‘Greenwashing’ is not only a threat to consumer trust but also to the environment. Misleading claims can reduce the consumer incentive to invest in genuinely sustainable products and undermine our social responsibility towards the environment.
As a result, businesses actively investing in improving their environmental sustainability are put at a competitive disadvantage to those participating in cost-effective greenwashing. Simultaneously, consumers actively attempting (and paying higher prices) to make genuine ‘green’ decisions are undermined by a breach of trust in the eco-friendly industry.
Indeed, greenwashing or the misrepresentation of environmental claims regarding goods and services, and investment strategies has implications for consumers and investors, overseen by the Australian Competition & Consumer Commission (ACCC) and the Australian Securities & Investments Commission (ASIC), respectively.
Regarding the ACCC, growing cases of environmental misinformation and disinformation have led the corporate watchdog to introduce eight key principles for businesses to follow, ensuring their environmental claims are credible and trustworthy.
ACCC Greenwashing Investigation.
57% of reviewed businesses were found making potentially misleading environmental claims according to an ACCC greenwashing internet sweep, with research beginning in October/November 2022 and results published in March 2023. Responding to these concerns, on the 14th of July 2023, the ACCC published draft guidance to improve the integrity of businesses’ environmental and sustainability claims, and therefore to protect consumers from greenwashing. The draft guidance encourages businesses to follow eight practical principles when making environmental claims. While the guidance has been designed to help businesses comply with the law, it is not legal advice.
Placing its deadline on 15 September 2023, the ACCC is seeking feedback from businesses on whether the draft guidance improves their confidence in making legitimate environmental claims. Meanwhile, the ACCC seeks feedback from consumers on how they think businesses can strengthen the usefulness and relevance of ‘green’ claims to ensure consumer confidence in supposedly eco-friendly products is bolstered.
Numerous cases of corporate greenwashing set the early foundation for the ACCC’s recent crackdown. In March 2023, Flight Free Australia, an organisation dedicated to reducing emissions generated by the aviation industry, asked the ACCC to investigate Etihad Airways for greenwashing. The case developed from a soccer match in 2022 where Etihad made ‘net zero emissions’ claims that were displayed alongside its logo. Flight Free points out the irony that Etihad’s own sustainability report forecasts an increase in carbon dioxide emissions to 2026 due to increased services. Adding to the momentum, Greenpeace, a not-for-profit organisation campaigning for a more environmentally sustainable future, filed a greenwashing complaint to the ACCC suggesting that Toyota’s net zero by 2050 plans are contradicted by its car production plans.
Clearly, the ACCC has demonstrated a tightening grip over corporate greenwashing, catalysed by ASIC’s launch of its first-ever greenwashing case against Mercer Superannuation just three days after the ACCC’s announcement regarding the results of its online enforcement sweep. The ACCC’s results identify the greatest proportion of misleading claims originating from the cosmetic and personal care, textiles, garments and shoes, and food and beverages industries.
In its recent draft guidance publication, the ACCC proposes eight principles for trustworthy environmental and sustainability claims.
Principle 1 - Make accurate and truthful claims.
Underpinning the first principle is the guideline for businesses to make accurate and truthful environmental claims. Indeed, inaccurate and untruthful claims can come in numerous forms such as overstating a product’s level of scientific acceptance, exaggerating environmental benefits, making insignificant claims such as promoting an environmental impact that would have happened regardless of the claim, making non-transparent and unfair comparisons that endorse false equivalencies between products, and making representations about the future on unreasonable grounds.
Take the example of an investment firm advertising its new ‘Green Energy Fund’:
“Our portfolio exclusively invests in renewable energy projects”, the firm claims. However, upon investigation, it is found that only 50% of the fund’s assets are allocated to renewable energy, while the other 50% are invested in conventional energy sources. To steer clear of the ACCC, the firm should accurately represent the fund’s composition by marketing it as a “Mixed Energy Fund with 50% invested in Renewable Energy Projects.”
Principle 2 - Have evidence to back up claims.
The saying “extraordinary claims require extraordinary evidence” echoes through the ACCC’s second guiding principle, which states that environmental claims must be backed up by evidence.
To demonstrate, let’s use the example of a fashion retailer launching a new clothing line.
“All garments are made from organic and eco-friendly materials that render our brand sustainable”, the business claims on its website. Yet, the retailer does not provide any documentation or certification to support these claims. This represents a violation of the second principle.
The ACCC suggests that third-party certifications can be used as evidence for claims, so long as the third-party certification is credible itself. As such, the fashion retailer collaborates with a reputable third-party organisation that specialises in sustainability certifications. The organisation evaluates the retailer's supply chain, factories, and production processes to ensure its materials are “organic and eco-friendly” according to sustainable standards, as marketed.
Upon receiving official certification that its environmental claims are true, the retailer updates the passage on its website:
“Our clothing line has been certified by a reputable organisation specialising in sustainability, ensuring that all garments are made from organic and eco-friendly materials, adhering to rigorous sustainable standards.”
At last, the extraordinary claim finds the extraordinary evidence.
Principle 3 - Do not hide important information.
Consider the consequences of certain details which could contradict environmental claims being deliberately left out of a business’s public information. Without a doubt, consumers will form misleading impressions. The ACCC addresses this issue in its third principle, do not hide important information.
Let’s look at a food packaging company that claims on its product packaging that its containers are “100% recyclable and environmentally friendly.” What the company fails to disclose is that the recycling facilities capable of processing their containers are only available in a limited number of regions, and the containers are not widely recyclable in most areas where their products are distributed. In this scenario, the company has failed to clearly communicate its limited recycling availability.
To ensure important information is not hidden, the company’s product packaging could instead say “Our containers are 100% recyclable, but please note that they can only be recycled in specific regions where suitable recycling facilities are available. We are actively working to expand recycling availability to more areas.”
According to the ACCC, businesses should also avoid using intentionally small prints to hide important information and consider which part of their product's life cycle they are referring to when making environmental claims, ensuring that the overall environmental impact, from production to sale, is accounted for and transparently communicated to consumers.
Principle 4 - Explain any conditions or qualifications on claims.
Certain environmental claims may hold true only under specific conditions. As such, these claims can become misleading if the necessary conditions or steps are not explicitly stated or are unlikely to be fulfilled during regular consumer use.
For example, a company manufacturing and selling trash bags uses the catchline “Our new Eco-Friendly Trash Bags are biodegradable, contributing to a cleaner planet.” The company fails to explain conditions or qualifications on claims, as the third ACCC principle encourages businesses to do. To address this violation, the company clarifies the details of its claim: “Our new biodegradable, Eco-Friendly Trash Bags are designed to break down efficiently under specific conditions, such as industrial composting facilities with controlled temperatures and microbial activity. Please note that in typical home composting or landfill environments, the bags may take a much longer time to decompose.”
With these important contextual details, the fourth principle is met.
Principle 5 - Avoid broad and unqualified claims.
The ACCC finds that businesses are commonly using broad, vague and sweeping terms in their claims such as “green”, “go green”, or “choose green”, as well as “environmentally friendly”, “eco-friendly”, and “sustainable”. These terms convey broad benefits that can have different interpretations for different consumers. Without further qualification or clarification, consumers may be misled into believing a business is more environmentally friendly than it actually is.
The fifth principle, to avoid broad and unqualified claims, is violated in the following example:
“ABC EcoTech proudly presents our ‘Green Living’ line of products, offering a wide range of environmentally friendly items to choose from. With our ‘Green Living’ collection, you can easily go green and make a sustainable choice for the planet!”.
The slogan ‘Green Living’ represents a vague term that may lead consumers into forming multiple interpretations.
To adhere to the ACCC’s guideline, the business updates its claim so that it focuses on specific aspects of the product’s environmental benefits.
“Our ‘EcoSelect’ collection consists of items made from 100% post-consumer recycled materials, reducing waste and minimising resource consumption”, the business now says, removing previous broad and sweeping claims while ensuring its customers fully understand the environmental benefits of each product.
The ACCC also identifies that emissions-related claims such as “Carbon Neutral”, “Climate Neutral” or “Net-zero” can confuse consumers who may not understand their full meaning. For example, the term “Carbon Neutral” is commonly associated with a product having no carbon footprint whatsoever, but this is not true.
Simple clarifications can prevent these misunderstandings, such as a company stating
“When we claim ‘carbon-neutral’, we want our customers to understand that we actively invest in verified carbon offset projects. These projects work to balance the emissions generated by our operations, ensuring a net-zero impact on the environment. By supporting our 'EcoAware' line, you are contributing to projects that remove or reduce carbon emissions elsewhere, offsetting the unavoidable emissions associated with our products.”
The ACCC further suggests that singling out particular types of emissions (eg. carbon dioxide) and excluding other risks (eg. methane emissions) can also create a misleading overall impression, representing another violation of the fifth principle.
Principle 6 - Use clear and easy-to-understand language.
Making language understandable requires using words to convey their common meaning while avoiding the use of technical or scientific terms that may confuse consumers. Simply, use clear and easy-to-understand language, the ACCC suggests in its sixth principle.
For example, a company markets its household cleaning wipes as “the ultimate cleaning wipes that are proudly labelled as ‘biodegradable.’” However, upon closer examination, it is revealed that these wipes are only partially biodegradable, and the process takes an extended period under specific composting conditions. In everyday household waste disposal, the wipes may not fully break down as consumers might expect.
Responding to reports from consumers interpreting the term ‘biodegradable’ to mean that the wipes would naturally break down quickly and entirely after disposal, the company updates its claim so that the product’s level of ‘biodegradability’ is fully understandable. “Our cleaning wipes are partially biodegradable, designed for sustainable living. Embrace eco-friendly cleaning with ease, knowing that while these wipes do break down over time, they may not naturally degrade quickly and entirely after disposal.”
Principle 7 - Visual elements should not give the wrong impression.
The use of symbols and trust marks can give misleading environmental impressions. In the world of sustainability, for example, the Mobius Loop, a universally recognised symbol for recycling, can convey to consumers that a product is either made from recycled materials or is recyclable, or even both. However, without additional clarification, consumers may assume that all of these attributes apply to the entire product, which may not necessarily be true.
Furthermore, the ACCC advises that caution should be exercised when describing and placing third-party certifications in advertising materials to prevent creating misleading impressions. For instance, using a certification logo should not imply that your entire business is certified if only certain products or services have been verified. Likewise, you should not claim that your product is independently certified if it is self-assessed or has a material connection to the certifying body. Ensuring that these certifications accurately represent what is intended to be marketed is crucial to maintaining transparency and consumer trust.
Principle 8 - Be direct and open about sustainability transitions.
Finally, to ensure transparency and avoid misleading consumers, businesses must refrain from promoting vague or unclear goals or claims regarding their sustainability transition. Indeed, principle eight stresses that sustainability transitions should be addressed directly and openly.
For example, a business promises to substantially reduce its emissions footprint:
“We will increase our use of renewable energy to 100% and expect to achieve this by 2030”. However, the business provides no further elaboration on the steps being undertaken to achieve this goal.
To comply with the ACCC’s eighth principle, the business creates a comprehensive plan that outlines the actions it has already undertaken to reach its goal, the current steps being implemented, and the future measures it intends to adopt, as seen below.
1. Investment in Solar Panels: We have already installed solar panels in our facilities to harness solar energy and reduce our reliance on conventional power sources.
2. Energy Efficiency Upgrades: We have conducted energy audits and implemented energy-efficient technologies to optimise our energy consumption and minimise wastage.
1. Wind Energy Partnerships: We are currently in the process of exploring partnerships with reputable wind energy providers to incorporate wind power into our energy mix.
2. Smart Energy Management: We are implementing state-of-the-art smart energy management systems to monitor and optimise our energy usage across all operations.
1. Advanced Battery Storage: We plan to invest in advanced battery storage technologies to store excess energy generated from renewable sources and ensure a stable power supply.
2. Clean Energy Microgrids: We are exploring the implementation of clean energy microgrids to enhance energy resilience and promote community-level renewable energy distribution.
All claims made by the company are accompanied by evidence of its actual progress, ensuring accuracy and transparency. By encouraging businesses to provide accurate and specific information on their sustainability transitions, the ACCC hopes consumers can make more informed decisions and better understand businesses’ commitments to sustainability.
A gentle reminder, in the ACCC’s internet sweep, 57% of reviewed businesses were found making potentially misleading environmental claims. In light of this concerning statistic, the ACCC has seemingly tightened its stance on corporate greenwashing to protect consumers and strengthen the integrity of businesses. The eight principles for trustworthy environmental and sustainability claims contribute to the ACCC’s growing position in the space of climate change, where carbon certifications, among other sustainability claims, find an increasing need to be clear and credible.