Both “greenwashing” and “AI washing” have been a focus of regulators as of late as companies continue to make marketing claims that cater to consumers and/or other businesses that run afoul of reality. Recent actions by the United Kingdom’s Competition and Markets Authority, which is tasked with strengthening business competition and preventing and reducing anti-competitive activities, and the U.S. Securities and Exchange Commission shed light on how these entities (and presumably other related bodies) are addressing false and/or misleading advertising when it comes to overstating the “eco-friendly” nature of their wares or the impact that the use of artificial intelligence has on their operations.
The United Kingdom’s Competition and Markets Authority (“CMA”) announced this week that it has secured “landmark changes from ASOS, Boohoo and Asda, following an investigation into the three retailers back in July 2022, “having identified concerns of possible greenwashing during its initial review of the fashion sector.” No small players, the CMA stated that ASOS, Boohoo and George at Asda collectively generate annual sales of £4.4 billion in the UK, alone.
This week, the CMA confirmed that it secured formal commitments from the three companies to “change the way they display, describe, and promote their green credentials,” a move that the market regulator says will means that “millions of customers can expect to see clear and accurate green claims.”
Delving into specifics, the CMA revealed that the three companies each signed undertakings that commit them to an agreed set of rules around the use of green claims. Among other things, these include:
> Green claims: ASOS, Boohoo, and George at Asda must ensure all green claims are accurate and not misleading. Key information must be clear and prominent, meaning it must be expressed in plain language, easy to read, and clearly visible to shoppers.
> Statements regarding materials: Statements made about materials in green ranges must be specific and clear, such as “organic” or “recycled,” rather than ambiguous (e.g., using terms like “eco,” “responsible,” or “sustainable” without further explanation). The percentage of recycled or organic fibers must be clearly displayed and easy for customers to see. A product cannot be called “recycled” or “organic” unless it meets certain criteria.
> Criteria for green collections: The criteria used to decide which products are included in environmental collections – such as ASOS’s former “Responsible edit,” Boohoo’s “Ready for the Future” range, and George at Asda’s “George for Good,” and any further ranges – must be clearly set out and detail any minimum requirements. For example, if products need to contain a certain percentage of recycled fibers to be included in the range, this should be made clear. Products must not be marketed or labelled as part of an environmental range unless they meet all the relevant criteria.
> Use of imagery: The firms must not use “natural” imagery – such as green leaves – logos, or icons in a way that suggests a product is more environmentally friendly than it actually is.
> Product filters: Search filters must be accurate, only showing items that meet the filter requirements. For example, if a consumer uses a filter to show “recycled” trousers, only trousers made from “predominantly recycled materials” should be shown.
> Environmental targets: Any claims made to consumers about environmental targets must be supported by a clear and verifiable strategy, and customers must be able to access more details about it. Such information should include: what the target is aiming to achieve, the date by which it is expected to be met, and how the company in question will seek to achieve that target.
> Accreditation schemes: Statements made by the companies about accreditation schemes and standards must not be misleading. For example, statements must make clear whether an accreditation applies to particular products or to the firm’s wider practices.
In addition to entering into formal agreements with ASOS, Boohoo and Asda, the CMA issued an open letter to the “fashion retail sector” in order to inform relevant entities of the outcome of the foregoing investigations and to “highlight the need for businesses to consider their obligations under consumer protection law.” Such obligations include adherence to the Green Claims Code. In accordance with the Green Claims Code, in order to ensure that their environmental claims are not misleading, companies should ensure that their environmental claims: (a) are truthful and accurate; (b) are clear and unambiguous; (c) do not omit or hide important information; (d) compare goods or services in a fair and meaningful way; (e) consider the full life cycle of the product or service; and (f) are substantiated.
Sarah Cardell, chief executive of the CMA, said in a statement this week that the regulator’s investigations and corresponding action “marks a turning point for the industry. The commitments set a benchmark for how fashion retailers should be marketing their products, and we expect the sector as a whole – from high street to designer brands – to take note and review their own practices.”
The Securities and Exchange Commission (“SEC”) took action of its own recently, announcing on March 18 that it had settled charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for making “false and misleading statements about their purported use of artificial intelligence.” The firms agreed to settle the SEC’s charges and pay $400,000 in total civil penalties.
> According to the SEC’s order against Delphia, from 2019 to 2023, the Toronto-based firm made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process. For example, according to the order, Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.”
> In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “[e]xpert AI-driven forecasts.”
“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” SEC Chair Gary Gensler said. “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
While the SEC focused its attention on financial firms in the recent action, the cases provide takeaways for various market segments, as companies in retail and beyond continue to make use of AI and generative AI, in particular. At the same time, it is worth noting that a growing number of companies are busy touting their adoption of AI by way of voluntary statements, such as press releases. (A rising amount of retail industry occupants, for example, have shed light on the benefit of their use of AI, such as cutting down on apparel manufacturing waste.)
The SEC’s sentiments about the need for companies to avoid overstating their adoption/use of AI and/or the impact of AI on their operations seem to closely mirror that of the Federal Trade Commission. The agency issued some guidance in February 2023, in which it warned marketers to avoid making unsupported claims about “new tools and devices that supposedly reflect the abilities and benefits of AI.” Among other things, the FTC urged companies looking to put AI at the center of their marketing efforts to consider whether they are exaggerating what their AI products can do, promising that their AI products does something better than non-AI products, and actually making use of AI at all to avoid engaging in false and/or misleading marketing or what is commonly being known as “AI washing.”
THE BIGGER PICTURE: Without clear guidelines on the AI marketing front, “firms can exploit loopholes and mislead investors” and consumers, alike, according to Angel Zhong, an associate professor of finance at RMIT University. Not only does a lack of oversight “erode trust and credibility in the industry,” the dressing up ordinary tech with fancy AI buzzwords, such as “machine learning,” “neural networks,” “deep learning,” and “natural language” processing, to seem more innovative than they actually are may also stifle innovation. “If investors are skeptical about AI, they’re less likely to invest in legitimate AI-powered solutions, [which] can slow down the development of truly groundbreaking technologies.”
Against that background, she says that “it is crucial to deal with AI washing, echoing the cautionary tale of the dot-com bubble, as much like the exaggerated promises and speculative fervor surrounding internet companies, which led to market turbulence and investor skepticism in the late 1990s, the hype surrounding AI capabilities in poses similar risks.”