Tackling Greenwashing: What To Watch Out For In Corporate Sustainability Claims

Tackling Greenwashing for Australian companies

In recent years, sustainability has become a buzzword for businesses around the world. With consumers increasingly prioritising eco-friendly practices, companies have seized the opportunity to market themselves as environmentally responsible. However, this surge in sustainability claims has also given rise to a concerning trend known as "greenwashing." In Australia, regulators are taking notice and stepping up efforts to combat this misleading practice.

The Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) have identified companies' overreaching claims as the primary cause of greenwashing.

Instead of delivering on their promises, these companies are often only achieving a fraction of the environmental progress they claim. This deception not only undermines consumer trust but also hampers genuine efforts to address pressing environmental issues.

The Global Movement Against Greenwashing

Regulators in Australia and around the world are joining forces to crack down on greenwashing. ACCC deputy chairwoman Catriona Lowe highlighted the global movement to address this issue, with different jurisdictions considering various approaches. In Europe, for example, actions are being taken against broad and vague language used in sustainability claims. Some jurisdictions have even banned specific terms or imposed guidelines for using terms like "net zero."

The competitive advantage for SMEs as larger

With increasing scrutiny and obligations for larger businesses any SME that can provide better sustainability data and help their large clients with reporting and ESG goals will have an edge compared to their competitors.

SMEs can leverage their agility and the recent growth in accessible and robust digital sustainability tools to complete internal assessments on ESG priorities, carbon emissions calculations, or supply chain mapping at a fraction of the cost and time compared to large enterprises.

SMEs can also leverage their close relationships with suppliers to their advantage. By engaging with customers and stakeholders transparently, SMEs can build strong connections. This can be achieved through initiatives such as community involvement, supply chain transparency, and credible reporting on sustainability efforts.

The Four Key Areas of Greenwashing Concern

Greenwashing can be a complex issue, however, as ASIC chairman Joe Longo identified during the AFR ESG Summit 2023, there are four primary areas where companies commonly fall foul of greenwashing laws. Keeping track of these will ensure solid and defensible claims.

1. Overstating claims

First, companies often overstate or inconsistently apply sustainability-related investment screens. This means that the criteria for sustainable investments are not rigorously applied or are exaggerated, misleading consumers.

2. Lack of accuracy

Second, many companies make net-zero statements and targets without a reasonable basis or factual accuracy, thus providing misleading information to the public.

3. Use of buzzword terms

Third, certain terms such as "carbon-neutral," "clean," or "green" are used without reasonable grounds, misleading consumers into believing products or services are more environmentally friendly than they actually are.

4. Inaccurate labeling

Lastly, inaccurate labeling or vague terms in sustainability-related funds create confusion and allow companies to greenwash their offerings.

The Consequences of Greenwashing:

Holding large‘greenwashers’ accountable

Regulators are determined to hold greenwashers accountable. ASIC chairman Joe Longo warns against the counterproductive response of "greenhushing," where companies avoid making climate commitments to evade potential scrutiny. While this may seem like a short-term solution, it only perpetuates the problem of greenwashing and erodes trust further. The regulatory bodies are actively pursuing investigations and surveillances to bring offenders to justice.

Creating Transparency and Verifiable Claims

To rebuild trust and combat greenwashing effectively, businesses must adopt transparent practices and provide verifiable evidence to support their sustainability claims. Regulators favor companies that go beyond mere assertions and offer concrete proof of their environmental efforts. By allowing consumers to click through to find evidence on company websites, businesses can demonstrate their commitment to genuine sustainability.

Working together to fight greenwashing

Greenwashing poses a significant threat to the credibility of sustainability efforts and consumer trust in corporate claims. Regulators in Australia and worldwide are responding to this concern by intensifying their efforts to crack down on greenwashing practices. Through the enforcement of misleading and deceptive conduct laws and the promotion of transparent and verifiable claims, regulators aim to ensure that companies are held accountable for their sustainability commitments. By working together, regulators and businesses can foster a more honest and responsible approach to sustainability, helping to protect the environment and restore consumer confidence in corporate green initiatives.

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