Three steps to apply the CMA’s supply chain guidance

The Competition and Markets Authority (“CMA”) published new guidance on making environmental claims across supply chains.

It is a stark wake up call for business compliance teams to apply the same levels of due diligence within the supply chain for green claims as for any other specification. These should now be included as part of a company’s review and audit process of products and verification recorded.

The key issue for companies is that liability will extend beyond the originator of any claim and steps should be taken to protect the business against this in a similar way to any other compliance risk.

The guidance makes it clear that a business will be treated as "making" an environmental claim not only by creating it, but also by repeating, relying on or passing on a claim made by another party in the supply chain.  

Any company that repeats, relies on for the purposes of their own claims or disseminates green claims to consumers may face enforcement action for breach on consumer and advertising law. The principles of due diligence will apply to collecting evidence to substantiate these claims.

Guidance should be read in conjunction with the CMA’s green claims code, which is consistent with the requirements of the CAP and BCAP codes.

Issue

Supply chains can be complex with many parties involved – from supplying ingredients, through to testing, distribution and retailing to consumers.  

The guidance is provided for all businesses in the supply chain –whether a retailer, brand, or manufacturer.

Supply chain guidance: three steps to compliance

1. Verify claims 

Verification of substantiation by requesting information from the supply chain is the first step. If verification does not match the claim, the CMA expects businesses to change, qualify or redraft the claim to match what can be verified. 

Guidance states if you cannot verify a claim then “you may need to consider your trading relationship with that business for that product, given the legal risk this may open up for you.”  

2. Under the due diligence

Strict liability offences are balanced by a due diligence defence that the offender took “all due diligence and exercised all reasonable precautions to avoid the commission of the offence.”

In the guidance the CMA states, while ‘intending’ not to mislead will not be a valid defence they will look at other factors; such as internal policies, knowledge, size of business and resources, seriousness of the infringement (in particular the level of harm and the level of culpability of the business or businesses), and any mitigating or aggravating circumstances.

• Due diligence = system operated to prevent the offence from occurring
• Reasonable precautions = system is checked and is working correctly

For example, for a food manufacturer the due diligence process would involve – certified factory, detailed specifications, product tested, packaging checked to be compliant, systems regularly checked and audited, no new information that manufacturer should reasonably be aware of.

It is therefore this process that should now be adopted for green claims throughout the supply chain. It is no longer sufficient to simply accept the claims at face value, particularly if your business has greater resources and knowledge.

As well as increased reputational risk, brand names will be particularly vulnerable as the CMA may be more likely to prioritise action against them due to the potential for widespread harm from the brand’s commercial practices beyond for example a particular retailer and the brand is better positioned to remedy any claim issue.

3. Follow green claims code and checklist good practice

The guidance sets out checklists for retailers, suppliers and manufacturers. The checklist should be read in conjunction with the guidance, the green claims code, and fashion retail sector compliance document, and may not apply in exactly the same way to every sector and a summary is provided below:

Checklist for retailers:

• substantiation should be robust, credible and up to date. 
• suppliers and brands to provide confirmation that they hold the relevant proof or a declaration that claims are accurate.
• reviewing claims and documentation on a regular basis.
• putting additional measures in place when working with new suppliers.
• seeking updates and maintaining regular contact with suppliers.
• considering if claims are clear and can be verified.

Checklist for brands selling through third party retailers:

• ensure that any claims the brand makes are accurate and verified, with up-to-date, credible evidence.
• provide retailers with appropriate assurance that claims the brand makes are correct.

Checklist for suppliers and manufacturers:

• obtain and provide, as appropriate, relevant evidence to support claims and retain proper records on aspects such as product composition, testing and provenance.
• ensuring that systems are in place for verifying environmental claims.
• considering providing assurance in a different way, if product information is confidential.
• avoiding making casual claims which may be taken for a verifiable claim.

Digital Markets, Competition, and Consumers Act 2024 (DMCCA) the CMA can issue fines of up to £300,000 or 10% of global turnover (whichever is higher) without a court order and with limited rights to appeal for “unfair commercial practices”. Individuals involved in consumer law breaches may also be subject to personal fines.  

Even investigations can be a punitive measure in themselves as information may be requested from all entities in the supply chain. The investigation into three major fashion retailers took place from 2022-2024 and resulted in undertakings and guidance fashion retail sector compliance document.

The penalties for non-compliance is therefore significant and should be taken very seriously as a business critical risk. 

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