastic packaging components where the recycled content is less than 30% and will incur a fee, payable to HMRC, of £200 per tonne.
Although there will be a few exemptions, the Government has indicated that the Plastic Packaging Tax will affect not only producers and importers of plastic packaging but also businesses that use or buy products in plastic packaging.
With significant financial and administrative implications to come, it is imperative that businesses identify their requirements and responsibilities so they can properly prepare for its implementation next year.
From April 2022, businesses who have liability in relation to this tax will need to submit data to HMRC each quarter covering:
- The tonnage of liable packaging manufactured or imported
- Information around any exempt packaging
- Evidence of where the recycled content exceeds 30 per cent.
Many producers have already begun preparing for these changes but, with further significant change in the future of environmental legislation and waste management expected over the next two years, we would recommend businesses get to grips with the new requirements with an accountant as soon as possible.
This tax will be enforced like any other tax in the UK therefore, if your business fails to adhere to these new rules once they come into force, you run the risk of being pursued by the HMRC. If you are contacted by HMRC in respect of your plastic tax liability and would like assistance from a legal advisor, our team would be able to assist you.
3. Right to repair obligations
As a direct fall-out from the Government’s ‘circular economy’ initiative, the Department for Business, Energy and Industrial Strategy (BEIS) has announced its new eco-design requirements to be implemented in Great Britain by summer 2021.
As the environmental impact of product manufacture falls under increasing scrutiny, these new standards will increase producer responsibility, ensure the longevity of products and improve the energy efficiency of appliances.
Under the new laws, manufacturers will be legally obliged to make spare parts for household appliances (such as lighting, washing machines, dishwashers and fridges) and these will need to be made available for up to 10 years.
Consumer safety in DIY repairs will also need to be accommodated, meaning more safety mechanisms will need to be included from the design stage, or a longer warranty period will need to be provided.
Considering these impending changes, manufacturers may need to reconsider their terms of contract, including their terms of warranty and indemnity, with both designers, suppliers, and customers.
4. Parent company liability in environmental claims
The UK Supreme Court has provided further guidance on a parent company’s liability in environmental damage claims in its judgment in Okpabi v Royal Dutch Shell Plc [2021] UKSC 3. This case concerned an oil spill in the Nigerian Delta by Shell’s foreign subsidiary and determined that there was a good arguable case that the parent business, Royal Dutch Shell Plc, was legally responsible for the systemic pollution of Nigerian rural communities.
The Supreme Court applied its recent decision in Lungowe v Vedanta Resources plc [2019] UKSC 20 by confirming that:
- There is no special category of negligence liability for establishing whether a parent business is liable for the activities of its subsidiary.
- The existence of a duty of care in this context depends on the extent to which the parent took over, intervened in, supervised or advised the management of the relevant operations of the subsidiary.
The judgments in both cases confirm the establishment of a parent company liability turns on the facts of each case, leaving a degree of uncertainty for parent companies. depending on their corporate structure, group-wide policies and the extent of their involvement in the activities of their subsidiaries.
Considering these recent decisions, parent companies may wish to carefully consider their group-wide policies. Liability may be imposed on UK-based parent companies where they take over the management of the relevant activities of the subsidiary and seeks to implement group-wide safety or environmental policies, and an environmental tort claim arises.
5. Green finance and innovation: Business investment in going green
At the core of the Ten Point Plan for a Green Industrial Revolution is green finance and innovation.
The Government’s Green Finance Strategy, published in July 2019, originally outlined its plan to align the private sector financial system with the government’s net zero target through supporting investment in green and low carbon technologies, services and infrastructure.
The Financial Conduct Authority (FCA) has made it clear that its role is not to dictate where financial businesses invest but instead wants to ensure that consumers are given the right information so that they can make informed decisions. This is one of the priorities in FS 19/6 on climate change and green finance.
The Taskforce on Climate‑related Financial Disclosures provides for a mandatory reporting mechanism for financial institutions regarding climate change and the environment. This means financial institutions will have to be transparent about the businesses they are investing in and how those businesses impact the environment.
The FCA believes increased transparency in relation to how listed businesses are affected by climate-related factors (such as carbon usage and environmental risk) will improve market efficiency and allow investors to allocate capital in a way that supports the transition to a greener economy.
These disclosures are likely to directly affect the decision making of financiers and so, if your business intends to develop or expand over the coming years, your sustainability, environmental impact and ‘green governance’ is certainly something which needs to be given serious consideration.
If your business requires further legal advice on any points raised in this post or on related matters, please contact our team on 01772 258321.