Environmental sustainability has emerged as a major concern, particularly within a corporate context. Growing awareness of the impact of human activities on the natural environment has led to consumers seeking to support environmentally ethical practices. In turn, some Australian and International businesses have increasingly used environmental and sustainable claims to market their goods and services. Attempts to cash in on this demand has led to some companies misrepresenting the extent to which their products and services, including financial products and investment strategies, are eco-friendly, sustainable, or ethically sourced.

Such practices have caught the attention of our regulators, undertaking internet sweeps for potentially misleading environmental claims[1]. Likewise, EU Regulators have recently found a widespread increase in banks and other financial institutions engaging in greenwashing by misrepresenting their sustainability efforts and climate credentials[2]. Put simply, ‘Greenwashing’ is the term used to broadly describe the practice of providing false or misleading information about a company’s products or initiatives as being more environmentally friendly than is in fact the case.

So why is Greenwashing an issue and what are the consequences?

Greenwashing may have the effect of distorting relevant information that a consumer or investor might require to make informed decisions, thus hindering confidence in purchasing or investing in supposedly sustainable products.

Claims made in trade or commerce that amount to greenwashing may constitute misleading or deceptive conduct under section 18 of the Competition and Consumer Law Act 2010 (Cth) (CCA), section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and / or section 1041H of the Corporations Act 2001 (Cth) (CA)[3].

Further, sections 12DB and 12DF of the ASIC Act provide that claims made by companies regarding the supply and promotion of financial products and services must not make false or misleading representations as to the standard, quality, characteristic or suitability of any financial product. The supply and promotion of financial products and services must be accurate, truthful, and able to be substantiated.

Additionally, the prohibition on false or misleading representations is not confined to the promotion of financial products and services but also extends to false or misleading representations about goods or services, the manufacturing process, characteristic, suitability, or quality of any good or service and about certain business activities[4].

Finally, because environmental claims need to be made on a reasonable basis and on factually correct grounds, ASIC chair Joe Longo has announced that the regulator will be targeting ‘green hushing’, in which companies claim to have a strong sustainability policy but fail to substantiate that claim based on the excuse that “the regulators won’t let us” under current greenwashing laws[5].

Accordingly, it is clear that overstating the environmental benefits or qualities of a financial or non-financial product or service may amount to a contravention of the CCA, the CA and / or the ASIC Act.

Regulatory crackdown

Legal action against Greenwashing is increasing as our regulatory bodies take aim at Australian businesses and companies. In March of this year, the ACCC put out a media release stating that it was investigating a substantial number of businesses engaging in potential greenwashing[6]. An internet sweep was conducted in October/November 2022, reviewing 247 company websites across a broad range of industries. The ACCC announced that approximately 57% of these raised concerns of ‘greenwashing’[7].

ACCC Deputy Chair Catriona Lowe indicated that this is likely to be an ongoing concern for the ACCC:

“Our sweep indicates a significant proportion of businesses are making vague or unclear environmental claims. This warrants further scrutiny…”[8].

Moreover, greenwashing (or environmental claims) makes appearances in both the ACCC’s ongoing enforcement priorities for 2023-2024 and ASIC’s corporate plan for 2022-2026[9].

 

ASIC v Mercer Superannuation (Australia) Limited

In February 2023, ASIC commenced proceedings against Mercer Superannuation (Australia) Limited (Mercer) alleging that misleading statements were made on its website regarding the sustainable nature and characteristics of some of its superannuation investment options. Mercer’s Sustainable Plus (SP) options were marketed as a suitable choice for members who are ‘deeply committed to the environment’, as it was said that the investment scheme excluded companies involved in carbon intensive fossil fuels like thermal coal, as well as alcohol production and gambling companies. According to ASIC’s Concise Statement, however, the SP investment option had invested in:

• 15 companies involved in the extraction or sale of carbon intensive fossil fuels (including AGL Energy Ltd, BHP Group Ltd, Glencore PLC and Whitehaven Coal Ltd);
• 15 companies involved in the production of alcohol (including Budweiser Brewing Company APAC Ltd, Carlsberg AS, Heineken Holding NV and Treasury Wine Estates Ltd); and
• 19 companies involved in gambling (including Aristocrat Leisure Limited, Caesar’s Entertainment Inc, Crown Resorts Limited and Tabcorp Holdings Limited)[10].

ASIC is alleging that Mercer engaged in conduct that misled customers, future investors, and the public through false and misleading statements in the promotion of the SP superannuation option.

ASIC is seeking declarations and pecuniary penalties from the Federal Court, as well as injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website, and orders requiring Mercer to publicise any contraventions found by the Court.

What is the significance of ASIC’s court proceedings against Mercer?

These proceedings mark the first time that the corporate regulator has taken a company to court for greenwashing, and if successful will result in a finding of liability for greenwashing by the Federal Court and imposing of an appropriate penalty.  This is contrasted with infringement notices, which ASIC has the power to issue.  However, the payment of those infringement notices does not amount to an admission of liability.

 

How can you avoid Greenwashing?

On Friday (14 July 2023) the ACCC released its recent Environmental and Sustainability Claims-Draft Guidance for Business[11]. The Draft Guidance explains the obligations under the Australian Consumer Law which businesses must comply with when making sustainability claims. The following 8 principles have been provided by the ACCC to assist businesses considering making environmental claims:

1. Make accurate and truthful claims – only make factually correct claims that represent a genuine environmental impact and do not exaggerate the benefits or level of scientific acceptance of a claim.
2. Have evidence to back up your claims – Evidence that is independent and scientific is the most credible, as well as ensuring evidence is easily accessible to consumers.
3. Don’t leave out or hide important information – consider all the relevant information about your environmental impact and be transparent about it.
4. Explain any conditions or qualifications on your claims – are there are any conditions that need to be met or steps that need to be taken for your claim to be true? If claims are only true in certain circumstances, you should explain this to consumers clearly and prominently.
5. Avoid broad and unqualified claims – broad claims can be interpreted widely and more easily mislead consumers than clear, specific claims.
6. Use clear and easy-to-understand language – it is good practice to use clear and easy-to-understand language and to avoid technical terms.
7. Visual elements should not give the wrong impression – avoid visual elements that would give the wrong impression about the environmental benefits of your product or service.
8. Be direct and open about your sustainability transition – be cautious about making aspirational claims about your future environmental objectives unless you have developed clear and actionable plans detailing how you will achieve those objectives.

The principles appear to be an extension of the questions posed to businesses in ASIC’s Information Sheet 271 on greenwashing[12].

Although these principles are not exhaustive concerns, they will assist companies in communicating a truthful and clear promotion of their respective products and services, and allow for  increased business confidence in managing these risks.

We suggest business’ compliance considerations may be much simpler: Is your claim truthful? Can your claim be substantiated? If you have any concerns about your environmental or sustainability claims do not hesitate to contact us.

 

Michael Daniel, Emma Davies, Hugo Hosie and Matthew Dutaillis

19 July 2023

 

Notes:

[1] ACCC, ‘ACCC ‘greenwashing’ internet sweep unearths widespread concerning claims’, (Media Release, 2 March 2023) <https://www.accc.gov.au/media-release/accc-greenwashing-internet-sweep-unearths-widespread-concerning-claims>.

[2] Kenza Bryan and Alice Hancock, ‘EU slams banks’ rising greenwashing practices’ (4 June 2023) AFR <https://www.afr.com/policy/energy-and-climate/eu-slams-banks-rising-greenwashing-practices-20230604-p5ddu1>

[3] Teresa Torcasio and Katie Lau, ‘Escalated crackdown on greenwashing: Just the beginning?’ (5 May 2023) LSJ Online <https://lsj.com.au/articles/escalated-crackdown-on-greenwashing-just-the-beginning/>.

[4] Pursuant to sections 29, 33, 34 and 37 of the Australian Consumer Law (as part of the CCA)

[5] Rachel Alembakis, ‘ASIC chair calls out greenhushing as form of greenwashing’ (5 June 2023) FS Sustainability < https://www.fssustainability.com.au/asic-chair-calls-out-greenhushing-as-form-of-greenwashing>

[6] ACCC, (n 1).

[7] Ibid.

[8] Ibid.

[9] ACCC, ‘2023-24 Compliance and Enforcement Policy and Priorities, (Publication, 7 March 2023) <https://www.accc.gov.au/about-us/publications/2023-24-compliance-and-enforcement-policy-and-priorities \>; ASIC, ‘ASIC Corporate Plan 2022-2026’ (Publication, August 2022) <https://asic.gov.au/about-asic/corporate-publications/asic-corporate-plan/>.

[10] ASIC, ‘ASIC launches first Court proceedings alleging greenwashing’ (23-043, 28 February 2023) < https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-043mr-asic-launches-first-court-proceedings-alleging-greenwashing/>.

[11] ACCC, ‘Environmental and Sustainability claims – Draft guidance for business’, (Publication, 14 July 2023) <https://www.accc.gov.au/about-us/publications/environmental-and-sustainability-claims-draft-guidance-for-business>.

[12] ASIC, ‘How to avoid greenwashing when offering or promoting sustainability-related products (June 2022) <https://asic.gov.au/regulatory-resources/financial-services/how-to-avoid-greenwashing-when-offering-or-promoting-sustainability-related-products/>.

Photo by Ella Ivanescu on Unsplash