ACCC issues draft guidance to assist businesses in relation to compliance and to protect consumers from “greenwashing”
On 14 July 2023, the Australian Competition and Consumer Commission (ACCC) issued draft guidance (Draft Guidance Note) to seek to improve compliance by businesses with obligations under the Australian Consumer Law (ACL) not to make false or misleading representations or engage in misleading or deceptive conduct in relation to environmental and sustainability claims.
1. ACCC Prioritises Environmental and Greenwashing Claims for Enforcement in 2023/24
The ACCC indicated in its 2023-2024 Compliance and Enforcement Priorities that environmental and sustainability claims are a significant priority for the ACCC. By issuing the Draft Guidance Note, the ACCC has clearly indicated what it expects of businesses, particularly large business, that make environmental and sustainability claims and the level of due diligence and accuracy required for environmental matters.
The ACCC believes environmental claims are important issues to monitor as where they are not true, these claims make businesses appear more environmentally beneficial than they actually are, therefore disadvantaging consumers as well as businesses that compete with the contravening firm.
The ACCC Chair, Ms Cass-Gottlieb stated in the ACCC media release accompanying the Draft Guidance Note:
“Businesses must provide clear, accurate and trustworthy information to consumers about environmental or sustainability claims and be able to provide evidence to back them up,”
“If you make a claim about the environmental or sustainability benefits of your product or service – make sure it is right, and if you are unsure or can’t substantiate these claims, then don’t make the claim.”
In respect of “greenwashing”, the ACCC notes that:
“Greenwashing” describes environmental claims that are false or misleading. Greenwashing can lead to substantial economic and environmental harm. The ACCC considers a business will be engaging in greenwashing where they use any claim that makes a product, service or business seem better or less harmful for the environment that it really is.
The ACCC takes quite a broad view that environmental claims are any representations about a business’ environmental impact. In that context, the Draft Guidance Note suggests that an environmental claim is any representation made by a business in relation to its environmental impact, including claims that give the impression a firm’s business, products or services:
- have a neutral or positive impact on the environment;
- are less harmful for the environment than alternatives; or
- have specific environmental benefits.
These claims may arise in relation to the environmental impact of products and services at different stages of their life cycle, such as raw material sourcing, manufacturing, transport and logistics, through to consumption and then discard and disintegration of products.
Compliance teams should be aware that the ACCC view is that environmental claims may appear on product packaging or labelling, point-of-sale materials and in a variety of marketing or advertising materials, including advertising online and through social media. The ACCC also suggests these claims may arise in corporate reporting materials. The Draft Guidance Note states that even where some environmental claims are aspirational, for example, where a business sets future goals for improving its environmental performance or reducing its greenhouse gas emissions, the business should still consider its obligations under the ACL.
In addition, compliance teams should remember that greenwashing may also contravene laws administered by other Australian regulators such as under the Australian Securities and Investment Commission (ASIC). While the ACCC and ASIC work together, the ACCC focuses on consumer facing products and services whereas ASIC primarily focuses on financial products and financial services.
2. Eight Guiding Principles put forward by the ACCC
The ACCC has put forward eight principles to seek to help businesses comply with their obligations under the ACL in relation to environmental claims. The principles, in a condensed version of the ACCC guidance, are as follows:
- Principle 1: Make accurate and truthful claims
All claims should be true and accurate, also having regard to the overall impression and context created by the relevant representations.
- Principle 2: Have evidence to back up your claims
The ACCC recommends having independent and scientific (uncontroversial) evidence to support claims. Representations as to the future also need to have a reasonable basis.
- Principle 3: Don’t leave out or hide important information
Provide the full picture, so that consumers may make informed decisions.
- Principle 4: Explain any conditions or qualifications on your claims
The ACCC has indicated that theoretical claims or representations subject to fine print explanations or exclusions will not be acceptable.
- Principle 5: Avoid broad and unqualified claims
Broad claims can be interpreted widely and may mislead consumers. The ACCC recommends avoiding them.
- Principle 6: Use clear and easy-to-understand language
As most consumers do not have specialist scientific or industry knowledge the ACCC recommends keeping claims in simple and easily understood language.
- Principle 7: Visual elements should not give the wrong impression
Visual elements such as green packaging or logos that represent a recycling process can influence consumers. The ACCC urges business to avoid these if use would give the wrong impression about the environmental benefits of a product or service.
- Principle 8: Be direct and open about your sustainability transition
The ACCC advises businesses to be cautious about making aspirational claims regarding future environmental objectives, unless a business has developed clear and actionable plans detailing how it will achieve those objectives.
Businesses may find the ACCC’s guidance on this principle of particular interest as this is a concern that has been the subject of several complaints against companies by environmental groups in Australia.
3. Relevant penalties for contraventions of the ACL are substantial in Australia
The ACL contains broad prohibitions against engaging in misleading or deceptive conduct. It also prohibits a range of false or misleading representations about specific aspects of products or services.
The ACCC may take Court action against businesses for making false or misleading representations or for engaging in misleading or deceptive conduct. It is for a Court to determine penalties, which depend on each factual situation. However, maximum penalties for each contravention of the provisions of the ACL by a corporation are the greater of:
- AUD50 million;
- if the Court can determine a benefit obtained that is “reasonably attributable” to the contravention, 3 times the value of that benefit; and
- if the Court cannot determine the value of the benefit, 30% of the company’s adjusted turnover during the relevant period.
The maximum penalty for individuals contravening the ACL is AUD2.5million.
While penalties for contravention of these laws are significant, ACCC proceedings if instituted also have the potential to impact brand trust and consumer confidence in the products and services of a business, even if ultimately the ACCC is not successful in those proceedings. For this reason, it is important to have regard to the ACCC’s views as set out in the Draft Guidance Note.
4. Why businesses should consider the ACCC Draft Guidance Note having regard to the ACCC’s enforcement policies and priorities.
Given the ACCC’s stated focus on this area, and its expectations for businesses making any form of environmental claims, the Draft Guidance Note is a must read for management and compliance teams.
The ACCC notes that:
- sometimes businesses mislead consumers inadvertently – this happens for a variety of reasons including poor understanding of supply chains, a lack of due diligence before making claims or poor internal reporting procedures; and
- some businesses intentionally make claims that create misleading impressions to wrongfully gain from consumer preferences for sustainable products and services, without making genuine investments in sustainable practices.
With this in mind, the ACCC’s Compliance and Enforcement Policy sets out various factors which are taken into account when determining what conduct the ACCC will investigate, which include:
- conduct that is of significant public interest or concern;
- conduct that results in substantial harm to consumers and detriment to business competitors,
- national conduct by large businesses, recognising the potential detriment and likelihood that conduct of large traders can influence other market participants;
- conduct involving a significant new or emerging market issue, or where the ACCC’s action is likely to have an educative or deterrent effect; and
- where the ACCC’s action will help clarify aspects of the law, especially newer provisions of the ACL.
In summary, the ACCC focuses on investigating conduct with the potential to harm the competitive process or result in widespread consumer harm or small business detriment. For example, the ACCC recently brought proceedings against an online florist, Meg’s Flowers, alleging that Meg’s Flowers claimed to operate locally when it did not. The ACCC considered this was to the detriment of local small business florists and therefore that the conduct should be the subject of Court proceedings.
In determining whether to take enforcement action in respect of environmental claims, an additional factor the ACCC will consider is whether genuine effort and appropriate steps were taken to verify the accuracy of information, which will be assessed as against the size of the business.
The ACCC states in the Draft Guidance Note:
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 inaccurate.
The ACCC has gone to considerable lengths to seek to provide guidance in relation to environmental claims. The ACCC is taking submissions on the Draft Guidance Note until 15 September 2023.
While it would appear likely the ACCC is considering some matters for current litigation, our recommendation is for inhouse legal and compliance teams to use the Draft Guidance Note as a basis for conducting risk reviews of existing environmental statements until a final form of the guidance note is issued.