By Matt Hansen, Partner
20 July 2023
Following a recent sweep of internet sites where it determined up to 57% of businesses were potentially making misleading environmental claims, the Australian Competition and Consumer Commission (ACCC) has published a draft set of guidelines for businesses to follow, to ensure they do not engage in “greenwashing”. The ACCC has previously stated that environmentally focused or “green” claims would be its top enforcement priority for 2023. These draft guidelines will be finalized in due course but are in very close to final form, so it is definitely time to dial up compliance in this area once again – so what are the risks, and what will non-compliance cost you?
Firstly, what is greenwashing?
Contrary to common belief, it does NOT involve washing white sheets or towels with a bright green jumper. Although that is also not recommended. Rather, greenwashing is a practice where a business makes claims or representations that its products or services are more environmentally beneficial than they really are. It is a form of misleading and deceptive conduct and can attract a substantial penalty from the ACCC. Green claims can be extremely powerful, especially given continued shifts in consumer sentiment towards a focus on sustainability and environmental awareness, and away from single-use materials for instance. The insidious thing about greenwashing of course is that unsustainable claims can be extremely difficult to discern from valid claims, because they are not self-evidently misleading. Many brands make such claims, and they are becoming more of a “hygiene factor” for brands to ensure they are relevant in the market, so brands are making similar claims. Consumers are moved by such claims but at the same time they are not likely to be able to investigate them. It is even more difficult for consumers to assess whether a green claim is valid when you consider that misleading and deceptive conduct can be done via act or omission, so a claim may be misleading because it omits certain important clarifications.
What are the new ACCC draft guidelines?
The ACCC’s draft guidelines outline eight major principles that businesses should follow to ensure that they are less likely to mislead or deceive consumers with respect to environmental claims. Those principles are:
- Make accurate and truthful claims – Consider the overall impression created, including through use of visual elements, and only make claims that represent a genuine environmental impact. Do not exaggerate the benefits or level of scientific acceptance of a claim. For example, a claim that a product “does not harm the environment” may be misleading if the product has only recently reduced its environmental impact by introducing some changes to its components, but still contains other environmentally harmful parts.
- Have clear evidence to back up claims – Independent scientific evidence is the most credible. Representations about future matters must have reasonable grounds (with evidence to support this). For instance, scientific data should back up claims in the real world. Results based on lab testing alone cannot be relied upon if they are not reflective of actual conditions.
- Do not leave out or hide important information – Be transparent about the environmental impact by considering all the relevant information and disclose any important qualifications. Consider the entire lifecycle of a product regarding any claims. For example, a claim that an electric vehicle “creates zero emissions in its life” is misleading as it does not take into account its manufacturing process. A claim of “zero emissions while driving” (or similar) would be more supportable.
- Explain any conditions or qualifications – If claims are only true in certain circumstances, or if there are any conditions that need to be met or steps that need to be taken for a claim to be true, this should be explained clearly and prominently. Theoretical environmental benefits, which are not clearly explained, are likely to mislead consumers. For instance, a claim that a product operates under reduced energy consumption levels when compared to competitors must be qualified in terms of what circumstances that performance can be achieved.
- Avoid broad and unqualified claims – Claims should be clear, specific, and substantiated. Broad claims can be interpreted widely and thus more easily mislead consumers. Claims should be qualified with prominent copy and supers (not stashed in a disclaimer) if there are any limitations to them. For instance, claims like “eco-friendly” or “made from recycled materials” are extremely broad and could reasonably be taken to mean a range of different things to different consumers, in different industries. Such claims should be adequately qualified.
- Use clear and easy-to-understand language – Avoid technical terms and specialist or industry specific language if possible, such as obscure acronyms or terms that require definition to be properly understood in context.
- Visual elements should not give the wrong impression – Visual elements (e.g., green colours, or recycling logos) on packaging and/or in advertising material can significantly influence a consumer’s impression of the environmental impact of a product or service. Avoid visual elements that would give the wrong impression about the environmental benefits of a product or service. Consider the overall impression that is created, taking into account words, visual elements, colours and logos.
- Be direct and open about your sustainability transition – Be cautious about making aspirational claims about future environmental objectives. Develop a clear and actionable plan detailing how you will achieve those objectives. Be direct and open about any transitions to more sustainable business operations, noting that this takes time and is often not linear. For example, avoid announcing an unrealistic goal about carbon emission reduction and stating it will be achieved in a timeframe that is not meaningful to consumers.
What happens if I breach these guidelines?
Breaching these guidelines could lead to complaints of false or misleading representations, or misleading and deceptive conduct, in contravention of the Australian Consumer Law (ACL).
Where the ACCC suspects that a claim from a business may contravene the ACL, the first action it is likely to take will be to issue a notice under section 155 of the Competition and Consumer Act, allowing the ACCC to conduct information gathering with the relevant business. Alternatively, the ACCC may issue a substantiation notice to the business, requiring them to provide evidence to the ACCC of the accuracy of any claims.
Where the ACCC has reasonable grounds to believe that a business has contravened certain consumer protection provisions of the ACL, it can issue an infringement notice. The amount for each infringement notice varies, depending on the alleged contravention.
Payment of an infringement notice penalty does not amount to an admission or finding of a contravention of the ACL. However, where a person declines to pay an infringement notice, or does not adequately comply with a substantiation notice, or where the breach of the ACL is particularly problematic, the ACCC is likely to consider other enforcement options, including seeking pecuniary penalties in Court.
Where the ACCC instigates court proceedings, it is likely to go for the maximum penalties. The maximum penalties for infringements on a per contravention basis are the greater of:
- $50 million;
- If the Court can determine the benefit obtained that is “reasonably attributable” to the contravention, 3 x the value of that benefit; or
- If the Court cannot determine the value of the benefit, 30% of the corporation’s adjusted turnover during the relevant period.
Remember, anyone can report greenwashing to the ACCC, or the ACCC may instigate its own investigations. So, if you are greenwashing, it is only a matter of time before the above enforcement risks become very real for you.
What happens now?
The ACCC is currently seeking feedback from businesses, consumers and other stakeholders on the draft guidelines. Consultation for the draft guidance is open until 15 September 2023. Following this, based on feedback the ACCC may issue updated guidance.
If you would like further information on the ACCC’s greenwashing guidelines, and how they impact on you or your business, please contact one of our experts below.