The ACCC has released draft guidance on good practice for businesses making claims of environmental sustainability, in order to combat ‘greenwashing’.
The Australian Competition and Consumer Commission (ACCC) has been increasingly vocal against businesses relying on greenwashing practices to maximise consumer engagement.
‘Greenwashing’ is the practice of making representations relating to the environmental or sustainable benefits of products or services that are not supported by evidence and, as such, may be false or misleading. For example, a business may engage in greenwashing by advertising a product as being manufactured using ‘100% environmentally friendly materials’, where this claim is not supported by fact or credible scientific opinion.
On 14 July 2023, the ACCC enhanced its response to businesses using terms that may be considered greenwashing by releasing draft guidance on the good practices that businesses should adopt when making environmental and sustainability claims (Draft Guidance). The Draft Guidance is the latest measure implemented by the ACCC to combat greenwashing.
The Draft Guidance
The aim of the Draft Guidance is to assist businesses with minimising the risk of engaging in greenwashing practices that are in breach of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law).
Businesses that ‘greenwash’ a product may engage in false or misleading conduct, or unconscionable conduct, all of which are prohibited under the Australian Consumer Law. Businesses may also be in breach where the act of greenwashing is likely to mislead or deceive a consumer in relation to a product or service, even where a consumer does not actually suffer loss or damage.
Following a shift in consumer habits towards environmental friendliness and sustainability, the ACCC has identified that there is a serious risk that greenwashing practices may contravene these provisions of the Australian Consumer Law. For example, these practices may occur where businesses make environmental claims in marketing materials, business reports, point‑of‑sale materials, product packaging or on their websites or social media platforms to maximise consumer engagement.
Principles for good business practice
To mitigate this risk of non-compliance identified by the ACCC, the Draft Guidance emphasises eight principles of good practice for businesses to follow when making environmental and sustainability claims. The ACCC considers that businesses are less likely to breach the Australian Consumer Laws if they apply these principles.
By way of summary, the eight principles of good practice put forward by the ACCC are as follows:
- Accuracy: ensure all claims are true, accurate and represent the genuine environmental impact.
- Evidence: substantiate claims with credible, scientific and independent evidence that is easily accessible to consumers.
- Transparency: provide all relevant and important information that enables consumers to make informed decisions.
- Conditions and qualifications: clearly explain any conditions or qualifications relating to claims, including where a claim is only accurate in certain circumstances.
- Avoid broad and unqualified claims: avoid broad and unsubstantiated claims and ensure that any disclaimers are prominently displayed.
- Clear and simple language: use language that is easy for consumers to understand and that avoids technical terms.
- Accurate visual elements: visual elements, such as diagrams and images, should not give a wrong impression as to the environmental benefits of a product or service.
- Cautious approach to future objectives: be transparent and direct about sustainability objectives, including by avoiding aspirational targets, and detail action plans for sustainability transitions.
These eight principles offer useful guidance on how the ACCC intends to approach dealing with greenwashing claims moving forward. However, following the Draft Guidance does not guarantee compliance with the Australian Consumer Law in each case. Businesses should adopt a proactive approach to combatting greenwashing practices and to ensuring compliance with their obligations to consumers.
The ACCC has emphasised that it may pursue administrative and enforcement action against businesses that engage in greenwashing practices in contravention of the Australian Consumer Law. In light of this, businesses should familiarise themselves with their obligations to consumers and the good practices outlined in the Draft Guidance.
Given that the civil penalties for breaching the Australian Consumer Law have recently increased fivefold, businesses are also encouraged to review their websites, social media platforms, product packaging, internal policies and other marketing materials to ensure they comply with the Australian Consumer Law.
The Draft Guidance will remain open for public consultation until 15 September 2023.
Contact a member of our Corporate Advisory team if you would like to receive greenwashing compliance training or require assistance with reviewing your compliance with the Australian Consumer Law, including advice on whether your business systems will enable you to respond to a notice from the ACCC to support any claims you may have made in relation to your goods or services.