Environmental and sustainability claims to come under increased scrutiny: ACCC issues draft guidance

By Meg Lee and Sheruni Fernando

The Australian Competition & Consumer Commission (ACCC) recently published draft guidance that seeks to improve the integrity of environmental and sustainability claims made by businesses and protect consumers from ‘greenwashing’.

Once the guidance is finalised, businesses will likely be exposed to increased regulatory action by the ACCC in relation to environmental/sustainability claims. This will be in addition to the Australian Securities and Investments Commission’s current monitoring of breaches (ie through greenwashing practices) of the Australian Consumer Law, Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).

The draft guidance has been issued following the ACCC’s 2022 internet sweep of environmental claims. That investigation revealed that 57% of the businesses reviewed were making environmental claims that were potentially misleading and in breach of the Corporations Act.

The draft guidance has a broader focus, but there is obviously some overlap with the ASIC Information Sheet 271, issued in June 2022, which focused on sustainable funds, financial products and green bonds.

The ACCC is seeking feedback from consumers, businesses, and other stakeholders about the draft guidance. Submissions are due by 15 September 2023.

Environmental and sustainability claims under the Australian Consumer Law (ACL)

Under sections 18, 29, 33 and 34 of the ACL, businesses must not make false or misleading representations or engage in misleading or deceptive conduct. These prohibitions extend to the making of environmental and sustainability claims in trade and commerce.

The guidance sets out that claims can be about the environmental impact of a product or service, either stating it to have a neutral or positive impact on the environment, or stating it to be less harmful than other alternatives, or it may also be a claim about the product having specific positive environmental benefits.

The draft guidance sets out eight principles that should be considered when making such claims.

These draft principles are set out below, together with some of the examples given in the Guidance and our thoughts about how to apply the principles.

Principle 1: Make accurate and truthful claims

Environmental claims should be accurate, true and factually correct. Claims that are not true or partially true should be changed or not made at all.

To comply with this principle, businesses should:

• accurately state facts: an example given in the Guidance is if a paper product used by a business only contains 20% recycled material, a claim that it is ‘made from recycled materials’ will likely be misleading and contravene the ACL.
• not overstate levels of scientific acceptance: where the scientific basis of a claim is under dispute or not conclusive, businesses should not present the claim as being universally accepted.
• not exaggerate environmental benefit: businesses can achieve this by (1) clearly explaining the specific environmental benefit of their product or service; (2) quantifying the precise environmental benefit being achieved (eg ‘this packaging uses 5% recycled plastic’); and (3) avoid broad statements.
• only make meaningful claims: environmental claims should only be made where there is a genuine environmental benefit associated with the product, service, or business.
• make sure comparisons are transparent and fair: consumers can be misled into believing they are making a more environmentally friendly choice than they actually are, due to unfair or non-transparent comparisons that fail to clearly specify what is being compared.
• cautiously make representations about the future: businesses that make a claim about something that will happen in the future should have reasonable grounds for making the claim. Otherwise, the claim will be taken to be misleading.

Principle 2: Have evidence to back up your claims

Businesses can ensure that they have evidence to back up their claims by:

• verifying any claims made by suppliers or third parties.
• using widely accepted scientific studies, or studies that have been peer-reviewed and/or subject to independent scrutiny.
• if laboratory tests are being relied on, clarifying whether the laboratory results also reflect the conditions that will normally be experienced by consumers using the product/service.
• calculating reductions using accepted methodologies and keeping robust records to verify such claims.
• making any supporting evidence publicly available (eg by including it on the product/packaging, if possible).
• using third-party certifications (however, these certifications will not always adequately substantiate claims, especially where the certification scheme lacks integrity, if the claim goes beyond what has been certified, or if the certification is used to imply a greater benefit than there really is).

In taking enforcement action, 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 scope and extent of due diligence undertaken will vary depending on the size of the business’.

Principle 3: Do not hide important information

Giving consumers incomplete information is likely to be misleading. For example, by focusing solely on the positive attributes of a product, service, or business and neglecting to mention any negative aspects, businesses may create an impression that the overall environmental impact is lower than it actually is.

Businesses should:

• note that they will be unable to rely on disclaimers, disclosures or clarifications buried in small print, or otherwise not displayed prominently enough compared to the headline claim.
• consider the effect of the total life cycle of their product, or overall activities, before making any environmental claims, to ensure that the overall impression conveyed is not misleading.

Principle 4: Explain any conditions or qualifications on your claims

Certain environmental claims may only be true under certain conditions. These claims may be misleading if the conditions/required steps are not clearly stated or are not likely to be realised during ordinary consumer use.

To reduce this risk, businesses should ensure that they provide enough information about what is required for their claims to be true.

Principle 5: Avoid broad and unqualified claims

When making broad or unqualified claims, there is a risk of misleading consumers where a clear explanation of the environmental impacts associated with the product, service, or business has not been provided. However, this risk can be mitigated by qualifying claims with specific environmental impacts and ensuring that there is a reasonable basis for making such claims.

Claims that may be considered broad/unqualified include: ‘green’, ‘go green’, ‘choose green’, ‘environmentally friendly’, ‘eco-friendly’ and ‘sustainable’.

Other terms such as ‘made from recycled materials’, ‘renewable’, ‘produced with renewable energy’, ‘plastic free’ and ‘uses less water’, are likely to be only partially true and may cause consumers to assume that these claims apply to the entire product, service, or business, when this may not be the case.

Further, given the complexities involved in quantifying the impacts of greenhouse emissions, businesses (especially those operating in highly polluting industries) should exercise specific caution when communicating with consumers about these matters (eg by using claims such as ‘carbon neutral’, ‘climate neutral’ and ‘net-zero’). If these claims are made, businesses should have reasonable grounds to make the claims, for example by having appropriate business plans/investment approvals in place to make the changes necessary to meet emissions goals.

Principle 6: Use clear and easy to understand language

Claims can be misleading if they are worded in a way that is difficult to understand. To avoid this risk, businesses should avoid technical or scientific language (unless they are defined clearly), and only use words according to their ordinary, common meaning.

However, in using plain language, businesses must also be cautious about over-simplifying and risking hiding important qualifications or information.

Principle 7: Visual elements should not give the wrong impression

Images and visual elements should be used cautiously.

In particular, businesses should note that:

• depicting images of plants, animals, the Earth, or specific endangered species can imply environmental benefits.
• using widely recognised symbols can mislead if the product, service or business does not meet the criteria for using the symbol (eg the mobius loop for recycling should not be used if an entire product is not recycled/recyclable, unless it is clearly explained on the product which parts of the product are recycled/recyclable).
• certain colours (such as green and blue) carry environmental connotations and may contribute to an impression of environmental benefit.
• trust marks that are used as an indication that a product, service or business has been certified by a third party should be used cautiously (especially when certification by a third party has not occurred). Further, certification logos should not be used if:
  • independent certification has not taken place (eg if the certification is self-assessed) or if the business has a material connection to the certifying body.
  • the certification scheme falsely implies that specific environmental benefits have been certified as achieved, even though it is not the case.

Principle 8: Be direct and open about your sustainability transition

Businesses are encouraged to take genuine steps to improve their environmental performance and share their progress with consumers. However, the process of moving towards a more sustainable business model is gradual and not straightforward. Throughout this transition, it is inevitable that products and operations will continue to have adverse environmental effects.

Therefore, it is important for businesses to be cautious and refrain from making vague or ambiguous statements and claims regarding their sustainability transition. Such statements should not create an impression that the transition is more advanced than it actually is. This includes avoiding making claims about plans, intentions, or activities that have not yet been implemented, committed to, or undertaken.

Compliance and enforcement

The Guidance flags the following methods that the ACCC propose to utilise to investigate and enforce contraventions of the ACL in the context of environmental claims:

• Section 155 Notices: the ACCC is granted information gathering powers under section 155 of the Competition and Consumer Act 2010 (Cth). These powers can be used to obtain information and/or to require individuals to attend examinations to give evidence.
• Substantiation notices: these notices serve as a preliminary investigative measure to assist the ACCC in determining if additional investigation is necessary. Substantiation notices will compel individuals to provide information and/or produce documents that may verify or back up an environmental claim.
• Infringement notices: infringement notices may be issued where the ACCC has reasonable grounds to believe that a person has contravened certain consumer protection provisions in the ACL. Penalty amounts vary; however, if a person declines to pay an infringement notice, court proceedings may be initiated.

The maximum penalty a court may order for each contravention of the relevant penalty provisions of the ACL by a corporation is the greater of:

• $50 million;
• three times the value of that benefit obtained that is ‘reasonably attributable’ to the contravention (if this can be determined by the court); or
• if the court cannot determine the value of the benefit, 30% of the corporation’s adjusted turnover during the relevant period.

The maximum penalty for each contravention by an individual is $2.5 million.

Certain claims under the ACL may result in criminal liability for both corporations and individuals.

Next steps

Businesses are encouraged to assess the impact of the draft guidance on their current business practices, to consider whether the principles are clear and whether any further guidance should be provided.

If you intend to provide feedback on the draft guidance, your submission must be lodged prior to 15 September 2023. Please let us know if you require any assistance with your submission.