ACCC's greenwashing deterrents: eight steps to ensure your hands stay clean

The ACCC has issued its framework for assessing the accuracy and transparency of environmental claims by publishing its final greenwashing guidance. The guidance outlines eight principles that the serve as a benchmark for good practice and aim to educate businesses about their responsibilities under the Australian Consumer Law (ACL). We expect that these guidelines will form the foundation for the ACCC's ongoing surveillance and enforcement policy against false, misleading and deceptive conduct going forward.

The ACCC guidance comes at a time when Australia is also moving toward standardised and internationally aligned reporting requirements for large businesses on financial and non-financial climate risks including a mandatory climate-related disclosure regime which is intended to commence in July 2024 for certain large businesses and financial institutions.

The Federal Government's proposed sustainable finance strategy released in November 2023 also flags the development of a sustainable finance taxonomy in 2023 and 2024 to seek to reduce greenwashing risks as well a proposal to legislate a labelling regime for investment products marketed as "sustainable" or similar, including for managed funds and within superannuation.

In complying with these emerging reporting or labelling requirements, business will also need to comply with general consumer laws like the ACL and, where financial services are involved, the mirror provisions in the ASIC Act which attract ASIC's guidance on how to avoid greenwashing (INFO 271).

The ACCC's greenwashing guidance principles

The ACCC guidance takes into account feedback from over 150 stakeholders across the consumer, business and environmental sectors.

The ACCC's eight principles are the same principles issued in its draft guidance earlier this year.

1. Make accurate and truthful claims
   • Any comparisons should be transparent and fair
   • You must have a reasonable basis when making a representation about the future.
   • Any environmental claims should not exaggerate the level of scientific acceptance or environmental benefit.
2. Have evidence to back up your claims
   • Have a reasonable basis for making any environmental claim.
   • Businesses that choose to rely on independent or third-party certification to make a claim should ensure the certifier is reputable and take reasonable steps to verify any information. Use information which is current and relevant.
   • The real-world implications of laboratory testing should be considered where scientific studies are used.
3. Don’t hide or omit important information
   • Do not rely on disclaimers, disclosures or clarifications in small print, or otherwise not displayed prominently enough.
   • Products and services have differing environmental impacts across various stages of their life cycle - the effect of the total life cycle or overall activities should be considered prior to making an environmental claim.
4. Explain any conditions or qualifications on your claims
   • Some environmental claims may only be true under certain conditions, which should be clearly stated.
5. Avoid broad and unqualified claims
   • Avoid using overly broad, vague terms that consumers may not readily understand, especially claims in highly polluting industries and emissions related claims.
6. Use clear and easy-to-understand language
   • Avoid overly technical or scientific language, while using words according to their ordinary meaning.
   • If a claim relies on a specific interpretation of common words or phrases, clearly define and explain this.
7. Visual elements should not give the wrong impression
   • Avoid visual elements that would give the wrong impression of the environmental impact of a product or service.
   • Consider commonly used symbols, colours and images that may have environmental connotations.
8. Be direct and open about your sustainability transition
   • Businesses should take care when making aspirational claims about future environmental objectives unless clear and actionable plans have been developed.

The overarching goal of the ACCC guidance is to foster a regulatory environment where businesses genuinely embrace sustainable practices and communicate their efforts transparently without "greenhushing" (opting to stay quiet due to perceived regulatory risks).

An underlying principle of the ACCC guidance is to create a level-playing field for business which encourages investment and innovation in environmental and sustainable practices. For consumers, the ACCC guidance is positive as well because it should help business to facilitate informed choice by making appropriate disclosures where environmental issues are often a core part of a purchasing decision.

What types of claims will be an ACCC focus?

Environmental claims are made about environmental attributes. Examples which are specifically noted in the ACCC's guidance are claims about:

• resource use and waste management;
• the types of materials used and how they are sourced;
• product durability and repairability;
• end-of-life and disposal options;
• energy use and emissions;
• water usage;
• pollution and use of harmful substances; and
• deforestation, land or aquatic degradation and associated biodiversity impacts.

The ACCC guidance includes quite extensive practical guidance. There are numerous examples of practical applications of the 8 guidance principles, with 20 examples of claims that are likely to be false or misleading and an explanation why, and examples addressing use of symbols, trust marks and third-party labels and certifications.

The ACCC guidance also includes information about good practice in providing relevant information, avoiding use of overly broad and vague terms like "green" or "clean", "environmentally friendly" or "eco friendly:, Sustainable", terms that should be qualified and explained, such as Recyclable, Recycled content, Renewable energy, "free from" and good practice in making claims about your environmental sustainability transition.

There are also four case studies outlining good practice:

• in providing environmental sustainability information

• when setting environmental sustainability goals
• in providing evidence to support your environmental and social sustainability claim
• in communicating about sustainability transition efforts.

One of the case studies addresses the issues that can arise from advertising an emissions reduction goal and sets out good practice steps to quantify emissions, measure progress against the emissions reduction goals, make operational changes to reduce gross emissions, and where emissions reductions options are not immediately available, purchasing high integrity offsets. The ACCC guideline states that consumers are unlikely to readily understand what is meant by broad headline claims like “Carbon Neutral”, “Climate Neutral” or “Net-zero” and goes on to recommend various steps where "emissions related claims" are made including providing clear information about what emissions are included or excluded from assessments and being transparent about emissions reductions activities versus reliance on purchased offsets.

Compliance and enforcement approach

The ACCC will consider various factors in determining whether to take enforcement action for contraventions of the ACL. Conduct which is more likely to be subject to enforcement action includes:

• conduct that is of significant public interest or concern;
• conduct that results in substantial consumer or small business detriment;
• national conduct by large businesses (because it has the potential for greater consumer detriment and influences other market participants);
• conduct involving a significant new or emerging market issue or where our action is likely to have
• an educative or deterrent effect;
• where taking action will help clarify aspects of the law.

The ACCC has a range of regulatory powers that enable the investigation and pursuit of possible contraventions of the ACL, such as section 155 notices, substantiation notices, infringement notices and penalties. We expect the ACCC to continue to use these powers in particular in cases where business has not adopted its guidelines.

In what may be considered highly important from both a risk management perspective and as distinguishing the ACCC from other regulators, the ACCC has proactively stated that in determining whether to take enforcement action in respect of environmental claims, the ACCC will consider whether genuine efforts and appropriate steps were taken by the business to verify the accuracy of any information that they relied on.

The guidance indicates that the ACCC is more likely to take enforcement action in respect of representations about future matters regarding environmental claims where a business did not have reasonable grounds for making the representation, does not have an intention or plan to implement initiatives, or knew or was reckless about whether the claim was untrue or incorrect.

In other words, the more genuine and other appropriate steps taken in verifying information that is published, the less likely it is that the ACCC will take enforcement action if the information turns out to be incorrect, despite those steps having been taken. Ensuring that an organisation's processes and procedures for the approval of environmental claims contain genuine and appropriate steps, and record keeping for the taking of those steps, will likely mitigate against the risk of enforcement action.