Green claims guidance: the ACCC signals its expectations for businesses making environmental and sustainability claims - Consumer Law

The Australian Competition and Consumer Commission (ACCC) has published draft guidance for businesses marketing their products or services using environmental and sustainability claims (Draft Guidance), in support of its continuing focus on greenwashing. With the ACCC readying itself for enforcement action, a parliamentary inquiry into greenwashing underway and heightened activist scrutiny of 'green' claims, the Draft Guidance provides a roadmap for businesses seeking to mitigate the risk their environmental and sustainability claims fall foul of the Australian Consumer Law (ACL).

Environmental and sustainability marketing plays a crucial role in the modern economy. Accurate claims assist consumers to make value-aligned purchasing decisions. Likewise, organisations prioritising steps to minimise the environmental impact of their business can attract consumers using their 'green' credentials. However, the ACCC's internet sweep published earlier this year found that 57% of 247 reviewed businesses made 'concerning' claims about their environmental credentials.

This insight outlines the eight compliance principles set out in the Draft Guidance to assist businesses to comply with ACL prohibitions on misleading and deceptive conduct and false or misleading statements and identifies next steps for businesses once the Draft Guidance is finalised.

Compliance principles for trustworthy environmental and sustainability claims

The Draft Guidance focuses on 'environmental and sustainability claims', which are representations a business makes about its environmental impact and include claims that give the impression that a business or its products or services (i) have a neutral or positive impact on the environment, (ii) are less harmful for the environment than alternatives, or (iii) have specific environmental benefits.¹ Environmental claims appear across mediums including product packaging, marketing or advertising campaigns (including online or social media), point-of-sale materials and corporate websites and reports.

Eight 'compliance principles' are identified to assist businesses to provide clear, accurate and reliable (or 'trustworthy') information to consumers and comply with the ACL when making environmental and sustainability claims. Examples and 'good practice' guidance also provide greater context to the ACCC's particular concerns and potential enforcement targets.

The compliance principles in the Draft Guidance are:

Make accurate and truthful claims: The Draft Guidance suggests that businesses should:
1. not overstate the level of scientific acceptance;
2. not exaggerate an environmental benefit or understate an environmental harm;
3. only make meaningful claims (i.e. in relation to genuine environmental benefits);
4. ensure comparisons are transparent and fair; and
5. ensure that reasonable grounds exist to support representations about the future.

Have evidence to back up your claims: Businesses need to have a reasonable basis for making environmental claims. The Draft Guidance also warns that third-party endorsements or certifications can be misleading if the scheme lacks credibility or the certification is used inappropriately (for example, if the certification relates to one part of the supply chain and/or product only, this must be made clear).
Don't leave out or hide important information: Omitting or hiding important details which might contradict or qualify the environmental claim may be misleading. Relevantly, the Draft Guidance states that small print should not hide the truth and environmental claims should consider the full lifecycle of a product or service.
Explain any conditions or qualifications on your claims: Environmental claims may be misleading if there are conditions that need to be met for that claim to be true and they are not clearly stated, or are unlikely to be realised in practice. For example, consumers should be informed about whether actions, facilities or resources are required for the claimed environmental benefit to be realised.
Avoid broad and unqualified claims: Broad or unqualified claims risk misleading consumers as they convey sweeping benefits that have subjective interpretations. Examples of such terms include 'green', 'eco-friendly', and 'sustainable'. Emissions-related claims (such as 'carbon neutral' and 'net-zero') pose unique challenges and the ACCC recommends that businesses:
1. account for emissions using reputable methodologies, for all types of greenhouse gases and scope 2 emissions,² and in a manner that consumers can understand; and
2. clearly and transparently communicate about current and past actions underpinning the claim (including in relation to the use of purchased offsets).
3. The Draft Guidance also warns businesses in emissions-intense industries to take particular care, and not to understate the overall environmental impact of their business activities. According to the ACCC, "the overall environmental detriment of these industries is likely to overshadow any environmental improvements made by a business".

Use clear and easy-to-understand language: Environmental claims can be misleading if they are difficult for ordinary and reasonable consumers to understand. In the interests of clarity, businesses should avoid technical or scientific language and ensure words convey their common meaning.
Visual elements should not give the wrong impression: Care should be taken when relying upon visual elements such as symbols, colours, trust marks and third-party labels and certifications, as they risk conveying a broad claim of an environmental benefit.
Be direct and open about your sustainability transition: Businesses are encouraged to advertise the environmental benefits of their products and services and the steps they are taking to reduce their environmental impact. At the same time, businesses are reminded to be frank with consumers in relation to the non-linear nature of their transition to greater sustainability and the continuing environmental harms caused by their business activities.

What next?

The Draft Guidance is open for consultation until 15 September 2023. Greenwashing is now a core enforcement priority for the ACCC, therefore businesses seeking to ensure their environmental and sustainability claims comply with the ACL should consider the following next steps.

ACCC enforcement action is likely in the short term: The ACCC's internet sweep enabled it to build a catalogue of 'concerning' claims. Its newly established Sustainability Taskforce is likely to return to those problematic claims after allowing businesses a period of time to remediate the problems identified.The ACCC has emphasised its willingness to litigate to "build up understanding" across the market. Businesses that have not taken proactive action to address any shortcomings in their environmental claims that have been highlighted by the ACCC are likely to face enforcement action.

ACCC enforcement action is likely to follow ASIC's playbook: Financial institutions have been the subject of heightened regulatory scrutiny since mid-2022. Since then, ASIC has issued 23 corrective disclosure notices, 11 infringement notices and commenced three separate civil penalty proceedings in response to alleged greenwashing. The ACCC is likely to take a similar approach, issuing notices to require the substantiation of green claims or to produce documents or provide information.Infringement notices and ultimately enforcement proceedings are likely to follow. Penalties for contraventions of the ACL are severe, with the maximum penalty for each contravention being the greater of (i) $50 million, (ii) three times the value of the benefit that is reasonably attributable to the contravention (if determinable), or (iii) if that value is not determinable, 30% of the corporation's adjusted turnover during the relevant period. The maximum penalty for each contravention by an individual is $2.5 million.

Businesses should avoid 'green-hushing': Internationally, studies have identified evidence of a 'green-hushing' phenomenon, where businesses' fear of regulatory scrutiny causes them to withhold publication of ESG claims, policies or targets.ASIC Chair Joe Longo has expressed the view that choosing to remain silent may also constitute greenwashing. A business's silence as to its ESG credentials may mislead consumers into thinking that it has considered environmental or sustainability factors in its product or service offering (especially where there is a broad consumer expectation for it to do so).

Greenwashing scrutiny intensifying across government: The ACCC and ASIC are not the only government instruments interested in curbing greenwashing. Earlier this year, the Senate referred an 'inquiry into greenwashing' to the Senate Environment and Communications References Committee. Among other things, the inquiry will investigate whether a different legislative framework could better protect Australian consumers from greenwashing.³The Clean Energy Regulator has also recently indicated its support for regulatory action against greenwashing.

Businesses face increasing risks of strategic public interest litigation: In August 2023, Australian Parents for Climate Action commenced proceedings against EnergyAustralia for allegedly misleading statements about its carbon neutral energy products.Other public interest advocacy organisations have referred claims made by Australian businesses to the ACCC and Ad Standards for allegedly misleading environmental claims. While the Draft Guidance will assist businesses to comply with the ACL, it also provides a roadmap for private litigants to pursue greenwashing complaints if organisations do not appear to be meeting the ACCC's expectations.

Key takeaways

Businesses should not wait for the Draft Guidance to be finalised before taking steps to ensure their public-facing environmental and sustainability claims meet the ACCC's compliance principles. Businesses should pay particular attention to representations about future matters or forward-looking statements (such as environmental and sustainability commitments), and continuing representations (such as claims made about particular products and services on businesses' websites).

Footnotes

¹ This definition focuses on the environmental aspects of sustainability practices. Other aspects of sustainability practices, such as those addressing an organisation's social impact (for example, protection of human and labour rights), are not covered by the Draft Guidance. However, many of the compliance principles in the Draft Guidance could be adapted to provide an indication of best practice when making broader sustainability claims.

² The Draft Guidance does not specifically address claims relating to scope 3, or 'downstream', emissions. Such emissions are generally considered to be beyond the direct control of proponents and have little regulatory oversight. Accordingly, businesses should carefully consider whether claims relating to scope 3 emissions (particularly any forward-looking statements) are accurate and made on reasonable grounds.

³ The ACCC's submission to the inquiry is available here. A final report is due by 5 December 2023.

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.