Earlier this month, the ACCC announced its compliance and enforcement policies for 2022/23 in one of the final public engagements by outgoing ACCC Chair, Rod Sims. We briefly outline the ACCC's core priorities, before focusing on a key risk area for businesses – misleading Environmental, Social and Governance (ESG) claims.
A quick primer – five takeaways from the ACCC's 2022/23 priorities
The announcement of the ACCC's annual enforcement priorities usually follows a set formula – a reminder of issues seen as 'enduring priorities' together with focus areas that capture investigations which are often already underway.
Businesses should expect that issues such as cartel conduct, product safety and conduct that specifically impacts Aboriginal and Torres Strait Islander peoples or vulnerable consumers will remain a constant focus for the ACCC.
Among the ACCC's 2022/23 priorities, we see five emerging or elevated focus areas:
1. ESG claims and greenwashing related issues that we address in further detail below.
2. Online claims including manipulative online marketing techniques and an ongoing focus on digital platforms.
3. Issues arising from the COVID-19 pandemic, including consumer complaints and global supply chain issues.
4. Exclusive agreements involving businesses with market power and competition in the financial services sector.
5. Critical product safety issues particularly relating to children including important new button battery standards.
Cracking down on 'greenwashing'
The ACCC Chair focused in particular on misleading environmental and sustainability claims. These issues can impact both consumers and competitors:
- Consumers cannot test the accuracy of the green credentials of products or other claims (i.e. carbon neutrality).
- Businesses can suffer impact if they are competing on an uneven playing field against a competitor that makes claims about having particular green credentials without actually investing in those processes.
Greenwashing claims are not new to the ACCC. The ACCC has previously brought enforcement action where it considered marketing claims did not align with the products being sold. This includes action against Volkswagen AG in relation to the diesel-gate emissions scandal, where the Court imposed what was then a record $125 million penalty. This is, however, an area where the ACCC may have fallen behind. We are seeing a particular uptick in claims by environmental activists and other strategic litigants in Australia and internationally, under both consumer protection and securities laws. For example:
- the Australian Centre for Corporate Responsibility has brought proceedings in the Federal Court against Santos alleging that its claims relating to the 'clean' nature of gas as a fuel source are misleading under the Australian Consumer Law. It also alleges that statements in Santos' 2020 Annual Report that it had a 'clear and credible plan' to achieve its target of net zero emissions by 2040, without disclosure of the material dependencies on which its ability to achieve that target turned, is misleading contrary to the Corporation Act and Australian Consumer Law;
- In the UK, BP has been forced to withdraw its 'Advancing Possibilities' brand advertising campaign, after public interest law firm ClientEarth alleged that it overstated its sustainability credentials in a misleading manner (given that, at the time, more than 96% of the company's capex remained in fossil fuels rather than renewable energy).
And the cases are not confined to the oil and gas sector:
- The UK Advertising Standards Board recently ruled that packaging for Lipton Iced Tea that stated that “Deliciously refreshing, 100% recycled”, and poster advertising stating “I’m 100% recycled plastic”, were misleading or deceptive as the cap and label were not made of recycled materials. This was despite small print that stated 'excludes cap and label'. The ASA ruled “the overall impression was that all components of the bottle were made entirely from recycled materials” and the qualification “was insufficient to counter that impression”.
We have previously explored greenwashing risks in our article 'The 'third wave' of climate litigation: greenwashing. The key takeaways flagged in that article apply equally to the ACCC's announcement:
- Ensure sustainability-related disclosures (and product claims) are aligned with strategy.
- Be readily able to substantiate the disclosures (and product claims), which should be based on reasonable grounds as at the time the statements are made.
- Ensure organisational sustainability measures are appropriately resourced through clear action plans.
- Embed climate goals in enterprise risk and compliance frameworks.
- Avoid absolute language and general claims that are defensible only in relation to part, but not all, of your company's operations, products or services. Be specific, not selective.
Significantly, we are seeing greenwashing as a common target across regulators. For example, ASIC Chair, Joe Longo, has flagged that greenwashing is in ASIC's sights. ASIC is currently conducting a review to test alignment between the practice and promotion of managed investment and super funds that offer ESG or ‘green’ products.
A broader sustainability focus still missing?
The ACCC's announcement that it will be targeting environmental and sustainability claims under the Australian Consumer Law is a significant move. There remains, however, a continuing gap in the ACCC's broader engagement with sustainability-related issues – particularly in relation to the exercise of its powers in relation to anti-competitive conduct under the Competition & Consumer Act.
In September 2020 we wrote about the intersection between competition law and sustainability initiatives in our article 'Is competition law a roadblock to sustainability initiatives?. We identified steps being taken by various antitrust regulators to ensure competition law does not block collective responses to climate risk.
At this stage, the ACCC's announcement on greenwashing does not provide any clear or coherent guidance about the ACCC's approach to considering environmental and sustainability related issues across its broader regulatory remit. This issue is becoming an increasing focus for international regulators. As a regulator that prides itself on strategic enforcement and policy leadership, we expect this may be an area where the ACCC will have more to say.
ESG issues and, in particular, environmental and sustainability claims are a focus for the ACCC. Businesses should carefully test the claims they make about their products and their broader sustainability credentials. Management should be ready to substantiate those claims and expect regulators and resourced third parties to scrutinise them.