Image: Gucci

A study conducted by the British Advertising Standards Authority (“ASA”) reveals that there is a striking lack of understanding of the environmental, social, and governance (“ESG”) and sustainability-centric marketing claims that companies are peddling in order to attract conscious consumers. Specifically, the ASA – which carried out in-depth interviews with individuals across the United Kingdom in order to gauge consumer understanding of common ESG advertising claims – says that “carbon neutral” and “net zero” were the most widely used claims in the advertising that it encountered. Yet, while an increasing number of companies, such as Gucci, have included these terms in their advertising (from consumer-facing campaigns to investor-focused reports), there is “little consensus” among consumers as to their meaning. 

Specifically, the ASA documented “low consumer understanding of what carbon neutrality is and low understanding of what offsetting is.” (Carbon offsetting refers to the practice of using carbon “credits” to lower their effective emissions by investing in projects around the world that reduce emissions elsewhere or that remove existing carbon dioxide from the atmosphere.”) In fact, the British advertising regulator found that “currently the primary source of confusion and misunderstanding” is offsetting, with some survey participants believing that carbon neutral claims “referred to a direct reduction of carbon emissions, [and thus], tended to feel misled when they learned that companies were often relying on offsetting, either partially or wholly, rather than directly reducing carbon emissions.” 

This is significant, according to the ASA, as “many organizations” – including those in the fashion and luxury goods spaces – do, in fact, rely on “offsetting schemes.” (The market for offsets is worth at least $90 billion and maybe as much as $480 billion, according to academics in this space.)

In addition to being confused about the meaning of claims like “carbon neutral” and “net zero,” and in many cases, using the two terms interchangeably, the ASA discovered that consumers are also unsure about “the basis on which these claims are substantiated.” 

The potential for consumers to misunderstand – or be misled by – such adverting is not helped, according to the ASA, by the fact that there are “no definitions fixed in law that govern the basis on which such claims may be used.” It states that “credible sources of authority suggest that carbon neutrality claims may be made by organizations based on the concept of balancing the amount of carbon emitted with the amount removed,” the ASA states. On the other hand, net zero claims “may be based on absolute reductions that are consistent with climate target goals alongside neutralizing residual emissions, but may also refer to other greenhouse gases.”

With such a lack of clarity at play, no shortage of survey participants calls for ESG claims to be “simplified and standardized,” which mirrors what the Securities and Exchange Commission in the U.S. is looking to do by way of proposed new rules that would require public companies to make certain climate-related financial data, and greenhouse gas emissions insights, in public disclosure filings. “The proposed rule and form amendments are designed to provide consistent standards for ESG disclosures, allowing investors to make more informed decisions as they compare various ESG investments,” the SEC said this spring. 

Survey participants also asserted that companies should be required to “as transparent as possible [and] highlight the reliance on offsetting in claims.”

In terms of the impact on brands, the ASA revealed that “claims had little direct impact on purchases, [with] most participants admitting the claims had little or no direct impact on their purchases as they were not necessarily aware of them or interested in them and, in any case, they tended to prioritize other factors like cost and brand preference.” There is the potential for such ESG marketing to effect consumer behavior, the ASA asserts, stating that some participants said that if “there was no perceived cost or sacrifice, the feeling of ‘doing the right thing’ could tip the balance” towards buying products that come with “carbon neutral” and “net zero” claims.

From a brand image and reputational perspective, the ASA determined that the impact of using such claims in advertising “was often dependent on the size of the company more than any other factor,” with smaller companies in lower emitting sectors standing to “earn favorability because they were seen as acting voluntarily for good motives, whereas larger brands (especially in higher emitting sectors) were assumed to be simply complying with imposed rules or targets.” 

As for the important take-away here (which is relevant for companies in the UK and beyond), Frankfurt Kurnit Klein & Selz’s Jeff Greenbaum states that if companies are making a “carbon neutral” or “net zero” (or other ESG) marketing claim “that is based on the use of carbon offsets, it is a good idea to clearly and conspicuously qualify the claim to explain that this is what is happening.” He notes that it is “generally the advertiser’s responsibility to ensure that consumers are not misled.”