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”.