The Australian Competition & Consumer Commission has recently released draft guidance on environmental and sustainability claims, which are likely to have significant implications for businesses.
On 8 August 2023, Catriona Lowe, the Deputy Chair of the Australian Competition and Consumer Commission (ACCC), gave a keynote at the General Counsel Summit. Ms Lowe stated that general counsel’s input on corporate accountability and decision-making is critical particularly around an organisation’s “proposed response to climate change, environmental and sustainable initiatives, which are all common words in boardroom meetings these days”. Ms Lowe emphasised the incredibly valuable role GCs play in advising a business about claims that can be made about these issues.
Ms Lowe referred to the ACCC’s draft guidance (Guidance) published on 14 July 2023 for businesses on making environmental and sustainability claims. The Guidance has been highly anticipated given that:
- the last guidance material from the ACCC was published over a decade ago in 2011 and the consumer law landscape has significantly changed since that time;
- regulators – the ACCC and Australian Securities and Investment Commission (ASIC) – have been actively pursuing enforcement action against greenwashing and misleading or false environmental claims since early last year, which we reported on here; and
- in October 2022, the ACCC conducted an internet sweep and reviewed 247 businesses across a range of targeted sectors and found that 57% of businesses made potentially misleading environmental or sustainability claims.
Participate in the consultation process
The Guidance is open for a period of consultation and businesses, consumers and consumer advocates can make submissions by 15 September 2023 via the ACCC Consultation Hub.
This is a crucial opportunity for businesses and industry associations to highlight the process behind deciding what environmental claims to make and whether the Guidance provides sufficient direction in facilitating those decisions. In particular, the ACCC has sought views on the kind of environmental or sustainability claims that are confusing and the most useful ways in which businesses can provide information about their environmental or sustainability credentials.
Overview of the Guidance
The rationale for the Guidance is underpinned in the following comments by Ms Lowe at the GC Summit:
“False or misleading claims can undermine consumer trust in all green claims, particularly when they’re paying higher prices based on these claims. We need these claims to be genuine. This is not solely about protecting consumers, it’s also about ensuring a level playing field for business, and helping governments reach their targets of net zero by 2050. Businesses that are taking genuine steps to adopt sustainable practices are put at a competitive disadvantage by businesses that engage in ‘greenwashing’ without incurring the same costs. This can disincentivise businesses to continue investing in more sustainable products.”
While the Guidance is still in draft form, the ACCC’s position as expressed by Ms Lowe is that businesses should treat it “as guard rails for your business’ green claims”.
We have distilled the eight good practice principles highlighted in the Guidance into DOs and DON’Ts for businesses:
1. DO make accurate and truthful claims
Environmental claims must be accurate, true, and factually correct.
In the context of the marketing collateral as a whole, this means ensuring that you DON’T:
- overstate the level of scientific acceptance;
- exaggerate environmental benefits – is it a blanket or exaggerated statement? Always quantify the benefit where possible;
- advertise irrelevant or insignificant claims – only make meaningful claims about the genuine environmental benefits;
- make comparative claims unless they are transparent, fair and are a true reflection of the impact of the product or service – unfair comparisons or comparisons that lack transparency about precisely what is being compared, can mislead consumers into thinking they are making a better choice for the environment than is actually the case; and
- make a representation about the future (such as ‘achieve net-zero’ targets’ or ‘transition to renewable energy’) unless there are reasonable grounds to do so. In her speech, Ms Lowe mentioned that of the 25 energy businesses reviewed by the ACCC during its sweep, 64 per cent made concerning claims, particularly where consumers are conscious of the environmental impact of such services and where the provision of those services involves a complex supply chain, more transparency is needed to assist consumers in making informed decisions.
2. DO have evidence to back up your claims
It is important to always have a reasonable basis for making environmental claims and to substantiate those claims with clear evidence. Businesses should make genuine efforts and take appropriate steps to verify the accuracy of information relied on, e.g., from suppliers, relying on peer-reviewed scientific studies or methodologies, or sources of information that have been independently reviewed. It is also good practice to make this information as easy to locate and understand as possible – record-keeping is key.
Ms Lowe gave the following example: “if a supplier claims their packaging is 100 per cent recycled but it’s the same price as standard, non-recycled packaging, this should raise alarm bells for you. Don’t take a supplier’s claim at face value, as this could lead to your business making a misleading claim that could lead to penalties.”
The ACCC recognises that small businesses generally do not have the same resources as larger businesses and keeps that in mind when considering enforcement action. However, businesses must show that they have taken genuine steps to avoid making misleading or false statements.
The ACCC notes that while third-party certification can be helpful in substantiating some environmental claims, a cautionary approach is required particularly where claims go beyond what has been certified or they imply a greater benefit from certification than is factually correct.
3. DO NOT hide important information
Giving incomplete information when making an environmental claim can be misleading. For example, highlighting only the positive aspects of a product or service and omitting the negative aspects can give the impression that the product or service has an overall positive environmental impact. Balance is key.
DO NOT solely rely on disclaimers, small print or information not displayed prominently compared to the headline claim. Small print information should not conflict with the overall message of the claim.
Ms Lowe gave an example of a cosmetics company that prominently advertises on their pump shampoo bottles that they are ‘plastic free’ but on the back of the bottle, in small text, it stated that this claim only applies to the external bottle and not the cap, pump or internal tube. She went on to say that “Consumers are likely to assume that the ‘plastic free’ claim displayed prominently on the front of the bottle applies to the entire bottle…The small print on the back of the bottle does not assist consumers in their purchasing decision as it directly contradicts the headline claim ‘plastic free’ on the front of the bottle and is not sufficiently prominent … If you do need to make a disclaimer or qualification, you can reduce the risk of giving an overall impression that is misleading by prominently displaying this near the headline statement.”
A takeaway from the comment above is that using disclaimers is never a risk-free proposition – but the risk can be lessened if appropriately managed.
Similarly, consider the effect of the total lifecycle of the product before making claims. This includes:
- the raw materials used (including how they are sourced)
- the manufacturing processes and location
- any waste or by-products
- the packaging
- how the product is used
- the end-of-life options and disposal
- whether the product has an overall negative impact on the environment.
4. DO explain any conditions or qualifications on your claims
Some environmental claims are only true under certain conditions or can only be realised if specific steps are taken. For example, a biodegradable product may only break down at a certain temperature or after a very long period of time.
These types of claims can be misleading if the conditions or required steps are not clearly stated or are unlikely to be realised during ordinary consumer use. It is good practice to provide sufficient information to consumers on what is required for the claim to be true.
5. DO avoid broad and unqualified claims
Businesses risk misleading consumers if they make broad or unqualified claims that are unclear or do not explain the environmental impacts of the product or service. Some common claims used by businesses include:
- green, go green or choose green
- environmentally friendly
- eco-friendly
- sustainable
These terms convey sweeping benefits that can mean different things to different consumers. These claims also may not always reflect the actual impact of a product or service through its lifecycle.
In particular, the ACCC has called out emissions-related claims and advises businesses to exercise caution as ordinary consumers are unlikely to understand technical terms such as “carbon neutral” or “net-zero”. Ms Lowe stated that if businesses do choose to make emissions-related claims, there are some good practices to adopt including completing a thorough baseline assessment, clearly and transparently communicating actions taken to underpin a claim (e.g. whether the claim is based on decarbonisation efforts or reliance on offsets) and accounting for all types of greenhouse gas emissions (e.g. don’t single out one emission).
When making claims about future goals and ambitions, businesses should have appropriate business plans and investment approvals in place to make the changes necessary to actually meet the goals. In this regard, Court action has recently been taken by an advocacy group against a company which made claims relating to its future goals, but allegedly does not have a clear and definitive plan in place for those goals to be achieved given the contingencies built into its decision making.
6. DO use clear and easy to understand language
Use plain English language such that it is understood by an ordinary reasonable consumer, i.e., use words that are likely to be understood by their ordinary meaning. Where possible DO NOT use scientific or technical words and phrases.
7. DO NOT use visual elements if they give the wrong impression
Images and visual elements in marketing, products design and packaging must be used with care. The use of environmental images such as water, plants, trees, or animals, the colour green or the recycle symbol may be interpreted by consumers as making broad claims of environmental benefit. This risks misleading consumers if it is untrue.
Obviously such imagery can be used, but care must be taken to consider the overall impression of a product or service and to consider if the impression could be potentially misleading or false in any way.
Further, a business may use third-party certifications to show its environmental credentials. Businesses must, however, ensure that the product or service has been adequately and independently certified and that the credentials are not overstated.
8. DO be direct and open about your sustainability transition
Lastly, the ACCC has stated that it realises that transitioning to a sustainable business model can be time consuming and involve several steps. It, therefore, encourages businesses to take genuine steps to improve their environmental performance and share their progress with consumers. It is good practice to be honest and transparent about those steps rather than making overbroad or false claims. Such clarity is often appreciated by consumers and it helps build trust in the business.
The ACCC’s compliance and enforcement approach
While the Guidance is not black letter law, it does provide a helpful insight into the investigative, compliance and enforcement approach adopted by the ACCC in relation to green or sustainability claims.
The ACCC has a range of regulatory powers such as issuing section 155 notices, substantiation notices and infringement notices.
The ACCC can also take court action against businesses or persons for making false or misleading representations. In such circumstances, a breach of the ACL can result in large penalties for businesses with fines up to the greater of:
- $50,000,000;
- if the Court can determine the reasonably attributable benefit obtained, 3 times the value of that benefit; or
- if the Court cannot determine the benefit, 30% of adjusted turnover of the corporation during the breach turnover period for the offence.
The penalty for individuals is up to $2,500,000 per breach. In some cases, such as where individuals are officers of a company, in addition to being personally fined for particularly egregious conduct, they can also face criminal liability.
Ms Lowe encouraged GCs “to actively be involved in the process of alerting the ACCC to matters of non-compliance or potential anti-competitive conduct.”
It is advisable that before engaging with the ACCC on matters that external, independent legal advice be sought. Not only can external advisors provide a fresh perspective on the issue, but they will also be able to draw on their experience dealing with the ACCC on matters across a specific industry.
What next?
- Consider making submissions to the draft Guidelines before the deadline.
- Compare your business’ internal processes, policies and guidelines against the Guidance and align accordingly, including incorporating any useful examples or suggestions.
- If you haven’t done this already, conduct a review of your business’ marketing collateral (including online material, in company prospectuses and social media campaigns) for green claims and instigate training programs for employees.
- Consider the implications for your business partners or others within your business’ distribution and supply chain – whether procurement, auditing and verification processes need to be implemented or reviewed.
- If your business is a brand owner that imports into or manufactures clothing in Australia, consider signing up to the Seamless, the first national product stewardship scheme for clothing and textiles, which launched in June 2023.
If you need advice in this space or on your obligations under the ACL, the team at Bird & Bird are well placed to assist you. Please reach out to Lynne Lewis or Shariqa Mestroni for assistance.
For further information, please contact:
Lynne Lewis, Partner, Bird & Bird
lynne.lewis@twobirds.com
