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12 Aug 2020

Making a "greenwashing" claim? The New Zealand Commerce Commission guidance could help Australian businesses

By Elizabeth Richmond, Brendan Bateman and Carolyn Harris

The Guidelines are a useful resource for businesses to consider when reviewing their practices and environmental claims.

Consumers are increasingly thinking about their own impact on the environment and are taking into consideration how "environmentally friendly" one good or service is compared to another. Environmental claims can therefore be a powerful marketing tool for businesses.

Such claims, however, need to be true.

"Greenwashing" generally involves making unsubstantiated or misleading representations about the environmental impact of the production, distribution, use and/or disposal of a good or service, and even the overall operation of a business. And where there are such claims, there may be legal consequences.

Under the Australian Consumer Law (ACL), it's illegal for businesses to engage in conduct that misleads consumers, including through greenwashing, but there are no clear guidelines of the kind that have been released in New Zealand for making these specific types of environmental claims.

In July 2020 the New Zealand Commerce Commission released Environmental Claims Guidelines for businesses which provide guidance on the making of environmental claims in the media and on products and packaging. The guidance covers claims relating to the material composition of products (eg. how and when to claim a product is "plastic free") and whether products are recyclable, compostable or biodegradable.

Given the similarities in the law between Australia and New Zealand, the New Zealand guidelines are useful for identifying "greenwashing" practices that are also likely to be problematic under the ACL.

New Zealand consumer protection framework

Like the ACL, the New Zealand Fair Trading Act 1986 (FTA) exists to promote fair competition. Under the FTA, as under the ACL, it is illegal for businesses to mislead or deceive consumers about the goods and services they sell. This covers anything written or said about goods or services (express claims) and anything that can be inferred from the overall impression created (implied claims). A business will be found to have misled or deceived a consumer regardless of whether the business intended to mislead or deceive.

In addition, the New Zealand Advertising Standards Authority (ASA) Code ensures that every advertisement is a responsible advertisement: All advertising and advertisements must be "legal, decent, honest and truthful and respect the principles of fair competition". If a product label or packaging appears in an advertisement, that label or packaging will form part of the advertisement, and any visible aspects will be covered by the ASA Code. The Advertising Standards Authority runs a formal advertising complaints processes for complaints about any advertisements targeted at New Zealand audiences that breach the ASA Code.

The Guidelines that have now been released by the New Zealand Commerce Commission are not intended to be legally binding but rather indicate how that regulator will interpret its powers under the FTA.

Principles set out in the NZ Environmental Claims Guidelines

The Guidelines set out general principles that business must consider when making claims about a good or service and also cover in detail common environmental claims.

Lifecycle claims

Lifecycle claims concern the composition, production or disposal of a good or its packaging. Such claims need to be clearly explained and may need to be backed up by firm evidence. Care should be taken when highlighting the environmental benefits of a good if only one aspect of a good has an environmental benefit but other key characteristics of the good do not (eg. if only the packaging is made from 100% recycled materials, not the good itself).

Examples of:

  • composition claims include claims that a good is "100% recycled", "free of" particular ingredients or components that can result in harmful effects or "organic / certified organic";
  • production claims include claims that a good is made with "renewable or green energy" or from "sustainable materials" and that goods "will last longer". Production claims also include "carbon-offset / carbon neutral" claims; and
  • disposal claims include claims that a good or its packaging are "biodegradable", "compostable" or recyclable".

Comparative claims

Claims that a good or the qualities of a good are "greener" or "better for the environment" than another good or range of goods may be misleading if a business does not ensure that the comparison has been made using comparable conditions, and that the claim remains accurate over time. Businesses need to consider the context in which the claim is being made and consumers' likely understanding of what the claim means.

Express comparative claims that clearly state the attribute or attributes being compared are less likely to raise an issue.

Branding

A brand name or company name may be a representation and could contribute to the overall misleading impression of a good or service if it implies environmental benefits that are not true and cannot be substantiated.

Certification stamps

Creating your own environmental logo may mislead consumers to think that a product has been independently certified when it may not have been. Accordingly, businesses should be careful when creating their own logos to avoid giving consumers the wrong impression.

Greenwashing in Australia – and how the NZ Environmental Claims Guidelines can help

While no guidelines specific to greenwashing exist in Australia, Australia's consumer law framework already protects consumers from these claims. The key concern for businesses is how the ACCC will enforce these protections, which are contained in the ACL:

  • section 18 prohibits a person from engaging in conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive;
  • section 29 prohibits the making of a range of specific false or misleading representations about goods and services in connection with the supply or possible supply of those goods or services;
  • section 33 prohibits conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability or quantity of any goods; and
  • section 34 prohibits conduct that is liable to mislead the public as to the nature, characteristics, suitability or quantity of any services.

Recent action by the ACCC has shown that it is open to testing the limits of the ACL and litigating to enforce these obligations. An example of the ACCC doing so is the action taken against Woolworths in 2018, now on appeal, in relation to claims about the biodegradability and compostability of picnic products. The ACCC alleges that these were claims about future matters and that Woolworths failed to make reasonable or adequate efforts to substantiate the claims made, an allegation that to date has been rejected by the Court.  

The NZ Guidelines are a useful resource for Australian businesses to consider when reviewing their practices and environmental claims; compliance with them will ensure that businesses bear less risk when making environmental claims.

Further while the Guidelines are directly applicable to advertising, corporates may also be at risk if claims are made in publically available corporate documents about a business' environmental impact as a whole, including in relation to climate change and sustainability. Such claims should be considered carefully to ensure that they, like advertising claims, are truthful and accurate, can be substantiated and, if are about future matters, are made on reasonable grounds. If a company has committed to support a particular goal, for example, net zero emissions by 2050, the company should consider whether its current policies and programs are consistent with achieving that goal.

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Disclaimer

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.