The global air cargo sector is experiencing a surge in demand, mainly driven by the growth of e-commerce. With growing pressure from stakeholders for sustainable supply chains, sustainability and ESG have been a focus for the air cargo industry. However, the sector is also under scrutiny for potentially making misleading claims about its sustainability efforts, which could lead to regulatory enforcement actions and stakeholder litigation. Examining the greenwashing regulatory landscapes in the UK, EU, and US, what are the legal risks of greenwashing faced by the air cargo industry, and how can organisations best approach derisking and mitigation measures?
Recent regulatory strides
Although there is no single legal definition for “greenwashing”, it is generally understood as marketing a product or service by highlighting environmental attributes or benefits that are vague, exaggerated, deceiving, result in misinterpretations, and/or cannot be substantiated. There are also other variations of greenwashing, such as greenlighting, when a small environmentally friendly initiative is used to overshadow larger, more harmful practices.
Recently, anti-greenwashing regulatory regimes have been introduced in the US, UK, and EU. These regimes supplement existing consumer protection laws on false marketing:
• The EU’s new “Empowering Consumers for the Green Transition Directive” that came into effect in March 2024 and the proposed “Green Claims Directive” set out requirements preventing misleading business practices and rules on substantiation, verification, and communication of explicit environmental claims.
• The US Securities and Exchange Commission (SEC) introduced new greenwashing requirements last year that apply to publicly traded companies as they must provide accurate and verifiable information about their sustainability practices to ensure investors and consumers are not misled by exaggerated or false claims.
• The UK’s “Green Claims Code” introduced similar requirements regarding substantiated green claims in 2021.
The legal risks
The aviation sector is particularly high-risk for greenwashing claims due to their carbon-intensive nature. The air freight sector faces growing scrutiny due to increased pressure from stakeholders on supply chain sustainability reporting, driven by new ESG reporting requirements, such as the EU Corporate Sustainability Reporting Directive and the SEC Climate Disclosure Rules. As a general trend, regulatory authorities are moving towards stringent enforcement, focusing particularly on scientific validation to ensure all environmental claims are backed by robust scientific evidence.
For example, in May this year, the European Commission issued a warning to 20 airlines about their misleading environmental reporting practices, including the use of “sustainable aviation fuels” (SAF) without clear justification of their environmental impact and representations about moving towards net-zero greenhouse gas emissions, without clear and verifiable commitments, targets and an independent monitoring system.
In addition, stakeholder ESG litigation focusing on green misrepresentations has been on the rise, with the aviation sector being a primary target. Three pending cases in the US where customer plaintiffs are challenging environmental claims made by major airlines such as those related to carbon offsetting.
To mitigate greenwashing risks, here are several key lessons drawn from the new anti-greenwashing regimes and insights gained from recent enforcement and litigation cases.
Ensuring the validity of claims
Air cargo companies should establish robust internal systems and procedures to critically evaluate any environmental claim or green claim they may be making. This includes scientific validation of the benefits of SAF, carbon offset programs, and other sustainability initiatives, including through the use of independent third-party carbon accounting and verification/audit service providers. The verification information should be well-documented and readily available for presentation to regulators upon request, as evidenced by recent sector-focused inquiries from regulatory bodies.
Committing to transparency
Regarding the quality of environmental claims, air cargo companies should ensure full transparency in their ESG reporting and emission reports. This means providing clear, accurate, and detailed information about the environmental impact of the operations and sustainability initiatives. The key is to provide transparent and neutral information substantiated with evidence.
Comprehensive exercise with stakeholder engagement
Air cargo companies play a crucial role in their customers’ supply chains and sustainability compliance, adding an additional complexity to the sustainability reporting approach. The recommended strategy is to treat ESG reporting as a comprehensive exercise with constant engagement with the stakeholders to ensure that sustainability claims made are consistently credible and substantiated across the value chain.
The above measures must be supported by dedicated ESG monitoring functions or teams tasked with implementing and maintaining the necessary systems and procedures. It is recommended that the air freight sector introduce appropriate company policies and conduct regular training to educate employees about greenwashing risks and the importance of accurate environmental reporting. Additionally, an ESG review by a professional party can serve as a valuable initial step to ensure transparency and accountability.
