As we shift towards a carbon neutral economy, businesses are increasingly using environmental claims as a point of differentiation. Any representations made, including to consumers, other businesses or investors, must be accurate and not misleading. The ACCC has published draft greenwashing guidelines to assist businesses in making environmental and sustainability claims, indicating a need for more specificity and full disclosure and that broad, unsubstantiated statements will not be compliant with the law.
The Australian Consumer Law, contained in Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL) prohibits misleading or deceptive conduct and the making of false representations. Penalties of up to $50 million per contravention apply for a breach of the ACL.
The ACCC has developed the draft "greenwashing" guidelines in response to the internet sweep it conducted last year which found 57% of businesses made concerning claims about their environmental credentials. The guidelines contain 8 principles supported by examples to guide businesses as to what the ACCC views as acceptable or otherwise. Broadly, the examples indicate that the ACCC sees a need for greater specificity in environmental claims and won’t tolerate broad brush statements, representations that are only partially true, or representations that only hold in certain circumstances.
The contents of the guidelines should be factored into any internal approval processes for businesses advertising and other public statements and it is prudent to educate marketing teams as to the ACCC's expectations.
Principles
The 8 principles contained in the draft guidelines are as follows:
- Make truthful and accurate claims: The overall impression, including visual elements, of a claim should be considered, and claims should not exaggerate benefits or scientific acceptance. Even if supplying third party products you should still ensure any environmental claims are accurate, which may require undertaking reasonable steps to verify supporting information.
- Have evidence to back up your claims: It is important to have clear and credible evidence to support claims. Independent and scientific evidence is the most reliable. Representations about future matters should be based on reasonable grounds.
- Don't leave out or hide important information: Do not provide incomplete information, especially where important details that might contradict or qualify your claim are left out. Disclaimers or clarifications in small print will not save an otherwise misleading environmental claim.
- Explain any conditions or qualifications on your claims: You must ensure that you provide enough information about any conditions that are necessary for your claim to be true. For instance, a claim may be true in laboratory conditions, but these conditions are unlikely to be replicable in the context in which the consumer uses the good or service.
- Avoid broad and unqualified claims: Avoid terms that convey sweeping benefits such as "sustainable", "eco-friendly" or "green" without qualification. Without further clarification, consumers may be misled that the product is better for the environment than it actually is.
- Use clear and easy-to-understand language: Making a misleading claim is more likely when complicated language confuses consumers. Try to avoid technical or scientific language and use words to convey their ordinary, common meaning.
- Ensure visual elements do not give the wrong impression: Visual elements, such as packaging or logos, can significantly influence consumers' perception of a product or service's environmental impact. Avoid using visual elements that may misrepresent the environmental benefits. The overall impression, including colours and logos, should be considered.
- Be direct and open about your sustainability transition: Aspirational claims about future environmental objectives should be approached with caution unless clear and actionable plans are in place. If transitioning to a more sustainable business model, be direct and open about the steps being taken. If emissions cannot be reduced immediately, but offsetting measures are in place, communicate this clearly to consumers.
The ACCC has previously identified greenwashing as a priority area in its 2023/2024 Compliance and Enforcement Priorities. The draft guidelines highlight that in determining whether to take enforcement action in relation to greenwashing, the ACCC will consider whether:
- genuine efforts and appropriate steps were taken by the business to verify the accuracy of any information that they relied on, but noting that the extent of appropriate due diligence will depend on the businesses size and access to resources;
- the business had made representations about future environmental matters that it did not have reasonable grounds for making or where it did not have an intention or plan to implement initiatives; and
- the business was reckless about whether the claim was untrue or incorrect.
International context
The ACCC's focus on greenwashing is consistent with approaches taken by overseas regulators. Regulators in the UK, and the US have released guidelines in relation to greenwashing claims while regulators in, the UK, the US and Canada have already brought enforcement proceedings against private parties for breaches relating to greenwashing. In March 2023 the European Commission issued a proposal for a 'Directive of the European Parliament and of the Council on substantiation and communication for explicit environmental claims', known as the Green Claims Directive.
Conclusion
It is crucial that businesses have the appropriate checks in place before making any statements and considering the context in which the representation will be delivered. This is broader than advertising and includes, investor presentations, business-to-business negotiations, conferences, industry publications, to name a few. The contents of the guidelines should be factored into any internal approval processes for the making of environmental and sustainability claims.
The draft guidelines are open for consultation until 15 September. If you have any questions about the guidelines, the robustness of your internal processes or your compliance, please reach out to a member of the White & Case team.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2023 White & Case LLP
