ACCC consults on updated draft guidance

Following the ACCC's recent greenwashing internet sweep (read ACCC internet sweep reveals 'widespread' greenwashing concerns) which revealed that a significant proportion of businesses – 57% of businesses reviewed - had made concerning claims about their environmental credentials, the ACCC is seeking feedback on updated (draft) guidance on how businesses can avoid making unintentionally misleading or deceptive sustainability-related claims.  

Broadly, the updated draft guidance sets out the ACCC’s view of what businesses need to do when making sustainability-related claims, including eight principles it suggests adopting to help businesses comply with obligations under the Australian Consumer Law (ACL) (contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth)) as well as its expectations for good practice when making these claims.  

The aim is to clarify regulatory expectations and in doing so, increase business confidence in making legitimate environmental and sustainability claims.  

The draft guidance, which appears to take a similar approach to the guidance from the UK Competition and Markets Authority (CMA), is a significant update to the ACCC's existing (less detailed) 2011 guide.  Consultation on the draft guidance is now open and closes on 15 September 2023.

What's in the guide: Eight principles for business to apply in order to avoid greenwashing

As flagged, the guidance is structured around the following eight principles, supported by illustrative examples and commentary from the ACCC around what it considers to be 'good practice'.  

1.  'Make accurate and truthful claims'

Sustainability claims should be 'accurate, true and factually correct'. That is, claims must:

• be accurate and truthful overall.  The draft guidance makes clear that it is not enough for claims to be only 'partially' true: For example, the guidance suggests that a claim that paper is 'made of recycled materials' when it only contains 20% recycled material is likely to contravene the ACL.  
• not overstate/exaggerate the extent to which the claim is supported by credible, scientific research/evidence.  For example a claim that plastic boxes 'biodegrade faster than the leaves in your backyard' (without qualification or explanation) is likely to be misleading because the rate at which plastic biodegrades is not well-established or 'universally accepted' scientific fact.  Rather the claim is based on the findings of a single, limited study.  The ACCC suggests that in order to avoid contravening the ACL in this case, the business 'could instead advertise that the boxes biodegrade and specify the circumstances where this will happen' 
• 'exaggerate an environmental benefit or understate an environmental harm'.  The draft guidance suggests that to reduce the risk of misleading consumers businesses should be specific about the environmental benefit of the product or service being offered.  For example, businesses should explain whether the benefit applies to the whole product/service or only part of it and quantify the benefit achieved.  The draft guidance also encourages businesses to avoid both: 
  • stating that the product/service has an overall 'positive' effect; and/or 
  • 'making claims about your product or service that are based on broad scientific opinion if you are unsure whether there is evidence that this applies to your situation'.
• be 'meaningful': The draft guidance advises against making claims that a product/service has a specific environmental benefit where either: all similar products or businesses have the same feature; or the claimed environmental benefit is not because of 'something special' the business is doing but a legal requirement (and this is not made clear).  The ACCC comments that 'while these claims may be literally true, they are likely to mislead consumers into believing that what is being advertised is special, when it is a necessary or ordinary feature'.
• use 'fair and transparent' comparisons (where comparisons are used): Where comparisons between products/services are used, the draft guidance advises businesses to ensure that they are 'transparent and fair, and are a true reflection of the impact of the products, services, or businesses being compared'.  For example, the draft guidance suggests that where used, comparisons should:
  • make it clear to consumers what is being compared
  • be 'like for like'
  • use up to date information
  • 'compare features that are verifiable and significant' and compare features using the same method/standard
  • explain how the comparison has been made and ensure this is easy for consumers to understand
  • not omit relevant information.
• third party products: The ACCC expects that businesses take reasonable steps to ensure any environmental claims made when supplying products from a third party are accurate and truthful. 

Forward looking statements

The draft guidance also emphasises that statements about the future – eg net zero targets and transition plans– will be deemed to be misleading, unless the business making the claim has reasonable grounds at the time of making the claim.  

The ACCC considers that before setting and publicly announcing environmental goals it is 'good practice' for business to (among other things):

• ensure the goals set are clear and achievable, and that 'realistic and verifiable steps' have been put in place to achieve them
• ensure targets/goals set are based on 'accepted methodologies, and resources and technologies that are effective and are available to you now (or there is a reasonable basis to consider they will be available to you in the near future)'
• provide consumers with regular progress updates including 'disclosing if you are not on track to achieve them and what steps you are taking to address any setbacks so as to meet your goals'
• revise goals if they cannot be met.  

2.  'Have evidence to back up your claims'

Businesses are expected to be able to back up their claims with research, data or other evidence.  Summing up this principle, ACCC Chair Gina Cass-Gottlieb cautioned: 'If you don't have the evidence to back up your claims, you are likely to mislead consumers and contravene the ACL'. 

The ACCC considers it is 'good practice' for business to be able to substantiate any environmental claims with 'clear evidence'.  Independent scientific evidence is considered to be the most credible.

Where a third party certification scheme is used to back up a claim, businesses are advised to ensure that:

• the certification scheme is 'independent, transparent, reputable, and robust'; and
• the certification 'adequately reflects the characteristics of your product, service, or business'
• 'your claims accurately reflect what you have been certified for, and the scope of certification'.

It's also suggested that businesses offer consumers details of further information on the scheme or direct them to where they can access this information.  

3.  'Don't leave out or hide important information'

The draft guidance makes clear that omitting relevant information may also be misleading because only including positive information can 'give consumers the impression that your business, product, or service has a lower environmental impact overall than it really does'.

Don't rely on disclaimers/qualifications in 'small print'

The ACCC notes any information in 'small print' must 'not conflict with the overall message' of the claim being made.  As such, the draft guidance cautions businesses against relying on 'disclaimers, disclosures or clarifications buried in small print' to mitigate the risk of potential greenwashing, suggesting instead that small print should only be used to provide supporting information.  

The ACCC suggests that where there is need to provide a disclaimer/qualification, businesses can reduce their risk of unintentionally misleading consumers by displaying it 'near the headline statement'.  

Whole of product lifecycle

The ACCC also considers it is important for businesses to take into account the effect of the environmental impact of the product/service over its lifecycle, before making an environmental claim.

The draft guidance clarifies that:

'You do not necessarily need to conduct a life cycle assessment or provide information about the full product life cycle in every claim. However, you should consider which impacts are relevant to the claims you want to make and ensure that the overall impression conveyed is not misleading'.  

In addition, its suggested that it a claim only relates to part of the life cycle of a product/service, businesses should make clear what part.

4.  'Explain any conditions or qualifications on your claims'

The draft guidance underlines the need to ensure that where an environmental benefit will only be realised in certain conditions/if certain steps are followed, this should be made clear to consumers.  For example, it's suggested that a claim that coffee pods are 'recyclable' (without further information/qualifications) could be misleading, because coffee pods are not widely accepted for recycling and extra steps are required before they can be recycled.  

The ACCC considers it is  'good practice' to: 

'clearly explain any limitations on the product’s ability to be recycled and any additional or unusual steps that need to be taken. If it is not practicable for the majority of consumers to recycle the product, the claim should not be made'.

5. 'Avoid broad and unqualified claims'

The ACCC advises that  businesses should avoid using 'broad, vague terms' such as 'green', 'environmentally friendly', 'eco friendly' or 'sustainable' because they: 

'convey sweeping benefits that can mean different things to different consumers. Without further qualification or clarification, consumers can easily be misled that the product, service or business is better for the environment than is actually the case'.

As flagged previously, the draft guidance also suggests that certain other 'commonly used' terms eg 'recyclable', 'recycled' should be qualified to ensure consumers have an accurate picture of the product/service.  For example, the draft guidance suggests that products should not be labelled as 'recyclable' unless they can be recycled through a household/local council waste collection program or consumers are given an explanation as to how the product can be recycled or the statement is appropriately qualified.  

Emissions-related claims

The draft guidance calls on all businesses to: 

'exercise particular caution when making representations to consumers about the greenhouse emissions associated with their products, services or business and their overall impact on climate change, given the complexities involved in quantifying these impacts'. 

In setting out what it considers to be good practice in this context, the ACCC (among other things) suggests that businesses should explain how their Scope 2 (operational) emissions have been accounted for, including the extent of their reliance on carbon offsets (or carbon credits) (where these are used).  

The draft guidance also underlines the need to ensure any claims made make clear 'what emissions have been accounted for and avoid using headline claims which create a misleading impression'.

Emissions-intense businesses

The draft guidance underlines that businesses that 'rely on or sell fossil fuels' should be 'particularly careful not to understate the overall environmental impact of their business when making environmental claims'.  This is because:

'the overall environmental detriment of these industries is likely to overshadow any environmental improvements made by a business. Broad or unqualified environmental claims made by businesses in these industries have a higher chance of misleading consumers'.  

Principle 6: Use clear and easy to understand language 

The ACCC Chair comments:

'It is important to remember that an ordinary consumer generally does not have specialist knowledge, instead they understand words to have their ordinary meaning'.

The draft guidance advises businesses to both:

• avoid using scientific or technical language as far as possible.  Where scientific or technical terms are needed, the guidance states that it is 'good practice' to 'clearly define the words if there is the potential for confusion'.  
• use words to convey their common meaning eg if a product is described as 'reusable' then the assumption attaching will be that the product can be reused multiple times.  If a product could only be used a limited number of times, then use of the term could be misleading (unless qualified/an explanation were given).

Principle 7: 'Visual elements should not give the wrong impression'

The draft guidance cautions that certain imagery, colours and symbols 'may be interpreted by consumers to be making a broad claim of an environmental benefit' and therefore should be used with care.  

This includes, for example, use of:

• Images of plants, animals, the earth, or the colours green and blue which may suggest environmental benefits
• Symbols that are widely recognised as having a particular meaning (eg the mobius loop which is generally understood as the symbol for recycling)
• Custom-designed symbols that resemble 'trust marks' or words that give the impression that a service/product has been certified by a third party (eg 'biodegradable approved') if this is not the case
• Use of third party logos/certifications.  

In each case, the ACCC emphasises the need for businesses to consider the overall impression created before using the imagery/symbol.

Principle 8: 'Be direct and open about your sustainability transition'

The ACCC cautions businesses to be careful not to overstate their progress on this front.  The ACCC observes that: 

'The need to be competitive can incentivise and drive environmental change.  However in relation to any sustainability reduction claims, you should ensure genuine progress has been made before making environmental claims.  You should also ensure that you have realistically portrayed the environmental harm still associated with your business as you transition to more sustainable operating models, to reduce the risk of misleading consumers'.  

Views on how businesses should communicate extra information to consumers  

The consultation paper includes a number of specific questions (p3-4) for feedback directed to both industry and consumers/consumer advocates.  

Perhaps the key question for industry is whether the draft guidance will instil confidence in terms of knowing feel 'how to express an environmental or sustainability claim clearly and accurately'.  

For consumers, the focus of the questions is on what information is needed to enable informed purchase decision-making and the extent to which the guidance is likely to assist.  The regulator also seeks consumer views on the best way for businesses to provide information about their sustainability credentials.  For example, whether consumers would like to see information provided on product labels, websites or through QR Codes and views on whether certified trademarks/certification schemes assist in understanding businesses' environmental/sustainability credentials.   

Regulatory approach

ASIC and the ACCC to work 'closely together' in detecting and investigating potential greenwashing

Tackling greenwashing has been flagged by both the ACCC and ASIC as a key priority and in line with this, both regulators sharpened their focus on enforcement and education.  

In addition to setting out the eight principles above, the ACCC's draft guidance explains the ACCC's role and approach to enforcement and how this fits with ASIC's role.  

Determining when to take enforcement action

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.

The ACCC states that:

'In determining whether to take enforcement action in respect of environmental claims, ACCC will consider whether genuine efforts and appropriate steps were taken by the business to verify the accuracy of any information that they relied on.  The scope and extent of due diligence undertaken will vary depending on the size of the business.  The ACCC recognises that small businesses generally will not have access to the same resources as larger businesses and this will be taken into account when assessing the steps taken to verify environmental claims.  The ACCC is more likely to take enforcement action in respect of representations about future matters regarding environmental claims where a business did not have reasonable grounds for making the representation, does not have an intention or plan to implement initiatives, or knew or was reckless about whether the claim was untrue or incorrect'.

Regulators will work closely together where there is overlap

In essence, the ACCC will focus primarily on claims about consumer facing products and services, while ASIC will focus on financial products and services.  However, where there is crossover, ie where claims fall within the jurisdiction of both regulators, the regulators will 'work closely together to address any misconduct'.  

[Sources: ACCC media release 14/07/2023; Environmental and sustainability claims - Draft guidance for business; ACCC Chair Gina Cass-Gottlieb, address at the Breakfast Matters event at the Law Institute of Victoria 14/07/2023]

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