Today the ACCC issued its draft guidance for businesses making environmental and sustainability claims. Its draft guidance outlines eight “good practice” principles for business in helping them comply with their obligations under the Australian Consumer Law, being Schedule 2 of Competition and Consumer Act 2010 (Cth) (ACL):

1. Make accurate and truthful claims
2. Have evidence to back up your claims
3. Don’t leave out or hide important information
4. Explain any condition or qualification on your clams
5. Avoid broad and unqualified claims
6. Use clear and easy-to-understand language
7. Visual elements should not give the wrong impression
8. Be direct and open about your sustainability transition

The ACCC defines an environmental claim as any representation a business makes in relation to its environmental impact, including claims that give the impression that a business, products or services:

• have a neutral or positive impact on the environment;
• are less harmful for the environment than alternatives; and/or
• have specific environmental benefits.

Environmental claims can appear on product packaging / labels, point-of-sale materials, corporate reporting materials and various marketing and advertising materials including websites and social media. 

An environmental claim that is false or misleading is known as ‘greenwashing’.  The ACCC considers a business will engage in greenwashing where they use any claim that makes a product, service or business seem better or less harmful for the environment than it really is.

In the media release on these guidance, ACCC Chair Gina Cass-Gottlieb, emphasised why greenwashing was both a consumer and competition issue:

“False or misleading claims can undermine consumer trust in all green claims, particularly when consumers are often paying higher prices based on these claims. Similarly, businesses that are taking genuine steps to adopt sustainable practices are put at a competitive disadvantage by businesses that engage in ‘greenwashing’ without incurring the same costs.”

The guidance was informed by the ACCC’s 2022 internet sweep of environmental and sustainability claims the findings for which it released in March earlier this year (for detail on it, and other global developments, see our G+T insight on regulators tackling greenwashing).

The ACCC is asking consumers, consumer advocates, businesses, industry associations and other stakeholders for feedback on its draft guidance. The ACCC provides 16 consultation questions for feedback. Submissions with feedback are due by 15 September 2023. 

Key takeaways from ACCC’s guidance

Businesses should review existing green claims if not already done and remain vigilant when making new ones.  Greenwashing continues to be a key enforcement priority for regulators both globally and in Australia, including the ASIC. ASIC published its own 2022 sustainability guidance to help businesses avoid greenwashing when offering or promoting financial products. It has actively undertaken greenwashing-related surveillance activities and enforcement measures, including its first greenwashing court action, against Mercer Superannuation (for detail see our insight on ASIC’s court action).

While the ACCC focuses on consumer facing products and services and ASIC focuses on financial products and services, where greenwashing claims fall within both regulators’ jurisdiction, they are working together closely to investigate and address such claims.

While the ACCC’s eight principles reflect what the ACCC considers to be good practice, the question of when a business’ environmental or sustainability claims will constitute misleading or deceptive conduct, false or misleading representations, or conduct liable to mislead as to the nature of goods or services in breach of the ACL, needs to be examined in light of the specific representations, the context they were made in and the relevant case law.  Businesses need to ask whether the overall impression created by their representations would be misleading to the ordinary and reasonable consumer.

Overview of ACCC’s 8 principles

ACCC Principle 1: Make accurate and truthful claims

All environmental claims should be accurate, true and factually correct.  This includes:

• do not overstate the level of scientific acceptance. Where the scientific basis for your claim is under dispute or not conclusive, do not present your claim as being universally accepted.
• do not exaggerate environmental benefits or understate an environmental harm. Rather, clearly explain your product or service’s specific environmental benefit and, where appropriate, quantify the precise environmental benefit being achieved (eg., the packaging uses “5% recycled plastic” rather than the packaging is “made using recycled plastics”).
• only make meaningful claims. Only make environmental claims when there is a genuine environmental benefit associated with your product, service or business. There is a risk of misleading consumers if you advertise environmental benefits which are irrelevant, insignificant, or advertise the observance of existing laws (eg., there already is an industry-wide legal requirement to reduce emissions).
• make sure comparisons are transparent and fair. Ensure that any comparisons you make are transparent and fair, and are a true reflection of the compared products, services, or businesses’ impact. Make it clear to consumers what is actually being compared.
• have reasonable grounds for making representations about the future. Only make environmental representations about events that will (or will not) happen in the future where there are reasonable grounds for making it, and where the business has an intention or plan to implement the initiatives. Consider the overall impression being created by the representation, including through the use of visual elements.

If a claim is not true, or only partially true, change it or don’t make the claim at all.  Even claims that are factually correct can still sometimes mislead consumers if inappropriately described. 

ACCC Principle 2: Have evidence to back up your claims

It is good practice to ensure you can substantiate any environmental claim.  Evidence that is independent and scientific is the most credible.  When choosing evidence to support a claim, keep in mind the following good practices:

• evidence from suppliers or other third parties should be verified.  
• if relying on scientific studies or similar evidence, use widely accepted scientific studies, or those that have been peer-reviewed and/or subject to independent scrutiny.
• if you have conducted laboratory testing to support your claim, check whether the laboratory results also reflect the conditions that will normally be experienced by consumers using your product.
• if your claims relate to reducing environmental impact (g., reducing emissions, water use or material use), calculate these reductions using acceptable methodologies and keep robust records to verify the claims.
• make any evidence, research or data relied upon publicly available to help consumers easily understand, verify and trust your claims.  This evidence can be directly where the claim is made, or if there is a lot of information, accessible using, eg. links, brochures, sites, QR codes.

In assessing whether a claim is greenwashing, the ACCC will consider whether genuine efforts and appropriate steps were taken by the business to verify the accuracy of any information relied on.

The ACCC has noted that using third-party certification as evidence can be a reputable way to substantiate and provide credibility to your environmental claims. However, in some cases third-party certifications will not adequately substantiate your claims or the schemes themselves lack integrity (eg., if your claims go beyond what you have been certified for, or you use the certification to imply a greater benefit than there really is).

ACCC Principle 3: Don’t leave out or hide important information

Incomplete information can be misleading.  Consumers cannot make informed decisions if they are not given relevant information that gives the full picture, or if important information is placed where they are unlikely to notice or find it. When considering how information is presented:

• Small print should not hide the truth. Do not rely on disclaimers, disclosures or clarifications buried in small print, or otherwise not displayed prominently enough compared to your headline claim, as an excuse for making misleading claims. Any information/qualifications in small print or should not conflict with your claim’s overall message, and rather be supporting information.
• Transparency is the key. Be transparent about your environmental claims and policies, and the information being relied on to support them. It can be risky to highlight the positive aspects of your product, service or business while omitting information about negative aspects as it can give consumers an overall impression that your product, service or business has a lower environmental impact.
• Consider the full lifecycle of your product or service. Products and services have different environmental impacts across their life cycle’s different stages.  This should be considered before making environmental claims, to ensure the overall impression is not misleading.  Important aspects to consider include: raw materials used, manufacturing processes and location, any waste or by-products, packaging, how the product is used and end-of-life disposal.  

ACCC Principle 4: Explain any conditions or qualifications on your claims

Some environmental claims may only be true under certain condition or realised if certain steps are carried out.  Theoretical environmental benefits that are not clearly explained or unlikely to be realised during ordinary consumer use are likely to mislead consumers.  This may occur where:

• a claim is true when the product is tested in lab conditions, but these conditions are unlikely to occur in normal day-to-day use.
• a claim is accurate in some locations where the product is sold, but not in others (eg., a biodegradable product may only break down in certain climates).
• the technology or infrastructure needed for the claim to be fulfilled is not readily available.  

Ask yourself, are there any conditions that need to be met or steps that need to be taken for your claim to be true.  If claims are only true in certain circumstances, explain this to consumers clearly and prominently.

ACCC Principle 5: Avoid broad and unqualified claims

Broad and unqualified claims can be interpreted widely and more easily mislead consumers than clear, specific claims that are substantiated.  Providing only partial information (or information without sufficient qualifications) also risks misleading consumers.

• Avoid using overly broad, vague terms, or terms that should be qualified or explained further.  Commonly used terms that are overly broad and vague include ‘green’, ‘environmentally friendly’, ‘eco-friendly’ and ‘sustainable’. 
• Additionally, terms that should include a sufficient qualification, be further explained and the basis for the claim be reasonable and transparent include ‘recyclable’, ‘recycled’, ‘made from recycled materials’, ‘renewable’, ‘produced with renewable energy’, ‘free’ and ‘uses less water’.

Emissions related claims: The ACCC also noted businesses should exercise particular caution with representations about emissions associated with their products, services or businesses. It stated consumers are unlikely to readily understand what is meant by broad headline claims like ‘carbon natural’, ‘climate neutral’ or ‘net-zero’, and provided guidance on good practice for emission related claims.

Environmental claims in highly polluting industries: The ACCC noted that emissions intensive businesses (eg. those relying on/selling fossil fuels) should be particularly careful not to understand the overall environmental impact of their business when making environmental claims. The ACCC stated that broad or unqualified environmental claims made by business in these industries have a higher chance of misleading consumers.

ACCC Principle 6: Use clear and easy-to-understand language

When making environmental claims, use clear, easy to understand language that an ordinary, reasonable consumer can understand:

• Avoid technical or scientific language that consumers cannot easily understand, or clearly define and explain their meaning if there is potential for confusion. 
• Use words to convey their common meaning, as they are likely to be understood by consumers.  If a business is relying on a specific interpretation of a word or a phrase, define and clearly explain that this is the case (eg., a business using the word ‘reusable’ to describe products which can only be reused a few times should state the number of times the product can be reused).

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

Consumers may interpret visual elements (eg., colours, images, logos or symbols in marketing materials and product packaging) as a claim about the environmental benefits of a product, service or business. They can contribute to an overall misleading impression together with the words used (or omitted information).

• Symbols: It can be misleading to use symbols or logos that convey widely accepted meanings (eg., the mobius loop, which typically represents that a product is made of recycled materials / recyclable). Make sure it meets criteria for using the symbol, and clearly and prominently explain the intended meaning next to the symbol.
• Trust marks: If designing your own symbols, be careful to avoid symbols looking like trust marks that represent certification by a third-party when not the case (eg., a circled green tick with the words ‘biodegradable approved’ when the product is not certified biodegradable).
• Third-party certifications: When using logos from an environmental certification scheme, consider the overall impression created and provide further information / explanation needed to ensure consumers are not misled as to the scheme’s nature, especially if they may be unfamiliar with it (eg., whether the scheme is independent or self-assessed).  Businesses should only use the logo in relation to:
  • the business’ particular product, service or aspect that has been certified; and
  • only while they remain certified and still meet the certification criteria.

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

While the ACCC encourages businesses to share genuine steps they are taking to reduce their environmental impact with consumers, it cautions businesses against making claims that lead consumers to believe that the business is further along in their sustainability transition than is actually the case.

The ACCC encourages businesses to make claims about your sustainability transition that genuinely reflect their environmental goals and performance, once they have developed a clear and actionable plan for how they will achieve those goals, and to avoid vague or unclear aspirational claims. Relatedly it suggests the following good practice:

• Understand motivation for making the claims, be realistic about what is achievable, use terminology that consumers will understand, clearly state the practical steps taken to achieve the goals, and provide regular updates to consumers. Clearly portray to consumers any environmental harms still associated with the business while undergoing this transition.