ESG and Australia's consumer & competition laws

Australian regulators are active, well-resourced and conscious of the increasing importance of environmental and social credentials in consumer decision-making.

ESG & the Australian Consumer Law

What are the legal parameters?

The Australian Consumer Law (ACL) is a nationwide consumer protection law.[1] Some of the consumer protection provisions in the ACL are mirrored in the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) in relation to financial services.[2]

The ACL and ASIC Act prohibit:[3]

• conduct in trade or commerce that is misleading or deceptive, or likely to mislead or deceive; and
• a variety of false or misleading representations, including representing that goods or services are of a particular standard, value or grade, or have particular performance characteristics or benefits.

The scope of these prohibitions is broad. Conduct is misleading when it leads, or is likely to lead, someone into error. It can occur regardless of whether anyone was actually misled or whether the business or individual intended to mislead or deceive.

Representations in relation to “future matters” can also be taken to be misleading if a person does not have reasonable grounds for making the representation at the time it is made.[4]

Penalties under the ACL & ASIC Acts

The maximum civil penalties per breach for making false or misleading representations under the ACL and ASIC Acts are set out below:

	Corporations	Individuals
ACL	The greater of: $10m; three times the value of the benefit received; or 10% annual turnover	500,000
ASIC Act	The greater of: 50,000 penalty units[5] (currently $11.1 million); three times the benefit obtained and detriment avoided; or 10% annual turnover, capped at 2.5 million penalty units (currently $555 million)	The greater of: 5,000 penalty units (currently $1.11 million); or three times the benefit obtained and detriment avoided

 

Additional enforcement powers available to regulators can include disqualification orders, injunctions to prevent on-going conduct and corrective advertising orders.

The ACL also provides for a private right of action for damages for misleading or deceptive conduct or false or misleading representations, including representative or class actions. 

Enforcement activity so far

Australian regulators are actively monitoring and enforcing these laws in ESG-related matters, particularly in relation to “greenwashing” – involving statements that promote environmental credentials, which may not be substantiated by evidence. In March 2022, the ACCC identified consumer and fair training issues in relation to environmental claims and sustainability as its top consumer priority for 2022 – 23.

To date, the focus has been on:

• consumer facing “green” marketing claims[6]; and
• climate change related disclosures and governance practices of listed companies[7].

In relation to alleged “greenwashing” in marketing claims, the ACCC has been pursuing high profile cases for over a decade, most recently against Volkswagen AG in late 2019. In that matter:

• the ACCC’s case successfully alleged Volkswagen AG made false representations about the emissions of 57,000 diesel vehicles, which resulted in an order against the carmaker for $125 million, by far the largest-ever penalty issued for breaches of the ACL.
• The penalty ordered by the Federal Court of Australia was $50 million higher than the penalty agreed between the parties upon settlement, showing that the Court is willing to impose greatly increased penalties than even sought by the regulator if it sees fit. The penalty was upheld on appeal to the Full Court in April 2021. 
• The Full Court held that it was often appropriate for it the Court to consider non-economic forms of societal harm into its assessment of penalty, even if there was no evidence before it of any loss to consumers, and such loss is not compensable or quantifiable, such as harm to the environment.

In addition, Volkswagen, Skoda and Audi faced class actions following the emissions claims and after four years of litigation, settled with the claimants for a further $120 million as well as legal costs.

Publicly listed companies making “net-zero” claims or other climate-change related disclosures also face a heightened risk of litigation by public interest groups as climate-focused advocacy increases. In August 2021, the Australian Centre for Corporate Responsibility sued Santos Limited in the Federal Court for:

• claims made in its 2020 Annual Report about natural gas being a ‘clean fuel’ providing ‘clean energy’; and
• statements made by Santos about having a credible plan in place for achieving net-zero emissions by 2040.

This is the first case to challenge the veracity of a company’s claim to be able to meet a net-zero emissions target. The applicant alleges that in making that claim, Santos engaged in misleading or deceptive conduct, and that the claim that gas was a ‘clean’ fuel was liable to mislead the public as to the nature of Santos’ primary product of natural gas, in contravention of the ACL. This case, while novel, highlights the importance of explaining or substantiating all claims with clarity, particularly on environmental and social issues which are now under particular scrutiny.

The ACCC has recently confirmed it will prioritise working closely in this context with other regulators, including ASIC and the Clean Energy Regulator, to identify and act against false, misleading or deceptive conduct in this area.

ESG & competition law

What are the legal parameters?

The CCA is a national law[8] regulating how corporations deal with customers, suppliers and competitors. The CCA prohibits:

• contracts, arrangements, understandings or concerted practices that have the purpose, effect or likely effect of substantially lessening competition in a market;[9]
• cartel conduct, including price fixing, market-sharing, bid-rigging and output control;
• resale price maintenance; and
• misuse of market power.

Penalties & exemptions under the CCA

Contraventions of the CCA can attract civil and criminal penalties. The maximum penalties for breaches of the CCA are set out below:

	Corporations	Individuals
Civil penalties for: Anti-competitive contracts, arrangements or understandings Misuse of market power Resale price maintenance	The greater of: $10m; three times the value of the benefit received; or 10% annual turnover	$500,000
Cartel conduct (civil or criminal penalties)	The greater of: $10m; three times the value of the benefit received; or 10% annual turnover	10 years in jail, community service orders, disqualification from managing corporations and/or fines of up to $420,000 per criminal cartel offence $500,000 per civil contravention

 

Corporations wishing to engage in conduct of social or environmental benefit that may otherwise potentially breach the CCA are able to seek an exemption (termed “authorisation”) for that conduct from the ACCC. A grant of authorisation by the ACCC provides certainty that no legal action will be taken by the ACCC in relation to the conduct.

In general terms, the ACCC will only authorise certain conduct if it is satisfied that the likely public benefit of the conduct outweighs the likely public detriment (the Net Public Benefit test). This includes cartel conduct such as price fixing, secondary boycotts and resale price maintenance.

Other types of conduct may be authorised where the Net Public Benefit test is met or the proposed conduct would not be likely to “substantially lessen competition”. This includes anti-competitive agreements, misuse of market power and exclusive dealing provisions.

Any party intending to engage in conduct potentially in breach of one of these provisions of the CCA can apply for authorisation. The applicant bears the onus of satisfying the ACCC that the relevant test for authorisation is met, although the ACCC will also conduct its own inquiries in making its assessment. The ACCC cannot authorise conduct engaged in before its decision on authorisation.[10]

Regulatory activity so far

The ACCC’s authorisation process, which gives protection for potentially anti-competitive conduct where a Net Public Benefit test is met offers a possible regulatory avenue for ESG activities between actual or potential competitors that might otherwise be in breach of the CCA.

The CCA does not define “public benefit” or “public detriment” but it is understood broadly as anything of value to the community generally.[11] Relevant ACCC Guidelines already identify “addressing externalities”, including deliver environmental benefits, as a legitimate public benefit claim that applicants might raise.[12] Some examples include:

• Industry levies are one area in which ACCC has considered environmental benefits as part of its Net Public Benefit test, for example, where competitors want to impose a levy on the sale of a particular product, the proceeds from which could then fund research into developing less environmentally-harmful products, or safe disposal of the same.

In September 2020, the ACCC granted a five-year authorisation to enable the Battery Stewardship Council (BSC)[13] to establish and operate a national stewardship scheme for managing certain types of batteries. The scheme, which aimed to provide for appropriate disposal and re-use of batteries, was to be primarily funded by a levy to be passed on to consumers. The ACCC concluded that the significant public benefits to the environment, increased public awareness of recycling and re-use and support for increased innovation, research and development weighed heavily in favour of authorising the conduct.  

• Collective bargaining or joint purchasing where the public benefits included a reduction in greenhouse gas emissions has also been examined favourably by the ACCC.

In August 2021, the ACCC granted a 24-year authorisation to Nike, Goldman Sachs, H&M and Equinix (Australia) Enterprises[14] to pool their electricity demand and jointly tender and negotiate power-purchasing agreements from a solar or wind electricity generation facility. The ACCC considered that there would be minimal public detriment, but significant public benefit in transaction cost savings, greater competition for the supply of electricity and environmental benefits through a reduction in greenhouse gas emissions.

The ACCC legislative framework aligns with current trends in other jurisdictions.

For example, each of the European Commission and UK Competition Markets Authority (CMA) are engaging in separate public consultations[15] regarding how competition and consumer law can better support the transition to a low-carbon economy and sustainability goals. 

The focus of competition regulators’ attention in these contexts is ‘sustainability agreements’ between competitors that have the objective of improving sustainability in the relevant industry. These agreements run the risk of falling afoul of cartel prohibitions but foreign regulators are also recognising that the scale of change that sustainability agreements can bring may be required for the transition to low-carbon economies. 

Addressing competition and consumer issues relating to ESG

It is important to ensure your business is compliant with the CCA and Australian Consumer Law, and is proactive in managing relating to environmental or social issues.

Within the business, and in claims made about products, it is important to avoid fusing the broader environmental values or aims of the business with the credentials of the products themselves. Vague claims like ‘environmentally friendly’ should be avoided unless they can be substantiated.

Further, all claims with an environmental or social dimension made in market-facing documents should also be carefully considered and supported by evidence. Litigation relating to environmental claims can cause great reputational and financial damage, and the frequency of these actions, and their scope, will only increase as environmental issues take centre stage over the coming decade.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).