How to avoid greenwashing: ACCC issues draft guidance for environmental claims

The ACCC continues its focus on misleading environmental claims, or ‘greenwashing’, with much anticipated draft guidance for business and consumers.

In line with increased global scrutiny, since 2022 environmental and sustainability claims have been a compliance / enforcement priority for the ACCC.

Following an internet sweep of online environmental claims and the creation of a Sustainability Taskforce, the ACCC has now published draft guidance on business obligations under the Australian Consumer Law (ACL) when making environmental and sustainability claims (Draft Guidance).

The Draft Guidance is largely consistent with the ACCC’s 2011 ‘Green Marketing’ Guidelines but helpfully includes several detailed examples and a simple framework of eight key principles. The ACCC Deputy Chair has explained they reflect the ACCC’s expectations of business in this area and are intended to be used as “guard rails” when making green claims.[1]

The key takeaways in the Draft Guidance are:

• Environmental claims must be accurate and properly substantiated. It is prudent to maintain evidence of the reasonable steps taken to verify any information and data that is relied upon.
• Representations about the future will be closely scrutinised. Don’t make promises without reasonable grounds for doing so.
• Claims focusing on a particular positive characteristic of a product or service might be true and misleading, if they ignore negative aspects of the business or product / service life cycle.
• Broad, non-specific terms like “green”, “eco-friendly” and “sustainable”, or environmental images, should be used very carefully. They carry a heightened risk of misleading consumers.

This publication reaffirms the ACCC’s willingness to pursue perceived greenwashing and shows that even claims that are technically true are at risk of ACCC attention if not carefully explained, qualified and substantiated. The ACCC final guidance is expected to coincide with increased investigation and enforcement activity. Its regulatory toolkit is extensive, with the power to issue statutory notices, substantiation notices, infringement notices, and take court action for significant penalties.

The ACCC is accepting feedback on the Draft Guidance until 15 September 2023.

Getting the definitions right – “environmental claim” and “greenwashing”

An environmental claim is any representation in trade or commerce made by a business regarding its environmental impact, including claims that give the impression that its business, products or services:[2]

• have a neutral or positive impact on the environment;
• are less harmful for the environment than alternatives; and
• have specific environmental benefits.

This includes claims about future environmental performance. The claim need not be limited to the packaging of the item, but also any point of sale, marketing, advertising or corporate reporting materials (including online).

“Greenwashing” is an environmental claim that makes a business, product or service seem better or less harmful for the environment than it really is.[3]

A number of other regulators – such as ASIC – also scrutinise alleged greenwashing conduct. In broad terms, the ACCC’s focus is consumer facing products and services, while ASIC is primarily responsible for financial products and services.

The Eight Principles

No.	Principle	Comments
1	Make accurate and truthful claims	All claims made should be accurate and factually correct. This includes: taking reasonable steps to verify information – yours or that of a third party supplier; not exaggerating the environmental benefit; making balanced, transparent comparisons when referring to competitors’ products; and carefully considering any representations about the future, including ensuring “reasonable grounds” exist for making the claims.
2	Have evidence to back up your claims	Any environmental claim should be supported by evidence – larger businesses with greater access to resources will be under greater scrutiny in this regard. When considering what evidence to rely on, the ACCC suggestions include: Take independent and reasonable steps to verify the evidence relied on. For claims relating to reducing environmental impact (for example reducing emissions), calculate these reductions using accepted methods and rigorously record the results.
3	Don't leave out or hide important information	Giving customers incomplete information, or highlighting one aspect of a claim but neglecting to mention another (less favourable) aspect may give consumers the wrong impression, even if the piece of information they have been given is strictly true. This applies to the full life cycle of products and services. When communicating information to support a headline claim, it is also important to ensure any disclaimer or clarification is displayed prominently enough and close to the headline statement.
4	Explain any conditions or qualifications	Any environmental claim should be considered in light of the conditions required for that claim to be true, including how consumers normally use a product, the normal conditions in the place the product is usually sold and the resources needed for environmental benefits to be realised. For example, stating that a product is recyclable in a place that does not have the appropriate recycling facilities is likely to be false or misleading.
5	Avoid broad and unqualified claims	Broad non-specific claims like ‘environmentally friendly’ or ‘choose green’ could be risky - even when some aspect of the product or service has some environmentally beneficial characteristics. Claims should be specific, and qualified by: expressly identifying the part or attribute of the product, service or business that is subject of the claim; clearly naming and describing the specific environmental benefit; and if required, qualifying the extent to which that benefit has been achieved. The ACCC cautions that special care should be taken when making emissions-related claims as these can be difficult to calculate with specificity. Businesses wanting to make claims like ‘carbon neutral’ or ‘net zero’ should be careful to follow best practice in calculating emissions and offsets, and be satisfied that the information, once carefully validated, is communicated clearly to consumers.
6	Use clear and easy-to-understand language	Consumers are usually unfamiliar with scientific or technical language. Care should be taken to use language that can be understood by ordinary consumers and define any technical words that need to be used in making a claim.
7	Visual elements should not give the wrong impression	Pictures or graphics in marketing, products or packaging can strongly impact a consumer’s overall impression. Visual features that, if not substantiated, can contribute to a misleading impression include: Colour: The colours green and blue in particular can give the overall impression of environmental benefit; Symbols: Symbols like the recycling symbol or water droplet should be only used when the benefit it symbolises applies to the product or service; Images: Pictures that suggest the natural world (such as animals or trees) may suggest a positive environmental link. The ACCC also warns that the overall impression given by branding, logos and packaging, when taken together, may mislead.
8	Be direct and open about your sustainability transition	While transitioning from a traditional to a more sustainable business model is likely to take time and involve several complex stages, businesses should not overstate the extent to which they have become more sustainable, and not communicate any plans to do so that are not genuinely and formally committed to. Specificity in any claims and supporting materials should ensure businesses can communicate to consumers about their improvements in sustainability, while avoid giving an overall impression that is incorrect and apt to mislead.

 

How much “qualification” is needed?

Consumers increasingly factor environmental considerations into purchasing decisions, but many consumers are time poor and could struggle to verify environmental claims. On the other hand, businesses should be able to realise the competitive benefits of genuine environmental improvements by sharing them with consumers.

The ACCC suggests the basic principle is simple: Businesses making environmental claims should step into the shoes of a consumer who is looking to make a more sustainable purchasing decision:[4]

• What does an ordinary consumer understand my claim to mean?
• Does the product or business live up to this understanding?

One key theme emerging from the Draft Guidance is that specific and qualified claims are going to be more likely to produce a “yes” to these key questions. General claims without qualifications – such as “zero emissions”, “sustainable” or “environmentally friendly” – are at higher risk of causing confusion amongst consumers.

What could this mean? For some companies, it could mean walking a fine line in their marketing between cut through messaging and appropriate qualifications.

For example, a manufacturer promoting its electric vehicles (EVs) business as “creating zero emission electric vehicles” risks creating an impression that the vehicle creates zero emissions for its entire life cycle, when emissions may attach to the manufacturing and charging processes.[5] The Draft Guidance suggests that such a claim should be qualified so that it is something like “zero exhaust emissions while driving”.

Even more broadly, how do emissions-intensive businesses appropriately and safely market genuine environmental improvements? General claims without qualifications are identified as particularly high risk for these industries.[6] What qualifications / additional information will be necessary?

No doubt the ACCC will examine such matters on a case-by-case basis, but approaches taken offshore highlight the risks and potential conundrums for business:[7]

• In October 2022, the UK Advertising Standards Authority (ASA) held that HSBC UK advertising regarding its investments in renewables was misleading as consumers would conclude HSBC was making, and intended to make, a positive overall environmental contribution as a company, when instead HSBC was continuing to concurrently and significantly finance investments in high emission industries.
• In June 2023, the same regulator concluded advertising by Shell focusing on its lower emissions energy products and services gave the impression that these comprised a significant proportion of the products Shell invested in and sold in the UK in 2022, or were likely to do so in the near future. This was held to be misleading, because the ads omitted information about the proportion of Shell’s overall business model that comprised the lower-carbon energy products, which was material information.

As the CEO of the UK ASA has stated, businesses in emissions intense industries “need to be really careful” and “chances are, you’re going to need to add some balance to your ads”[8] in order to avoid scrutiny.

What happens if you get it wrong?

Under the ACL, businesses are obliged to not engage in conduct that is misleading or deceptive (or is likely to mislead or deceive), or to make false or misleading representations about specific aspects of products or services.

The ACCC has a broad regulatory toolkit to investigate and prosecute wrongdoing, including the power to issue statutory notices, substantiation notices, infringement notices, and take court action for significant penalties.

The maximum penalty for a corporation per contravention is the greater of:

• $50 million;
• 3 times the value of the ‘reasonably attributable’ benefit obtained by the business (if this can be calculated); or  
• if the Court cannot determine the value of the benefit, 30% of the corporation’s adjusted turnover during the relevant period.

Individuals may also be penalised up to $2.5 million for an ACL contravention.

What should you do now?

The Draft Guidance sets out the ACCC’s expectations for businesses making environmental claims. Some practical things to consider now include:

• If your business makes environmental claims in any form of marketing or communication to consumers, you should consider those representations carefully against the ACCC’s eight principles.
• It is important to ensure consumers can access clear information about your business’s environmental claims via your website or in documentation that accompanies the product or service.
• In order to respond to any substantiation notice or consumer enquiry as soon as possible, internal records setting out evidence for a claim should be well organised and easily accessible.  

The ACCC has said that in deciding on enforcement action, it will consider if genuine efforts and appropriate steps were taken to verify information and do other due diligence, so it is worth taking the time now to check any environmental claims your business makes, and ensure they are being communicated appropriately.

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).