08 March 2023
8 min read
#Environmental, Social and Governance (ESG), #Competition & Consumer Law, #Superannuation, Funds Management & Financial Services
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Businesses have for many years sought to capitalise on consumer preferences when advertising their products and services.
Over recent years, consumers’ value propositions have increasingly moved towards and focused on products and services that are considered to be environmentally sustainable.
Accordingly, businesses from all industries are finding themselves moving towards and making more claims about the environmental sustainability of their products and services and/or the means in which those products and services have been created. However, the regulators are becoming attuned to these claims and are increasingly focused on whether such claims have merit or whether they are, in fact, ‘greenwashing’ consumers by making claims that are false, misleading, or deceptive.
If you would be interested in attending a seminar on Greenwashing, please register your expression of interest here.
Greenwashing is the practice of misrepresenting a product or service’s ‘green credentials’, often by means of disclosure or advertising. Essentially, greenwashing is the (intentional or accidental) practice of distorting and misrepresenting the extent to which a product or service is environmentally friendly, sustainable or ethical (often when an organisation is seeking to promote its ESG credentials). In short, it is misleading and deceptive conduct. At a more granular level, greenwashing includes:
Greenwashing is not an activity particular to one sector of the economy. Globally, organisations including Volkswagen, BP, ExxonMobil, Nestlé, JP Morgan, Citibank, Bank of America have been subject to claims of greenwashing by regulators, consumers and activists. The fashion industry is also subject to numerous claims of greenwashing; and recently, it was reported that the Australia Institute filed a complaint with the ACCC on the basis that the Australian Government’s ‘carbon neutral’ certification scheme, Climate Active, may be misleading or deceptive under consumer law.
The risk of greenwashing to consumers is that consumers find themselves buying or investing heavily in products or services that, ultimately, lack the requisite attributes that the consumer was willing to pay a premium on. Furthermore, greenwashing has the propensity to distort the marketplace, potentially by under-pricing the actual cost of green production to the detriment of those businesses that prioritise environmentally sustainability.
As a result, Australia’s corporate and consumer regulators are on red alert for greenwashing and have prioritised investigating and taking enforcement action in connection with misleading disclosures and marketing.
While businesses have mostly been able to avoid significant penalties for greenwashing, new court proceedings might change that.
In a landmark greenwashing case, the Australian Securities and Investments Commission (ASIC) has accused Mercer Superannuation (Australia) Limited (Mercer) of greenwashing.
In the civil penalty proceedings, Mercer faces allegations it made statements on its website about seven ‘Sustainable Plus’ investment options when marketing them as suitable for members who ‘are deeply committed to sustainability’. According to ASIC, Mercer’s ‘Sustainable Plus’ investment options invested in 15 fossil fuel companies; 15 alcohol companies; and 18 gambling stocks.
This was despite Mercer claiming the investment options excluded investments in companies involved in carbon intensive fossil fuels, alcohol production and gambling. In doing so, ASIC alleges Mercer made false and misleading statements and engaged in conduct that could mislead the public.
ASIC is seeking declarations and pecuniary penalties from the Court, as well as injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website, and orders requiring Mercer to publicise any contraventions found by the court.
It’s the first time ASIC has commenced court action after legislative amendments, arising from the Financial Services Royal Commission, enhanced its powers to take action regarding a broader range of superannuation trustee conduct. And it follows the regulator issuing infringement notices to two energy companies, a fund manager and a superannuation fund trustee for allegedly lying about their green credentials.
These proceedings come amid a wider crackdown on companies making false claims about their green credentials with the Australian Competition and Consumer Commission (ACCC) recently announcing it will investigate a number of businesses for potential ‘greenwashing’ after an internet sweep found more than half made misleading statements about their environmental or sustainability practices.
Of the 247 businesses or brands across eight sectors reviewed, 57 per cent were identified as having made concerning claims about their environmental credentials.
Per the ACCC’s report, these included marketing products or packaging as biodegradable, compostable or recyclable without evidence, exaggerating climate benefits, inappropriately comparing products to a competitor, and developing individual certification schemes.
Both ASIC and the ACCC have listed action against greenwashing as one of their enforcement priorities this year.
ASIC
Specifically for the financial sector, issuers are required to comply with the prohibitions in the Corporations Act 2001 (Cth) on making statements (or disseminating information) that are false or misleading, or engaging in dishonest, misleading or deceptive conduct in relation to a financial product or financial service
Additionally, there are certain disclosure obligations that apply when offering Product Disclosure Statements for sustainability-related products, including the extent to which labour standards or environmental, social or ethical considerations are taken into account, and comply with ASIC Guidelines.
ACCC
In relation to goods and services, the consumer watchdog is encouraging consumers and businesses to contact the ACCC to report any potentially misleading environmental or sustainability claims.
Specifically, greenwashing may constitute a breach of the Australian Consumer Law (ACL), in particular section 18 (which prohibits engaging in misleading or deceptive conduct in trade or commerce) and section 29 (which prohibits a person from making false or misleading representations about goods or services).
While the ACCC can use powers under section 155 of the Competition and Consumer Act (CCA) to obtain information, documents and evidence in relation to matters which may breach the CCA. The ACCC can also issue substantiation notices requiring a person or business to give information and/or produce documents that could be capable of substantiating or supporting a claim or representation made by the person or business.
The ACCC has indicated that
“Already, we have several active investigations underway across the packaging, consumer goods, food, manufacturing and medical device sectors for alleged misleading environmental claims and these may grow as we continue to conduct more targeted assessments into businesses and claims identified through the sweep. We will take enforcement action where it is appropriate to do so as it is critical that consumer trust in green claims is not undermined”.
There are many steps that businesses and issuers can take to improve their environmental claims.
First, it is important that existing requirements are complied with when promoting or offering sustainability-related products.
All businesses should ensure that their claims are clear and specific, avoid using vague language (such as ‘green’) to describe their products or services and be wary which standards they rely upon to substantiate their environmental claims.
Businesses should also ensure that they are considering the entire lifecycle of a product when making environmental and sustainability claims. If a claim only relates to one aspect of the product lifecycle, this should be made clear to consumers.
Transparency over products and environmental policies should be a priority, to allow consumers to make an informed choice. This may include publishing information about the types of materials used and how they are sourced, product durability and repairability, energy use and emissions, water usage and pollution. As well as relevant labour standards or environmental, social or ethical standards or considerations.
Finally, businesses should also think about collaborating with reputable third-party certification bodies. However, if businesses do obtain certification, they should still be careful to not misrepresent the certification’s meaning or significance.
ASIC has published Information Sheet 271 (INFO 271) to provide guidance in relation to communications about sustainability-related products and how they can avoid greenwashing these offerings. While the ACCC is expected to conduct a range of education activities with businesses, including updating economy-wide guidance material, in addition to targeted guidance for specific sectors.
Businesses and issuers should give proper consideration to these suggestions to minimise any risk of regulatory action for greenwashing and ensure they are elevating the planet to the same importance as profit.
Luke Hooper and Joanne Jary will be running a webinar on this topic on Wednesday 27 April, where we will be providing you with a more in-depth discussion of the issues surrounding greenwashing. If you are interested in joining this session, please register your details here.
Our team can assist you in understanding the prohibitions against misleading or deceptive conduct, and other prohibitions in the Corporations Act and ACL. In particular, we can assist in managing the risks associated with sustainability-related advertising and ensuring the accuracy of statements that may affect consumers’ decisions. If you have any questions, please get in touch with any member of our team below.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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