It’s in the “nature” of the representation: ASIC and the ACCC continue to focus on environmental and sustainability claims

Consumers are increasingly influenced by a brand’s environmental and sustainability practices. In this article, we discuss practical steps Boards and companies can take to reduce the regulatory risks with making environmental and sustainability claims. In particular, this article focuses on how you can gain comfort that your business has the substantiation required to underpin a “green” claim.

The term “greenwashing” has been used in the media for some time. It refers to potentially false or misleading representations made about the environmental benefits of a product. It is also often used to refer to businesses overstating their environmental credentials to attract customers. Both ASIC and the ACCC are very active in this space – with the ACCC focusing on goods and services supplied to consumers, and ASIC monitoring claims made in relation to financial products (such as investments by superannuation funds).

More recently, the term “green-hushing” has attracted attention. This is when companies deliberately choose to under-report, or not disclose, their environmental practices to avoid scrutiny. This approach also carries regulatory risks. Staying silent can be misleading or deceptive if the omission is, in itself, a representation about the business’ practices.

Regulatory enforcement – year in review

As companies have increasingly relied on their sustainability and environmental credentials to market products, this had understandably attracted regulatory attention. Regulators are justifiably concerned to ensure that customers understand exactly what they are purchasing, so that businesses that genuinely invest in their sustainably practices are rewarded, and those who lag behind do not reap undeserved rewards.

Throughout 2023, greenwashing has been an enforcement priority for both the ACCC and ASIC (see our September OnBoard article). This is reinforced by the actions each regulator has taken over the calendar year:

• In February, ASIC commenced its first Federal Court action alleging greenwashing conduct, with Mercer Superannuation (Australia) Ltd allegedly making misleading statements about the sustainable nature and characteristics of some of its Sustainable Plus investment options.
• In March, the ACCC announced that it had conducted an internet sweep which found that 57% of the 247 business reviewed had made concerning claims about their environmental credentials, and that the ACCC would be investigating a number of these claims. 
• In July, the ACCC published its long-awaited draft guidance on environmental and sustainability claims.^[1]
• Also in July, ASIC commenced proceedings against Vanguard Investments Australia, alleging misleading conduct in relation to claims about certain environmental, social and governance (ESG) exclusionary screens that were applied to investments in a Vanguard fund.
• In August, ASIC commenced proceedings against LGSS Pty Ltd (Active Super), alleging that it made ESG misrepresentations Active Super’s website and disclosure documents, as well as its social media pages.
• In December, the ACCC published its final guidance. The ACCC has flagged that it will release further guidance for businesses and consumers on emission and offset claims, as well as the use of trust marks in early 2024, and also develop guidance to help consumers confidently assess and rely on environmental claims.^[2]

ASIC also recently announced that greenwashing will continue to be an enforcement priority in 2024.^[3]

The approach of both ASIC and the ACCC to date indicates a clear emphasis on superannuation companies and customer facing listed companies. In particular, ASIC has indicated that it will continue to pay close attention to:^[4]

• net zero statements and targets
• use of terms such as “carbon neutral”, “clean” or “green”
• the scope and application of investment exclusions and screens.

The ACCC will also continue to scrutinise these types of claims closely – for detail on the ACCC’s guidance on making environmental and sustainability claims, see our July 2023 article here.

How do I substantiate a “green” claim?

Information sharing across the business is key

Sustainability goals and practices are usually resolved at the Board level and implemented by specific ESG committees. However, it is often the marketing team which creates the customer-facing content.

It is critical to ensure that there is appropriate information sharing between those with oversight of the sustainability measures and those communicating with consumers. It is also important that Boards and ESG committees ask questions to ensure the adequacy of these processes.

This will help to ensure that there is consistency between what is being done and how those measures are advertised.

Start with the facts – is my information complete and up to date?

Claims about sustainability measures should always be grounded in the facts. Rather than drafting a claim and then looking to substantiate that claim, it is preferable to start with the facts, and use this to create marketing material.

Businesses should also ensure that any information shared with customers reflects recent practice. It is self-explanatory that if a business discontinues an environmental initiative, this should be communicated to the marketing team and no longer be used in customer-facing materials.

As with all claims, consider the overall impression given to consumers - is it consistent with the big picture?

Customers are familiar with brands, and often do not draw a distinction between an Australian subsidiary and its global head. Accordingly, businesses should not solely rely on their environmental initiatives overseas to market their sustainability practices or credentials in Australia. Likewise, marketing extensive local sustainability initiatives can be misleading if an entity has a poor sustainability record overseas.

Similar rules apply to marketing investment strategies. Even if an entity is investing in renewable energy for the future – how does this strategy compare with past practice? Is the mix “green” overall?

Taking care to craft and substantiate claims – and to ensure that they are not over-stated to meet other targets or objectives - means customers are well-informed, and there will be no need for regulatory intervention.