There has never been greater pressure on businesses to satisfy customers that their products and services come with a minimal environmental footprint; this is why it’s important to consider the ramifications of greenwashing.
Likewise, ensuring that your business’ words reflect its actions have never been more important from both an ethical and a legal perspective.
Now is a good time for all businesses to ensure that they walk the walk when it comes to emissions and environmental sustainability. But what exactly is the meaning of “greenwashing”?
What is greenwashing?
The term “greenwashing” has an interesting history going back to the early 90s, when Greenpeace used the term to draw scrutiny to unethical green marketing by high-polluting companies at a time when public opinion was shifting towards curbing fossil fuels.
Greenwashing in business, greenwashing in finance and greenwashing in fashion are all areas where there have been issues. This highlights that it is a problem that is trans-diciplianry and all types of businesses need to take into consideration the effects.
Today, there is a consensus among consumers and government agencies that minimising the environmental impacts of energy production, manufacturing, transportation and waste is a high priority. The term “greenwashing” has been adopted in a range of contexts, and its meaning depends on the context.
ASIC Definition
ASIC defines “greenwashing” as “the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical”.
The term is a little less common in the statements of the ACCC, though the concept remains substantially the same, albeit in the context of statements made to consumers. Towards the end of its previous sweep of green claims in the period 2007-2012, the ACCC released the guide ‘Green marketing and the Australian Consumer Law’ in which it stated:
‘Environmental claims can be a powerful marketing tool. These claims come in a wide range of forms, including statements about environmental sustainability, recycling, energy and water efficiency or impact on animals and the natural environment.
…it is essential that consumers are provided with accurate information in order to make informed decisions. Firms which make environmental or ‘green’ claims should ensure that their claims are scientifically sound and appropriately substantiated. Consumers are entitled to rely on any environmental claims you make and to expect these claims to be truthful.’
More recently, the ACCC has stated that businesses must “back up claims they are making, whether through reliable scientific reports, transparent supply chain information, reputable third-party certification, or other forms of evidence”.
Is greenwashing against the law?
The Australian Consumer Law (ACL) prohibits businesses from making claims that amount to misleading and deceptive conduct- that is, statements that are likely to mislead or deceive ordinary consumers in the context in which they make decisions.
Under the ACL, it is an even greater offence to make certain false or misleading representations. This means that:
· Businesses must not falsely state that their goods are of a particular quality or standard. For example, goods must comply with any description that states the goods are made of certain materials or can be used for a certain purpose, such as being recyclable, or containing refrigerants (or lack thereof).
· Businesses must not falsely state that they have acquired sponsorship or approval on account of their environmental credentials, or that their goods have certain capabilities or benefits to the environment that they do not have.
The ACCC has announced that it is conducting two online “sweeps” to identify such representations, the first of over 200 company websites from a range of sectors including energy, vehicles, household products and appliances, food and drink packaging, cosmetics, clothing and footwear. The second is online reviews and testimonials. It intends to publish the results of these sweeps, and to fine any offenders it comes across.
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Legal Implications
In October 2022, ASIC fined Tlou Energy Limited $53,280 across four infringement notices for making false or misleading public statements regarding its green credentials. It found that the company did not have a reasonable basis for calling its overall production “carbon neutral” or describing specific projects as “low emissions” and “clean energy”.
This comes after several months of ASIC, APRA and the ACCC making announcements about targeting “greenwashing” in their enforcement agendas.
SMEs should take particular note of the ACCC announcing it is conducting “internet sweeps” targeting misleading environmental and sustainability marketing claims. This is in line with the watchdog’s announcement that such claims are its top consumer priority for 2022/23.
What are the Potential Consequences?
The ACCC has the power to issue fines on businesses that breach the Australian Consumer Law. Where it suspects that a breach has occurred, it may send a business a “substantiation notice” that requires them to provide information or documents with evidence to back up a given claim.
Where a business does not comply with such a notice, or provides false or misleading information, it may collect penalties either through an infringement notice or a court order. The penalties depend on the nature of the breach and how penalties are sought, and can be as high as $27,500 per infringement.
The outcome of a substantiation notice may not necessarily involve penalties (or only penalties). The ACCC may ask the business to make an “undertaking” to, for example:
· change the way they present their statements to ensure that consumers are not misled;
· make corrective statements; or
· refund affected consumers.
Investigations
Depending on how the business responds to a substantiation notice, ASIC may then decide to take matters further and investigate to confirm that breaches of the Australian Consumer Law have taken place. The fines for such breaches have a high upper limit- under the legislation, for each contravention, a court can imposed a fine the greater of $10 million, three times the value of the benefit obtained from the conduct, or where the benefit cannot be determined, 10% of annual turnover.
The ACCC used stronger language than ASIC in regards to potential consequences. Whereas ASIC has stated that it is still in the process of educating the market, the ACCC has stated that it is looking to take the greatest offenders to court.
Businesses should also note the reputational impact that ASIC’s actions against Tlou Energy have had on the company, with the enforcement action reported on ASIC’s website and across several major news agencies.
What can businesses do to ensure the integrity of green claims?
The straightforward answer is to not make any claims that cannot be backed up. In ‘Green marketing and the Australian Consumer Law’, ACCC provided a set of principles and guidelines to follow. These include:
· Claims should be honest, accurate and truthful.
· Claims should be able to be substantiated through data presented on packaging, advertising or through representatives.
· Claims should be specific, not unqualified and/or general. For instance, “safe/friendly for the environment” may be accurate in some contexts and interpretations, but it may lead some to conclude, for instance, that the packaging is biodegradable, which may be incorrect.
· Claims should be in plain language. Consumers who are unfamiliar with technical terms will often make assumptions and may be misled.
· Claims must not overstate a benefit. For instance, a statement “now 50 per cent more recycled content” may be misleading if the only real change is from 1% to 1.5%.
· Pictures can also be representations. For instance, a picture of a dolphin on a can of tuna may be taken by consumers as a symbol to mean the tuna has been fished in a manner that does not harm dolphins.
· Claims should make it clear whether claimed benefits refer to packaging or content.
· Claims using endorsement or certification should be used with caution. For instance, an icon of a red panda may imply that the product does not harm pandas, whereas it may refer to a certification that any harm to panda habitats is offset elsewhere.
· Claims should consider the whole product life cycle. Rather than applying the claim to the whole life cycle, the environmental benefit to a specific part of the product or its production process, such as extraction, transportation, manufacture, use, packaging or disposal.
How to ensure you are not greenwashing
In its guidance on greenwashing, ASIC has provided questions that can be asked to ensure the integrity of green claims, and although these are directed at statements made to investors, they also provide clues as to how business should act when making statements aimed at consumers, as a matter of good practice.
· Are your headline claims potentially misleading? Claims that are prominently placed should reflect the details that underly such claims; in other words, businesses should not rely on “fine print” where that fine print tells a different story to the big, bold claims.
· Do you have reasonable grounds for a stated sustainability target? Have you explained how this target will be measured and achieved? Wherever claims are made about targets or predictions relating to a company’s environmental impact, these claims should have reasonable grounds, and should be supported by plans to ensure these are met.
Furthermore, the multi-step nature of ACCC’s enforcement actions suggests that businesses wanting to avoid regulatory issues should ensure not only that their claims are factually accurate, but also that they are consistent and supported by easily-accessible information.
While a business provided with a substantiation notice regarding a particular statement may be able to provide information to back up that statement, the process may raise further questions about the accuracy of other marketing and communications to consumers.
It is important to get ahead of these issues. For instance:
· Any greens claims made on media posts should be supported by information provided on the company website.
· Any incorrect statements made in error should be promptly and publicly corrected.
· Any concerns expressed by consumers should be taken seriously.
Key Takeaways
Businesses will continue to feel the heat from both investors and consumers with demands to take action on climate change and other environmental matters. Whether they consider such action to be in line with their values and their bottom line is a commercial decision.
But how businesses choose to communicate the action that they do or do not take has legal implications, and should be approached with great care and consideration of the principles outlined in this article.
It is in the best interests of companies to ensure that they communicate the environmental impact of their products and practices in an accurate manner, or at the very least that they do not make inaccurate claims.
For tips on evaluating the social and environmental value of your investments and business relationships, read our article How to Engage in Socially Responsible Investing.
If you would like more help to safeguard your business from greenwashing you can hire an experienced Lawapth lawyer.
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