How retailers can tackle ESG risks amid greenwashing crackdown

Starting from April, the Competition and Markets Authority (CMA) gains new powers to fine businesses for misleading greenwashing claims. With fines of up to 10% of global turnover or £300,000 for breaches, this crackdown underscores the rising importance of Environmental, Social, and Governance (ESG) risk management. Retailers, particularly those involved in marketing sustainability efforts, must now be more vigilant than ever.

As environmental claims continue to take center stage in consumer decision-making, businesses are under pressure to substantiate every claim they make. The increasing scrutiny of corporate sustainability practices is reshaping how brands communicate with their customers. For retailers, the risks of greenwashing have become a board-level concern, with regulatory frameworks tightening.

“Greenwashing” has surged as a breakout Google trend over the past five years, driven by growing consumer awareness of misleading corporate sustainability claims. As a result, interest in company ESG ratings, including the S&P Global ESG Scores, has spiked. Consumers are demanding more transparency about how businesses impact the environment, and they expect brands to follow through on their environmental promises.

This surge in greenwashing concerns has led to significant regulatory changes. From April 2025, under the Digital Markets, Competition and Consumers Act (DMCCA), the CMA will have the authority to impose hefty fines for breaches of the Green Claims Code, which aims to ensure that environmental claims are not misleading. The new regulation is not just about compliance; it is about protecting consumers and the environment, which are increasingly linked in public consciousness.

“The new powers granted to the CMA will make ESG risk management more critical than ever,” says Martin Massey, the ESG Risk Management course lead at Cambridge Advance Online. “Greenwashing is a significant issue, and with the increasing scrutiny, businesses will need to take ESG management much more seriously to avoid regulatory penalties.”

Retailers that have previously relied on vague or unsupported claims about their sustainability efforts will need to ensure they have hard data to back up any marketing assertions. “When managing ESG risks, businesses must consider a broad range of factors, moving away from simply being an exercise in compliance,” advises Massey. “This is about a strategic, proactive approach to managing ESG risks, which includes being transparent and holding yourself accountable to the claims you make.”

Transparency and data integrity

One of the key takeaways from the new CMA regulations is the importance of substantiating environmental claims with verifiable data. Iona Silverman, intellectual property and media partner at the law firm Freeths, stresses that retailers must ensure transparency and accuracy in their claims.

“Retailers should ensure that their marketing is transparent, and that they hold the relevant data to substantiate any environmental claims they make,” Silverman explains. “For instance, OceanSaver’s recent ad was found misleading because they couldn’t substantiate the claim that their polymer was fully biodegradable, or that it would biodegrade during a normal laundry process. This shows how important it is to ensure that the data you hold substantiates the exact claim you are making, and that you haven’t made any assumptions along the way.”

The importance of holding and verifying data cannot be overstated. Retailers need to ensure that their sustainability claims are not only accurate but also backed by rigorous evidence. In a world where consumers are increasingly scrutinizing corporate behavior, providing false or unsubstantiated claims could damage both the brand’s reputation and its bottom line.

Silverman further advises that retailers must avoid relying solely on their suppliers for sustainability data. “Retail businesses should always hold data to substantiate the claims they are making. They shouldn’t be tempted to rely on suppliers, but should hold that data themselves and carefully scrutinize it to ensure it backs up the actual claim they are making.”

For many retailers, managing ESG risks goes beyond ensuring compliance with the CMA’s new regulations. It’s about proactively managing and mitigating the risks that arise as part of their broader corporate strategy. One of the most important frameworks for managing ESG risks is Martin Massey’s “Four Ts” approach.

Massey outlines that retailers can use the “Four Ts” to classify risk treatment options:

• Tolerate: If a risk has a low likelihood and impact, it may be acceptable to retain it, but it should be logged and monitored.
• Terminate: If a risk is far beyond the company’s risk appetite, or if it could severely impact the business, these activities should be terminated.
• Treat: Retailers will likely decide to take action to mitigate the most severe risks. This might include reducing the likelihood of the risk occurring or minimizing the severity of the consequences if it does.
• Transfer: Retailers can opt to transfer risks to third parties, such as through insurance. This strategy helps reduce or eliminate the potential impact of the risk.

“Using risk management as a framework will enable business leaders to understand their exposure to ESG and the opportunities it might bring them,” says Massey. “It’s not just about avoiding fines; it’s also about leveraging ESG as a way to build long-term value.”

For retailers, integrating ESG risks into broader risk management strategies ensures that sustainability becomes a key component of their business operations, not just a marketing tool.

Training and culture

In the wake of these new regulatory changes, training will be essential. Both Silverman and Massey highlight the need for comprehensive ESG training across all levels of retail organizations. Retailers must ensure their marketing teams understand the risks of greenwashing and the importance of transparency in environmental claims.

Silverman is clear: “Retail businesses should train their marketing teams in the risks of greenwashing, and should then put a clear process in place. Marketing should know which claims they can make, which claims they can’t make, and which claims should be escalated to legal for review.”

In addition to marketing teams, Massey stresses the importance of educating senior leadership and other key stakeholders in the organisation. “Having an ESG training and education program for all employees, particularly senior management, is also really important to improve the risk culture of a company,” he says. “Educating staff on ESG principles and responsibilities will facilitate the effective implementation of best practices and reduce the risk of greenwashing.”

With these new regulations, the stakes are high. The threat of significant fines for greenwashing is real, and retailers can no longer afford to take a lax approach to their ESG claims. Silverman notes that the regulatory crackdown will have a positive impact on consumer trust.

“Consumers want to be able to trust retailers, as most people just want to make the right choices. However, consumers are all too aware that often green marketing is just another form of marketing. The threat of significant fines for greenwashing will make brands sit up and take notice, reducing the likelihood that marketing is misleading and therefore leading to increased customer trust.”

For retailers, building and maintaining consumer trust will be critical. This means being transparent not only about their successes but also about the challenges they face. “If you won’t hit your targets, tell your customers why not, and what you are doing to ensure you meet your new revised targets,” Massey advises.