ACCC releases long awaited draft 'green' claims guidelines

10 minute read  17.07.2023 Phoebe Roberts, Paul Schoff and Sarah Barker

Businesses should prepare for increased enforcement action following the release of the ACCC draft guidance

Key takeouts

  • 1. Substantiation is key

    The ACCC draft guidance makes clear that appropriate transparent information supporting environmental claims is crucial to mitigate the risk of misleading consumers.
  • 2. Commonly used broad terms attract risk

    Popularly utilised broad claims such as "green", "environmentally friendly", "carbon-neutral" and "net-zero" are singled out as likely to mislead consumers by implying an absolute and accurate perception of a product, service or business.
  • 3. Greenwashing goes deeper than product claims

    The guidance zeroes in on transition plans, targets and carbon offsetting claims. This underscores the need for businesses to ensure they have robust implementation plans in place and reasonable grounds for future matters.

What do you need to know?

The Australian Competition and Consumer Commission (ACCC) has released its long awaited draft guidance on environmental claims, establishing eight key principles to follow when making environmental and sustainability claims. There is nothing shockingly new in the ACCC's guidance – greenwashing is in reality just a new manifestation of good old misleading or deceptive conduct and so the well-established legal principles apply to it. But the draft guidance does include useful commentary on the application of those well-established principles to key areas of practical interest around green claims including offsets, transition plans and product lifecycles. The ACCC has also highlighted examples of both good and bad practice. Submissions are sought on the guidelines with the consultation period open until 15 September 2023.

The Draft Guidelines follow a flurry of domestic (and international) regulatory developments on greenwashing over the last 12 months. This includes the ACCC's warning that environmental and sustainability claims are a key priority area for the ACCC (see our previous alert: ACCC warns over greenwashing and sustainability claims) and the ACCC's recent internet sweep, completed in March 2023, which identified 57% of the 247 businesses reviewed as having made concerning claims about their environmental credentials (summarised in our alert: ACCC internet sweep reveals 'widespread' greenwashing concerns). For a comprehensive overview of greenwashing developments and tips to minimise your exposures, see our detailed greenwashing guide Navigating the Rising Tide of Greenwashing.

Eight principles for trustworthy environmental and sustainability claims

The ACCC has identified eight key principles for businesses to mitigate risk when making environmental and sustainability claims. The ACCC suggests using these principles when making environmental claims to help businesses comply with obligations under the Australian Consumer Law (ACL) (Schedule 2 of the Competition and Consumer Act 2010 (Cth)).

1. Make accurate and truthful claims

While this may seem obvious, claims made by businesses need to be wholly true and not overstated. Businesses that rely on scientific evidence or research when making environmental claims should ensure the science is up-to-date and widely accepted. Similarly, claims should not exaggerate an environmental benefit or understate an environmental harm. Businesses can avoid this by explaining and quantifying any benefit clearly, and avoiding broad or absolute statements suggesting that your business has an overall "positive" effect on the environment.

Businesses should only make claims that are meaningful and demonstrate a genuine environmental benefit associated with a product or service. Businesses should not be making a claim if it is merely about a common feature shared by all businesses, or because it is a legal requirement (and this is not made clear). If comparisons are being made with the environmental impact of competitors, these comparisons need to be transparent and fair, using like-for-like scenarios, up to date information and applying consistent methodology, standards or verifications. If further information is needed for the consumer to make an informed decision, or any relevant information is withheld, this will be problematic.

Additionally, businesses need to have reasonable grounds for making future claims, otherwise the ACCC has warned that it may take enforcement action. If a business is going to announce future goals (for example in relation to net zero targets or waste reduction) then they must carefully consider how these will be measured based on acceptable methodologies, are clear and achievable, provide regular updates on performance, and regularly revise goals as necessary.

2. Have evidence to back up your claims

Businesses need to have a responsible basis for making any sustainability claims, ideally supporting them with scientific or widely accepted and robust evidence. As it is often difficult for consumers to verify environmental claims, the ACCC advises businesses to make all information as easy as possible for consumers to access and understand.

Whilst third party verification can be a good way to provide credibility, caution must be taken not to use a certification scheme that lacks integrity. When selecting a scheme, businesses need to make sure that it is independent, directly applicable to the product or service, and not mischaracterised.

Importantly, before taking enforcement action for unsubstantiated claims, the ACCC has said that it will consider whether a business undertook acceptable due diligence (based on its size) and made genuine efforts to verify the information.

3. Don't leave out or hide important information – context is important

The ACCC notes that in addition to ensuring that claims are accurate, truthful and substantiated, it is also important to consider the overall context of environmental claims, particularly negative aspects about a product, service or business. In this respect, businesses should be mindful of omitting information that undermines or qualifies their environmental credentials.

Similarly, small print should not contradict or be used to convey disclaimers, disclosures or clarifications for a prominently displayed misleading environmental headline claim, rather, small print should be utilised to provide supporting information. If a disclaimer or qualification is necessary, this should be prominently displayed alongside the headline environmental claim.

Further, when ensuring that an environmental claim is transparent, it is important to consider the entire lifecycle of the product or service. For example, a certain environmental benefit relating to one aspect of the life cycle, such as reduced transport emissions, may be undermined by neglect of another, such as biodiversity loss from the sourcing of raw materials. Businesses should be mindful of the environmental impacts from the full lifecycle of the product before making broad environmental claims (for example, the sourcing of raw materials and the manufacturing and transport process).

Whilst a life cycle assessment is not necessary for every claim, businesses should be conscious as to which impacts are relevant to the claims being made and ensuring that the overall impression conveyed is not misleading. For example, if a claim only relates to part of the lifecycle, it should be made clear which part.

4. Explain any conditions or qualifications on your claims

Where environmental claims are qualified or accurate only in certain conditions, this should be made clear to consumers. For example, "biodegradable" products that will breakdown only in specific conditions and "recyclable" products that are strictly dependent on a certain industrial recycling facility or only able to be recycled in some locations where the product is sold.

These types of claim can be misleading if the conditions or required steps are not clearly stated or are unlikely to be realised during ordinary consumer use.

5. Avoid broad and unqualified claims

The ACCC advises against the use of broad or unqualified claims such as "green", "environmentally friendly", "Eco-friendly" or "sustainable" as the sweeping spectrum of prospective benefits that can be conveyed by these terms may mislead consumers as to the specific benefits of the product, service or business. In particular, the ACCC advises that the term "green" conveys little information to the consumer whilst the terms "environmentally friendly" and "sustainable" risk misleading consumers into thinking that a product, service or business causes no harm to the environment noting that almost all products, services and business have some adverse impact on the environment.

Additionally, terms that provide only partial information such as "made from recycled materials", "renewable", "plastic free" and "uses less water" without substantiating information risks misleading consumers to thinking that such a claim applies to the entire product, service or business when in reality, it may only apply to a specific aspect or in certain circumstances. For example, consumers are likely to understand the term "recyclable" to mean that the product can be recycled in an ordinary local recycling facility.

In respect of emissions related claims such as "Carbon Neutral", "Climate Neutral" or "Net Zero", the ACCC notes that customers are unlikely to readily understand the practical meaning. The ACCC outlines key good practice guidelines to follow in this context.

6. Use clear and easy-to-understand language

Claims should be made using words according to their ordinary and common meaning. In this respect there is a risk of misleading consumers if there is a difference between the ordinary meaning and technical or scientific definition of a term. Accordingly, it is good practice to avoid using scientific or technical language unless it is easily understood and well-known terminology amongst ordinary and reasonable customers. Where scientific or technical terms are necessary, these terms should be defined clearly to avoid any potential confusion.

7. Visual elements should not give the wrong impression

Images and visual elements should be used with care to ensure the visual elements do not give consumers the wrong impression. In particular, careful consideration should be given to the use of green or blue colouring, images of plants, animals or the earth, widely recognised symbols, trust-marks and third-party certifications.

For example, use of the globally recognised symbol for recycling, mobius loop, represents to consumers that the product is made of recycled materials, or the product is recyclable. Without additional information, a customer may interpret the use of the mobius loop to suggest that the entire product carries these characteristics, when in reality it may only be a particular aspect.

Additionally, caution should be taken when making using trust marks as an indication that a product, service or business has been certified by a third-party, especially in circumstances where the claimed environmental benefit has not been verified by a third-party. Similarly, a certification logo should not be used where:

  • the certification is a self-assessment or there is a material connection to the certifying body;
  • it relates to products but the claim pertains to the entire business; or
  • there is an implication that the certification scheme guarantees certain environmental benefits when it does not.

Accordingly, when using third-party labels or certifications, additional information as to the scheme should be transparently provided to consumers.

8. Be direct and open about your sustainability transition

Finally, whilst the ACCC encourages businesses to take genuine steps to improve their environmental impact and share their progress with consumers, it notes that transitioning to a more sustainable business model or product takes time and during the transition process, products and services will continue to result in detrimental environmental activities.

Accordingly, businesses should be mindful to avoid promoting goals and making claims about a business's sustainability transition which are vague and unclear or give the impression that transition is more progressed than it is. This may include claims relating to plans, intentions or activities which have not yet been implemented, committed to or undertaken. Claims relating to a business' sustainability transition should be a transparent reflection of environmental goals, progress and performance.

Similarly, in relation to sustainability reduction claims, to reduce the risk of misleading consumers caution should be had to ensure that genuine progress has been achieved before making claims whilst consideration should also be given to any environmental harm still associated with the business.

The ACCC's approach to greenwashing compliance and enforcement

Importantly, the ACCC provides commentary on its compliance and enforcement approach, foreshadowing the potential use of Section 155 notices, substantiation notices, infringement notices and penalty proceedings for false or misleading representations or engaging in misleading or deceptive conduct.

In such circumstances, it is for the Court to determine liability and an appropriate penalty, with the maximum available for each contravention of the ACL by a corporation being the greater of:

(a) $50 million;

(b) if the Court can determine the benefit obtain that is "reasonably attributable" to the contravention, 3 times the value of that benefit; or

(c) if the Court cannot determine the value of the benefit, 30% of the corporation's adjusted turnover during the relevant period.

Individuals can also be responsible for contravention of the ACL with a maximum available penalty of $2.5 million per contravention. Further, criminal liability for corporations and individuals for offences under the ACL may also apply.

MinterEllison offers deep, integrated expertise to assist clients to holistically navigate the complexities and risks of sustainability and environmental claims through our team of experts who practice in both Climate and Sustainability Risk and Consumer Law (see our recent greenwashing guide: Navigating the rising tide of greenwashing).