The ACCC is cracking down on ‘greenwashing’ by closely scrutinising environmental and sustainability claims made by businesses. In fact, greenwashing was listed as one of the ACCC’s compliance and enforcement priorities for 2022/2023 back in March this year.
More recently, on 20 September 2022, during a speech at the SMH Sustainability Summit, Deputy Chair of the ACCC Delia Rickard indicated that the ACCC is looking to take action by exercising its enforcement powers to protect consumers and hold businesses accountable for any sustainability claims they make:
It is important that businesses can back up the claims they are making, whether through reliable scientific reports, transparent supply chain information, reputable third-party certification, or other forms of evidence. Trust me, where we have concerns, we will be asking businesses to substantiate their claims.
This follows ACCC Chair Gina Cass-Gottlieb’s opening address to the Law Council Annual Competition and Consumer Law Workshop on 9 September 2022, where she indicated that the preferred investigative tool for 'green claims' may be the use of substantiation notices:
Our message for businesses is simple – any claim made about sustainability must be able to be substantiated. If the ACCC was to send your business a substantiation notice over environmental claims, could you demonstrate a process that you undertook, or reasonable grounds for the claims? Are they accurate and verifiable?
We briefly explore what substantiation notices are, and how you can best prepare and respond, in the context of environmental and sustainability claims.
What is ‘greenwashing’?
Consumers are being increasingly influenced by the environmental impact of the products and services they buy when making purchasing decisions. To respond to this shift in consumer behaviour, businesses are becoming more focused on promoting sustainability.
However, there is also a growing trend of businesses either knowingly or inadvertently misrepresenting the sustainability of their products and services to attract customers. This is known as ‘greenwashing’.
At the core of the greenwashing issue is the lack of transparency around sustainability claims made by businesses. Information asymmetry between businesses and consumers makes it difficult for consumers to independently verify these claims.
You can learn more about greenwashing here: 'Summary of ASIC Guidance on ‘How to avoid greenwashing when offering or promoting sustainability-related' products’.
What are substantiation notices?
The ACCC has the power to issue a substantiation notice requiring a person to give information and / or produce documents that could be capable of substantiating or supporting a claim or representation made by the person.
Historically, substantiation notices have been rarely used by the ACCC, with only one issued last financial year (2020-2021) and a total of six since 2017, despite the ACCC having the power to issue them since 2010 when the first round of reforms to introduce the Australian Consumer Law came into effect. The recent statements above from the ACCC indicate that this may be about to change.
When does the ACCC use substantiation notices?
Relevantly, the ACCC has the power to issue a substantiation notice where a corporation has made a claim or representation promoting or intending to promote the supply of goods or services.
These notices are intended to be used as a preliminary investigative tool where the ACCC suspects a claim may not be able to be substantiated. While a notice does not require a person to prove that a claim or representation is true, they are used as a preliminary investigative tool to help the ACCC determine if it should investigate further.
How do I comply with a substantiation notice?
A substantiation notice will specify what information and / or documents need to be produced to the ACCC. Specifically, the ACCC is able to seek information or documents that:
- could be capable of, or are relevant to, substantiating or supporting the claim in question; or
- where the claim relates to a supply or possible supply, information that could be capable of, or is relevant to, substantiating or supporting the quantities and period for which a person is or will be able to make such a supply.
Provided that the notice complies with the procedural requirements, the recipient must comply with the terms of the notice within 21 days after the notice is received. The period for compliance with a notice may be extended where a person applies for an extension in writing during the compliance period and the ACCC grants the extension.
An individual (but not a corporation) does not need to comply with the terms of a substantiation notice by giving particular documents or information where such compliance might tend to incriminate the individual or expose them to a penalty.
What are the consequences of non-compliance?
If there is non-compliance with the terms of a substantiation notice, the ACCC may issue either an infringement notice or seek to obtain a penalty pursuant to a court order. The current penalties are:
Non-compliance with terms of substantiation notice
Of course, if a business is not able to sufficiently substantiate its claims to the ACCC (even if it complies with a substantiation notice), there remains the real risk of the ACCC deciding to investigate further to ascertain where there may have been a contravention of the Australian Consumer Law (ACL), or taking enforcement action such as commencing proceedings where it considers there has been a contravention of the ACL (e.g. false or misleading representations). Significant penalties can be ordered by the Court for contraventions of certain provisions of the ACL, including up to the greater of $10 million, three times the value of the benefit obtained from the conduct, or where the benefit cannot be determined, 10% of annual turnover, per contravention. The Federal Government recently released draft exposure legislation that proposes to increase the maximum penalties for ACL contraventions to the greater of $50 million, three times the benefit, or where the benefit cannot be determined, 30% of annual turnover, per contravention.
What can you do to be ready to respond to a substantiation notice?
If your business is making representations to consumers about the sustainability or environmental impact of its products or services, be sure that you can substantiate those claims to the ACCC with credible evidence.
As outlined by ACCC Deputy Chair Delia Rickard in her speech, businesses should consider the following two key questions before making any environmental and sustainability claims:
- What does an ordinary consumer understand these claims to mean?
- Does your product or business live up to this understanding?
In addition, the Deputy Chair recommended businesses should take the following steps to improve their environmental claims:
- Ensure that your claims are clear and specific, including detail on the specific part of the product or process being referred to;
- Avoid vague (e.g. ‘green’) or technical language, as well as claims which are technically true only if certain conditions are met;
- Only rely on robust, up to date standards;
- Consider the entire lifecycle of a product and identify if your claim only relates to one aspect of the product lifecycle;
- Do not hide or downplay negative impacts that, notwithstanding the claimed environmental benefits, may also result from the product or process being referred to;
- Be transparent about your products and environmental policies;
- Transparency may require that information about environmental indicators (e.g. energy use and emissions, types of materials used and how they are sourced, water usage and pollution, etc) is publicly available in an easily accessible and understandable format; and
- Consider collaborating with reputable third-party certification bodies, but take care not to misrepresent the meaning or significance of any certification that is obtained.
It is important to be ready to, and confident that you can, substantiate your green claims.