ACCC flags tougher standards for environmental claims in upcoming greenwashing sweep

21 Sep 2022
Time to read: 2.5 minutes

The ACCC’s upcoming sweep of environmental claims will potentially catch out many businesses.

Australian businesses should be reviewing their environmental claims in readiness for an upcoming sweep by the Australian Competition and Consumer Commission (ACCC) to identify misleading and deceptive environmental claims. Although its details are yet to be released, businesses dealing with Australian consumers should be aware of this sweep, as a similar sweep overseas in 2020 found 40% of environmental claims to be potentially misleading and required further investigation.

Recap: What is greenwashing?

When a company creates a misleading impression about its net zero ambitions, carbon neutrality or other green credentials, it is engaging in "greenwashing" – that is, applying a "green" gloss to capitalise on the growing demand for environmentally friendly corporate conduct

As consumers demand more ethical and sustainable practices from businesses, and are often prepared to pay more for them, claims like “environmentally friendly”, “sustainable production” and “compostable” are becoming more prominent. As the Deputy Chair Delia Rickard observed, in addition to price and non-price factors, “[c]onsumers are also looking at environmental and ethical claims to inform their decisions”.

Importantly, making a "green" commitment or claim without a proper basis, can breach the Australian Consumer Law (ACL), specifically the prohibitions against:

  • engaging in misleading or deceptive conduct in trade or commerce; and / or
  • making false or misleading representations about specific aspects of goods and services.

Key areas of ACCC – and other regulators’ – focus

Sustainability covers a broad range of practices and environmental initiatives, and the ACCC has nominated claims about:

  • reduced materials usage;
  • lower emissions;
  • improved disposal; and
  • increased circularity,

as particular concerns.

According to the Deputy Chair, the ACCC is hearing growing concerns that some businesses are falsely promoting environmental or green credentials to capitalise on changing consumer preferences:

“Sometimes despite best intentions, businesses may inadvertently mislead consumers for a variety of reasons, such as a poor understanding of their supply chain, a lack of due diligence before making marketing claims, or poor reporting practices. But there is also an element of the market that will deliberately ‘fudge or bend the truth’ and will create a misleading impression to meet consumer expectations.”

Ms Rickard noted that there has been a significant increase in businesses seeking their own trademarks globally, rather than seeking independent certification. This, according to the ACCC, risks having the effect that trademarks and other symbols will be used in ways which may confuse or mislead consumers.

A competition, as well as a consumer protection, concern

The ACCC’s focus on greenwashing has typically been framed as a consumer protection or fair trading issue. However, as Ms Rickard observed in her address, improving the veracity of environmental and sustainability claims is “also about ensuring competitive conduct in the market”.

From a competition perspective, this includes by promoting businesses’ incentives to innovate and invest in sustainable initiatives (without those investments being undermined (or ‘free ridden’) by misleading or deceptive conduct by competitors): “This can have a chilling effect on investment in this space, as businesses are not able to realise the full benefits of making environmental improvements”.

Four-step guidance from the ACCC

In addition to growing global pressure for mandatory disclosure regimes, and consumer law regulators’ scrutiny, the ACCC is working closely with other regulators, including ASIC and the Clean Energy Regulator, on these issues and will be taking a coordinated approach to addressing the broad range of issues relating to sustainability. For example, ASIC is working closely with the International Sustainability Standards Board, an internal standard-setting board unveiled at COP26, to develop a new framework to guide green financing in 2022.

For now, businesses should look at the four steps ACCC has put forward to improve their environmental claims and that the ACCC will be working through:

  1. Ensure that claims are clear and specific, and avoid using what the Deputy Chair described as “vague language” (such as “green”) when marketing products or services.
  2. Ensure that the entire lifecycle of a product is taken into account when making environmental and sustainability claims. If a claim only relates to one aspect of the product lifecycle, this should be made clear to consumers.

    In addition, if for example a product uses less water to produce, but the process results in higher emissions, Ms Rickard stressed that businesses should not attempt to “hide or downplay” such negative impacts.

  3. Be transparent about products and environmental policies, to allow consumers to make an informed choice.
  4. Where feasible, collaborate with “reputable third-party certification bodies”. If businesses do obtain certification, they should still be careful to not misrepresent its meaning or significance.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.