‘Clean' is out, robust evidence is in: the ACCC publishes its final guidance for businesses making environmental claims - Consumer Trading & Unfair Trading

The ACCC has released its final guidance for businesses that make claims about the environmental impact of their business, products or services, providing clarifying regulatory guidance to assist them in complying with the Australian Consumer Law (ACL). The release of the final guidance follows feedback from over 150 stakeholders across consumer, business and environmental organisations on the ACCC's draft version of the guidance, released in July 2023.

While the eight principles for trustworthy environmental claims remain largely unchanged from the draft guidance, the final guidance provides further clarification that will assist businesses to take steps to mitigate the risk of greenwashing.

This Insight builds on our previous article and identifies the additional information provided by the ACCC to assist businesses when making claims about the environmental impact of their business, products or services.

Key takeaways

Consistent with the focus of regulators in the EU and UK, the ACCC is clearly concerned about the risk of misleading environmental sustainability claims regarding the energy transition. It has included guidance on making claims regarding emissions, transition, the use of offsets to achieve carbon neutrality and renewable energy. The ACCC anticipates the release of additional guidance in 2024 on emissions and offset claims and the use of trust marks.
While the guidance is a useful blueprint to help organisations comply with the ACL when making environmental claims, the ACCC has indicated the principles could also apply to other types of ethical, social and governance claims. This is consistent with ASIC's view that greenwashing encompasses broader sustainability claims beyond environmental claims.
Adherence to the guidance is not necessarily determinative of compliance with the ACL. Ultimately, it will be important to consider whether a particular environmental claim risks creating a false or misleading impression in the mind of an ordinary and reasonable consumer.
The ACCC and ASIC have identified greenwashing as a key enforcement priority. The ACCC has several greenwashing investigations underway, and recently accepted a court-enforceable undertaking from MOO Premium Foods concerning a misleading claim that its yoghurt packaging was made from "100% ocean plastic". It seems likely that the ACCC will follow in ASIC's footsteps and bring further enforcement action in the near future.

Additional guidance on the eight principles

Make accurate and truthful claims:
- The guidance clarifies that what might be considered "reasonable steps" for verifying information in support of a claim will differ for businesses of different sizes. Businesses will likely be expected to make enquiries and/or undertake due diligence on a scale that is commensurate with the resources available to them.
- All businesses should interrogate the strength of third-party scientific studies or research used to support a claim.

Have evidence to back up your claims:
- The ACCC has emphasised that mere compliance with an industry scheme or standard does not necessarily equate to compliance with the ACL. A claim may create a false or misleading impression if, for example, it is based on an industry standard that adopts a technical definition of a term which differs from its day-to-day meaning, as not all consumers will be educated about technical or scientific jargon. Similarly, businesses relying on a third-party certification to provide credibility to a claim should ensure that they are not creating a false or misleading impression about what the certification means or does – particularly when relying on a certification scheme for offsets and emissions.
- When relying on internal data, the ACCC has encouraged businesses to retain all relevant records, including audit and testing results – and implement processes so that if information or data changes, so as to make a continuing representation no longer accurate, it is identified as such and corrected. We anticipate this type of information will be requested by the ACCC, which will continue to require businesses to substantiate their claims regarding the environment – effectively transferring the burden in an ACL investigation of this type onto the target business.
- When providing consumers with access to information to support a claim, the ACCC has expressly confirmed it is not necessary to disclose commercially sensitive information.

Do not hide or omit important information:
- In addition to actively making assertions, businesses should be careful to avoid omitting relevant information from their representations to consumers, or otherwise "burying" important details in fine print or small text, or by flashing brief disclaimers on screen. Any information directly relevant to understanding a claim should be available on the product or at the point of sale, or otherwise in close proximity to the claim. Supporting information may be accessed through a website or QR code, but these details should not contradict or qualify the impression created by the claim.

Explain any conditions or qualifications on your claims:
- The final guidance remains largely unchanged from the draft, and urges businesses to consider whether claims are true only under certain circumstances, and if so, to provide enough information about what conditions are required for the claims to be true.

Avoid broad and unqualified claims:
- Emissions-related claims continue to be an area of concern for the ACCC. The ACCC has emphasised the importance of ensuring that any emissions-related claims (such as "carbon neutral" or "net-zero") are understood by the ordinary and reasonable consumer, and that businesses should provide clear information to consumers about what emissions are included and excluded from any assessment. The ACCC recommends that businesses should undertake a thorough emissions baseline assessment using established Australian or internationally recognised methodologies. The ACCC has also noted that businesses should factor in emissions associated with their electricity use when accounting for their total emissions.
- The ACCC added the term "clean" to its list of terms that are overly broad and convey sweeping benefits (which also includes "green", "environmentally friendly" and "sustainable"), and recommends businesses avoid such terms.
- Vague assurances are likely to be in the spotlight of the regulators' scrutiny. ASIC has also identified "the use of terms like 'carbon neutral', 'clean' or 'green' that are not founded on reasonable grounds" as one of its 2024 focuses. ¹

Use clear and easy to understand language:
- While the ACCC recommends that businesses avoid using scientific or technical language, it has also cautioned against the over-simplification of language. Businesses should consider whether the language they use allows consumers to clearly understand the specific benefit that they are trying to convey. The ACCC has acknowledged that in certain circumstances, using scientific language will be the clearest and most appropriate way of presenting a claim. However, it is unlikely that using a scientific term will be the clearest way of presenting a claim where the term has a non-technical alternative.

Visual elements should not give the wrong impression:
- The guidance now explains that when determining if a visual element suggests an environmental benefit, the overall impression given to an ordinary and reasonable consumer is important.

Be direct and open about your environmental sustainability transition:
- In addition to encouraging businesses in highly polluting industries to be realistic and transparent in claims about their environmental transition and impact, the ACCC has updated its case studies demonstrating good practice in communicating sustainability transition efforts.

What's ahead in 2024?

It is apparent that emissions-related claims pose unique challenges for businesses and consumers alike, given the complexities in quantifying and understanding environmental impacts. The guidance recommends that businesses:

account for emissions using reputable methodologies, for all types of greenhouse gases, and in a manner that an ordinary and reasonable consumer could understand; and
clearly and transparently communicate what emissions are included and excluded from any assessment, and be clear about current and past actions underpinning the claim (including in relation to the use of purchased offsets).

In its media release, the ACCC indicated that it will release further guidance for businesses and consumers in early 2024 on emissions and offset claims and use of "trust marks" (visual indications that a product, service or business has been certified by a third-party).

Enforcement trends

Greenwashing is a core enforcement priority for the ACCC and will remain so in 2024. It is also one of ASIC's 2024 enforcement priorities.²

As predicted in our previous Insight, the ACCC has commenced enforcement action against businesses for misleading environmental claims.

The ACCC and AER's 2022-2023 annual report confirmed that the ACCC had initiated several greenwashing investigations following its "internet sweep", which found that more than half of the reviewed businesses made "concerning" claims about their environmental credentials.

On 28 November 2023, the ACCC accepted a court-enforceable undertaking from yoghurt manufacturer MOO Premium Foods Pty Ltd (MOO) following an investigation into its claim about using "100% ocean plastic"; a representation which suggested that MOO's product packaging was made from plastic waste collected directly from the ocean. The ACCC's investigation found that the packaging was made from "reclaimed ocean bound plastic", being abandoned plastic waste that was collected within 50km of the shoreline in regions where waste management is non-existent or inefficient.

Public interest litigation

In addition to enforcement action, organisations are increasingly at risk of private litigation in relation to misleading environmental claims. The ACCC's principles and good practice guidance provide a helpful roadmap for organisations seeking to avoid strategic public interest litigation in relation to greenwashing. For example, in a previous article we made reference to the Australian Parents for Climate Action proceedings against EnergyAustralia for making allegedly misleading statements about carbon neutral energy products.

What you can do to mitigate the risk of enforcement action

Implement controls to ensure adherence to the guidance. In determining whether to take enforcement action against a business, the ACCC will consider whether "genuine efforts and appropriate steps" were taken by that business to verify its environmental claims. Developing clear and robust controls will help demonstrate that businesses have made good faith efforts to do so. For large businesses, it may be appropriate to develop internal guidance outlining the specific criteria used for classifying an activity or product as environmentally sustainable or the use of other "green terms" in marketing or advertising materials.
Keep a clear record of evidence substantiating claims. Amongst its broad investigative powers, the ACCC may issue a notice requiring a business to produce information or documents that could substantiate environmental claims. Consistent with the guidance, businesses should develop protocols ensuring that evidence of environmental claims is maintained and readily-accessible, to seek to ensure that preliminary enforcement action can be quickly addressed.
Have reasonable grounds for announcing future aspirations. When announcing environmental objectives, it is good practice to:
- Maintain a detailed plan articulating what the organisation's goal is, how the plan will be implemented, how progress will be measured, and any key assumptions.
- Base goals on accepted methodologies and technologies available to the business. Avoid relying on speculative methods of reducing carbon emissions, such as carbon capture, unless the business has undertaken meaningful investigation into whether this is a realistic option. ASIC's first greenwashing enforcement action arose from concerns that a business had not undertaken any meaningful investigation into whether its offset method, carbon capture, was actually a feasible option.
- Monitor progress and provide customers with updates on how the business is tracking against its goals.

Undertake legal review of environmental statements before publication. Marketing, legal and compliance teams should collaborate to ensure that external announcements and advertisements align with internal operations and adhere to the guidance.

As the ACCC and ASIC continue to scrutinise environmental statements, companies should be on the front foot in confirming whether their claims observe published guidance. Implementing robust internal controls is essential to identify and avoid false, misleading or deceptive environmental claims. If in doubt, seek advice: it seems that 2024 may be the regulators' meanest – and greenest – year yet.

Footnotes

¹ ASIC Annual Forum 2023, 'Enforcement session opening remarks' (21 November 2023). Available here: https://asic.gov.au/about-asic/news-centre/speeches/asic-annual-forum-2023-enforcement-session-opening-remarks/

² ASIC, 'ASIC and greenwashing antidotes', speech by Deputy Chair Karen Chester at RI Australia 2023 annual conference (10 May 2023). Available here: https://asic.gov.au/about-asic/news-centre/speeches/asic-and-greenwashing-antidotes/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.