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ACCC Guidance on Making Environment and Sustainability Claims – How to Avoid Greenwashing

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On 14 July 2023 the ACCC published their draft guidance which provides information on how businesses can make accurate and credible claims of their environment and sustainability practices.

Consumers are now more conscious about how their purchases impact the environment and the sustainability of resources. Many businesses, including franchise systems, have embraced the notion of Environmental, Social, and Corporate Governance (‘ESG’) and changed their operational practices to proactively address environmental issues, social responsibility and conduct business ethically. Some businesses make public claims about their ESG strategies and initiatives to appeal to consumers who share these values and to illustrate the great work they are doing for the environment.

One of the ACCC’s priorities for 2023 is to monitor and reduce instances of ‘greenwashing’ which is the act of a business making a false or misleading claim about a product, service or their practices being better or less harmful for the environment.

It is a contravention of the Competition and Consumer Act 2010 which includes the Australian Consumer Law (‘ACL’) to make such claims.

The guidance includes eight principles to assist businesses to avoid engaging in misleading and deceptive conduct when making claims related to the environment or sustainability.

The Principles

1. Clear and accurate claims: Businesses should ensure that their claims are clear, accurate, specific, and not misleading. Avoid exaggeration.

Examples
Misleading Claim Not Misleading Claim

“Our paper is made from recycled materials”.

In fact, the paper only contains 20% recycled material.

“Our paper is made from 20% recycled material”.

“This product does not harm the environment”.

The bottle is made from recycled material but the cap and external packaging are not, nor are the contents in the bottle.

“This product reduces harm to the environment”.
“Our bottle is made with less plastic than our competitors”. “Our new bottles are made using 20% less plastic than our previous bottles”.

 

2. Substantiation: Businesses should have reasonable grounds to support their claims and be able to substantiate them if required.

Practical tips:

  • Do not rely on claims made by third parties. Always take reasonable steps to substantiate and verify any claims that you make; and
  • Use third-party independent certifications as evidence if the claims accurately reflect the scope of the certification.

3. Do not omit or hide important information: Consumers can only make informed decisions if they are provided with all of the relevant information. Do not omit or hide any information that may appear unfavourable or consistent with your claim, as this may constitute as misleading or deceptive conduct.

Acts that constitute as misleading:

  • Providing disclaimers in fine print; and
  • Not considering the life cycle of the product when making the claim.

4. Qualifications and disclosures: Any qualifications or disclosures related to the claims should be clear, prominent, and effectively convey the necessary information to consumers.

Examples
Misleading Claim The reason why the claim is misleading
“Our product is 100% recyclable”. – The product is not widely accepted for recycling

– Further steps are required so that the product is accepted for recycling

“Our take-away coffee cups are recyclable” – The coffee cups can only be recycled at the retailer’s store and not through the residential recycling scheme.

 

5. Unqualified claims: Unqualified claims should be supported by robust evidence and not overstate the environmental benefits of the product or service.

The ACCC recommends avoiding these terms or phrases without additional explanations in support:

  • Green
  • Environmentally friendly / eco friendly
  • Sustainable
  • Renewable energy

6. Use clear and easy to understand language: Businesses should avoid using technical or scientific language that typical consumers would not understand.

7. Visual elements should not be misleading: The imagery and visuals used in marketing can convey meaning to consumers which are misleading. For example, using the colour green and the recycling symbol may imply that the product has environmental benefits. The conveyance of this meaning could contravene the ACL.

8. Be transparent about your business’s sustainability plans: If businesses choose to provide consumers with what steps they are taking to reduce their environmental impact they should consider:

  • stating what their goal is (i.e. reducing carbon emissions by 50%) as well as what steps will be taken to reach this goal (reduce printing of documents, use recycled paper, install LED lights);
  • be truthful in advising whether any sustainability targets have not been met;
  • only make claims about sustainability initiatives that they are committed to or have engaged in;
  • be clear about what steps have been completed, and what steps are in progress.

The ACCC has the power to issue Substantiation Notices. These notices require a person to provide information or documents to substantiate an environmental claim that has been made so it is vital to retain evidence in support of any claims made.

The maximum penalty for each contravention by a corporation is the greater of:

  • $50 million;
  • Three times the value of the ‘reasonably attributable’ to the benefit obtained from the contravention; or
  • If the Court cannot determine the benefit, then 30% of the corporation’s adjusted turnover during the breach turnover period.

It is therefore important that any environmental claims are substantiated and not misleading.

Take away

Many businesses, including franchisors, are amending their operational practices to align with ESG. It is now common for some businesses to have marketing departments and working groups dedicated to the implementation of ESG strategies.

Marketing the ESG achievements and innovations of the business can be positive, but care should be taken to ensure that consumers are not misled.

In franchising there is another stakeholder to consider – franchisees. Franchisees are usually at the cold face dealing with customers so Franchisors should educate franchisees about their obligations under the ACL when making claims about the environment, particularly in franchise systems whereby franchisees conduct their own marketing.

Our Corporate Advisory and Franchising Team can assist with ACL compliance and reviewing any prospective marketing campaigns to minimise the risk of ‘greenwashing’. Please contact a member of our Corporate Advisory and Franchising Team on +61 3 8540 0200 or at franchise@mst.com.au