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Competition and Consumer Law Update: Greenwashing

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This year, the Australian Competition and Consumer Commission (ACCC) is prioritising consumer and fair-trading issues in relation to environmental claims and sustainability, or ‘greenwashing’.

What is greenwashing?

Greenwashing is the deceptive marketing practice whereby businesses falsely promote their environmental or green credentials in an effort to differentiate themselves from the competition and capitalise on increasing consumer demand for products or services that are environmentally friendly, sustainable or ethical. The practice takes advantage of the premium that environmentally conscious consumers place on products or services with those benefits.

Greenwashing covers a range of practices – for example:

  • Making claims that a product is “environmentally friendly”, “green”, “sustainable” or “natural” when that is not entirely the case;

  • Making aspirational claims about what the business plans to do to lessen the impact of its products and/or processes on the environment (e.g. “by 2030, all cotton sourced products will come from more sustainable sources”) without a reasonable basis to meet those goals; 

  • Making specific claims about a product (e.g. “made from 100% organic cotton” or “1 jacket reuses 10 plastic bottles”) without evidence to substantiate those statements; or

  • Relying on metrics or certifications to support environmental claims without properly conveying to consumers the limitations of those metrics or certifications.

Greenwashing may occur in advertisements, on promotional materials, on product labelling and packaging, in representations made to the media and in company reports and financial documents made available to the public.

ACCC action

The ACCC is actively monitoring green claims in the market. It has launched an ‘internet sweep’ to identify misleading claims across a range of targeted sectors including energy, vehicles, household products and appliances, food and drink packaging, cosmetics, clothing and footwear.

The results of the sweep can be expected to be significant. A similar review conducted on a global scale by the International Consumer Protection and Enforcement Network in 2020 found that 40% of green claims could be considered misleading and potentially in breach of consumer laws.

The ACCC has indicated that it will use the data from the sweep to update guidance for businesses and information for consumers on environmental claims. It has also said that it “won’t hesitate” to take enforcement action where it sees that consumers are being misled or deceived by these types of claims. The ACCC can be expected to challenge businesses to substantiate and verify their claims, including by:

  • Investigating suspected breaches of the Australian Consumer Law (ACL) – for example, by issuing ‘substantiation notices’ that require businesses to provide information or documents to substantiate their claims within a specified period of time; and
  • Commencing proceedings where it considers there has been a breach of the ACL.

Why comply?

Making false or misleading sustainability and environmental claims in breach of the ACL can expose businesses to significant consequences, including pecuniary penalties, the costs of litigation and negative publicity.

The penalties under the ACL for false or misleading sustainability and environmental claims have historically been significant. In 2019, the Federal Court imposed penalties of $125 million on Volkswagen for making false representations about its compliance with Australian diesel emissions standards. However, businesses can expect to face even higher penalties in the future. From November 2022, penalties per breach under the ACL have quintupled to:

  • For corporations, the greater of:
    • $50 million;
    • 3 times the benefit obtained from the breach;
    • if the benefit can’t be calculated, 30% of adjusted turnover during the breach period.
  • For individuals: $2.5 million.

Greenwashing is not a new source of legal and reputational risk for businesses. However, elevated scrutiny from the ACCC means the need to mitigate the risks associated with sustainability and environmental claims and ensure that any claims can be substantiated has never been more important.

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