As we settle into a new calendar year, we reflect on the Australian Competition and Consumer Commission’s (ACCC) 2022/2023 compliance and enforcement priorities announcing, amongst other priorities, their commitment to resolving consumer and fair trading issues regarding environmental claims and sustainability.
In a recent speech at the Sydney Morning Herald Sustainability Summit, ACCC Deputy Chair Delia Rickard cautioned businesses in that the ACCC is working closely with the Australian Securities and Investments Commission (ASIC) and the Clean Energy Regulator to address greenwashing issues.
The regulators’ enhanced focus in this area is reflective of Australian consumers’ increasing demand for ethical and sustainable business practices, and business’ increasing marketing and advertising of their credentials in these areas in response.
In this article, we consider a number of recent developments in this space, and some takeaways for businesses keen to avoid drowning in a tidal wave of greenwashing claims.
The ‘greenwashing’ effect
As consumers increasingly factor environmental and sustainability considerations into their decision-making and as we have separately reported on, claims of greenwashing are set to rise. Consumers are faced with the difficult task of deciphering the accuracy of business’ ‘green’ claims due to the (as the ACCC puts it) ‘information asymmetry’ present in the marketplace, often making it impossible to verify claims without insight into the business’ processes and standards.
This is a global issue. The fashion industry has been a particular focus for backlash in relation to overstated or inaccurate greenwashing claims. For example, in the US and elsewhere, H&M is facing a class action lawsuit over its ‘Conscious’ collection, for marketing the materials of its fast-fashion products as more sustainable and environmentally friendly. It is alleged that the collection’s green clothing tags, paired with H&M’s online statement regarding its sustainability credentials, are not a true representation of the brand’s environmental impact, and create a false image of the brand in the mind of the consumer.
Countless other brands have faced similar scrutiny regarding misleading marketing efforts touting the alleged sustainability of their products. Fast-fashion company Boohoo left consumers outraged after announcing Kourtney Kardashian as its ‘sustainability ambassador’ in September last year, being criticised by the fashion media of greenwashing and making sustainability claims that can mislead consumers.
The need for legitimate claims
To ensure their decisions are well-informed, consumers need to know that the representations they are relying on are accurate. Trust marks, such as certification trade marks, can influence consumers’ choices as they are seen to increase the legitimacy of sustainability claims. However, companies using certification trade marks to increase the legitimacy of their claims should disclose if the claim only applies to certain products or aspects of their business. Otherwise, they run the risk of leaving misleading impressions as to the sustainability of a given product and coming to the attention of the ACCC and others.
The price to pay for greenwashing
Australian regulators have made it clear that greenwashing and false environmental, social and corporate governance-related (ESG) claims will not be slipping under their radar, and that companies should assess their ESG-related assertions to avoid costly penalties. The warning follows the ACCC’s enforcement action against Volkswagen AG in 2019 for making false representations about its compliance with diesel emissions standards. In this case, the Court ordered $125 million in penalties against Volkswagen, at the time making it the highest ever imposed penalty for breach of the Australian Consumer Law.
Following in the ACCC’s footsteps, ASIC took its first action against greenwashing in October of last year, leading to a $53,280 fine for ASX-listed Tlou Energy Limited. ASIC has also recently published an Information Sheet detailing how companies can avoid greenwashing when offering or marketing sustainability-related products.
The Australian Association of National Advertisers (AANA) has likewise indicated that it will be undertaking a review of the AANA Environmental Claims Code to ensure it is fit for purpose in increasing consumer confidence in environmental claims, as we have reported on here.
Pathways to the (greener) other side
Takeaways for businesses wanting to avoid a public relations storm (or a hefty fine) include:
- Be transparent about your offerings and environmental policies to allow consumers to make informed decisions.
- Avoid using vague or absolute language when describing products and services: use clear and specific language which details the particular components of the product or service your claim refers to, in a way that is easy for consumers to grasp. Technical language should also be avoided where possible, as most consumers do not have specialised knowledge of particular concepts and industry standards.
- Substantiate ESG-related claims with robust, up-to-date data, such as reliable, evidence-backed scientific reports, reputable third party certification, and transparent supply chain information.
- Ensure appropriate use of trade marks including certification marks, taking care to ensure that such use is not deliberately exploiting consumers’ misconceptions about the relevance of the trade mark to your full product and service offerings.
The authors wish to thank Saba Karimi, Summer Clerk, for her assistance in the research and drafting of this article.