Businesses should prepare by reviewing and seeking advice in relation to their sustainability and environmental claims.

Key takeouts

  • Sustainability and environmental claims are a priority focus of the ACCC, with regulatory scrutiny and enforcement action to ramp up.
  • The ACCC is planning an economy-wide 'internet sweep' of environmental claims made by Australian businesses. Businesses should expect that the ACCC will be challenging organisations to substantiate and verify their sustainability or environmental claims, including through use of substantiation notices.
  • While penalties under the Australian Consumer Law for false or misleading sustainability and environmental claims are already significant (with Volkswagen fined A$125m), businesses may soon face even higher penalties.

Amid heightening regulatory scrutiny, the Australian Competition and Consumer Commission (ACCC) is now targeting ‘greenwashing’, warning that businesses need to be ready to substantiate any environmental or sustainability claims for the businesses and products / services, including in advertising, marketing and packaging.

This won't wash - ACCC warning to businesses over greenwashing

The ACCC has recently reinforced that consumer and fair trading issues relating to environmental and sustainability claims (including greenwashing) are a key priority area for the ACCC (read our client alert on ACCC 2022/23 Priorities), and foreshadowed a wave of investigative and enforcement activity.

In a recent speech at the Sydney Morning Herald Sustainability Summit, ACCC Deputy Chair, Delia Rickard warned:

"False or misleading sustainability claims undermine consumer trust in all green claims and reduces confidence in the market – something the ACCC is keen to guard against."

"The ACCC won’t hesitate to take enforcement action where we see that consumers are being misled or deceived by green claims."

"Trust me, where we have concerns, we will be asking businesses to substantiate their claims."

Ms Rickard emphasised that the ACCC is actively monitoring sustainability and environmental claims and flagged a forthcoming 'internet sweep' of various environmental claims made by Australian businesses. The ACCC highlighted that a similar review in 2020, undertaken by the International Consumer Protection Enforcement Network, found that 40% of environmental claims were potentially misleading and required further investigation.

What is greenwashing and why is it of concern

Put simply, ‘greenwashing’ is a misrepresentation (express or implied) of the sustainability credentials of a company or of its products or services – whether made in advertising, marketing or promotional material, on packaging, on a website, company report, or any another form of communication.

Greenwashing is not a new source of legal and reputational risk for business (whether under the Australian Consumer Law or otherwise), however elevated scrutiny from regulators means the ability to navigate the risks associated with sustainability and environmental claims and ensure those claims can be substantiated and verified has never been more important.

From the ACCC's perspective, sustainability covers a broad range of issues, for example, reduced materials usage, lower emissions, improved disposal and increased circularity. Consumers are faced with various purchasing decisions and increasingly are focused on the impact that the product or business has on the environment. The ACCC is concerned that some businesses are falsely promoting environmental or green credentials to capitalise on changing consumer preferences, which may be inadvertent or intentional.

Key issues faced by consumers

When considering sustainability and environmental claims, it is critical to consider what the ordinary consumer will understand the claim to mean.

In this respect, the ACCC highlighted various areas of concern for consumers including:

  • Information asymmetry: it is difficult for consumers to verify the accuracy of a green claim as consumers are always going to have less information than the business making the claims.
  • Consumers often rely on trust marks, such as certification trademarks: information to verify claims, including the standards and criteria behind trust marks, is often detailed, complex, requires further research and sometimes completely unavailable. The use of trademarks and symbols may create uncertainty or confusion.
  • Many consumers are time poor: only a very small portion of consumers will spend time researching an environmental claim prior to purchase.
  • Consumers generally need to take at face value that claims made are truthful and accurate, and this gives rise to the greater likelihood of consumers being misled.

Importantly, the ACCC warned that clarifying or qualifying information on a website (for example disclaimers) will generally not displace the overall impression that a consumer makes based on the advertising, slogans or trademarks used.

Businesses should be on high alert

The ACCC has warned that businesses need to be ready to substantiate any environmental or sustainability claims when marketing their goods and services. This is likely to see the ACCC make greater use of its 'substantiation notice' power, which are compulsory notices requiring a business to substantive a claim within a specified period of time.

Further, the ACCC will be conducting an internet sweep of various environmental claims made by Australian businesses. While the ACCC has indicated it will use the data to update guidance for businesses and consumers on environmental claims, such a sweep may (in practice) also lead to investigations and enforcement action. In this context, the ACCC referenced learning from enforcement action overseas, including for example the Netherlands recent enforcement action against H&M and Decathlon for using general terms such as "Conscious", "Conscious Choice" and "Ecodesign" without explaining what these terms mean or explaining the sustainability benefits for the products, which saw the clothing companies make sizeable donations and remove the claims.

Getting it wrong is costly (and set to be costlier)

While penalties under the Australian Consumer Law for false or misleading sustainability and environmental claims are already significant (with Volkswagen fined A$125m), businesses may soon face even higher penalties, as explained in our recent client alert, Penalties for Competition and Consumer law breaches proposed to quintuple.

Sustainability and environmental claims which are false or misleading in breach of the Australian Consumer Law expose businesses to significant consequences, including reputational damage and heavy pecuniary penalties of the greater of $10m, three times the value of the benefit or 10% of Australian group annual turnover, as well as other orders including corrective advertising, compliance programs and consumer redress.

Further the financial exposure resulting from such claims is set to become even greater, with exposure draft legislation proposing to increase penalties substantial. As explained in our recent client alert (here), the proposed reforms would see penalties increased to the greater of:

  • $50 million (representing a fivefold increase of the current $10 million);
  • if the court can determine the value of the benefit obtained – three times the value of that benefit (unchanged); and
  • if the court cannot determine the value of the benefit obtained – 30% of the body corporate's 'adjusted' turnover during the period the breach occurred (increased from 10% of the body corporate's annual turnover in the 12 months prior to the act or omission).

Mitigating risk

Given the ACCC's heightened focus on sustainability and environmental claims, businesses should consider claims they are making or plan to make, and seek expert advice to ensure consumer law and other legal risks associated with those claims can be managed.

In considering claims, businesses should also consider some of the practical, preliminary guidance from the ACCC:

1. Avoid use of vague language

Businesses should avoid using vague and generic language in relation to sustainability and environmental claims and measures, cautioning against use of broad terms such as "green", "environmentally friendly" and "sustainability" as these terms rarely provide enough information and may mislead consumers.

2. Avoid use of technical language (where possible)

Businesses should avoid using technical or scientific language where possible, because consumers do not generally have knowledge of relevant scientific concepts and specific industry standards or may have different understanding of what term means. Further, some claims may be scientifically 'true' but can still be misleading when considered in the context of how a consumer will likely use the product.

3. Take caution when using standards

While the ACCC acknowledges that standards can be a useful tool to guide businesses, caution should be taken when relying on standards to substantiate environmental claims, including because they may not be robust, are out-of-date or require review.

4. Consider entire lifecycle of the product

In making claims, businesses should consider the entire lifecycle of the product and be clear if the claim only relates to one aspect of the lifecycle, taking care not to hide or downplay any negative impacts (eg if a product uses less water to produce, but the process results in higher emissions).

5. Be transparent but mindful of detail

While the ACCC emphasised that businesses should be transparent and provide information to substantiate their claims (including through providing information about various environmental indicators), the ACCC cautioned against using claims that require consumers to read large volumes of substantiating information to understand what the claim means.

6. Think about the consumer's perspective

The ACCC has suggested businesses focus on who the 'ordinary consumer' is and what they would understand a claim to mean, noting that an 'ordinary consumer generally isn’t someone that has undertaken extensive scientific research into the composition of a product. They aren’t someone that has extensively reviewed all the extrinsic material used to back up a marketing claim. And they certainly aren’t someone that has detailed knowledge of the complex supply chains involved in the manufacturing of a product.'

Takeaway: Before making any environmental and sustainability claims, a business should ask itself:

"1. What does an ordinary consumer understand these claims to mean?

2. Does your product or business live up to this understanding?"