Public pressure, consumer demand and investor expectation are all fuelling the exponential growth in corporates moving to address climate change, typically via responsible business and social licence commitments.
More and more businesses are going “carbon neutral” or committing to emissions reduction targets. KWM’s Climate Disclosure Trends of the ASX50 report shows 86% of Australia’s largest 50 listed companies made a net zero or carbon neutral pledge in 2021. And, to the extent businesses are not yet seeking to address their environmental impact in this way, they often face pressure from shareholders to take environmental action. Once they have gone “green” businesses understandably want to tell customers and shareholders. However, as more and more corporates espouse their environmental credentials, there has been a commensurate increase in interest and scrutiny from regulators and strategic litigants, including activist shareholders.
This is now a key area of regulator interest. The Australian Competition and Consumer Commission (ACCC) has announced “consumer and fair-trading issues in relation to environmental claims and sustainability” as a compliance and enforcement priority for 2022. A key focus under this priority will be “green” claims and “greenwashing”.
Green claims are representations about environmental practices or the environmental attributes of products or services, including claims about carbon neutrality, renewable energy, and clean energy. Where a company makes false or misleading green claims, this is known as “greenwashing”. Just like any other false or misleading representation made by a business, greenwashing will breach the Australian Consumer Law (ACL) prohibitions on misleading or deceptive conduct and false or misleading representations.
This article explores the regulatory and legal risks associated with making green claims, and provides some practical, golden rules to help make sure your “green claims” stay out of the “red zone”.
What can we expect from the ACCC?
While the ACCC published a ‘Green Marketing’ guide in 2011, 2022 is the first time it is making environmental and sustainability claims - and greenwashing in particular - a compliance and enforcement priority. This means businesses should assume that any “green” claims they make will be more highly scrutinised by the ACCC than ever before. In announcing this priority, the ACCC also made clear that:
- it considers that greenwashing can also distort demand and supply-side incentives and generate unfair competition and outcomes for businesses (in addition to consumer harm);
- it will be closely scrutinising carbon neutral claims made in the manufacturing and energy sectors; and
- it will closely engage with other regulators, in particular ASIC and the Clean Energy Regulator, who are also separately targeting greenwashing.
In particular, businesses in the energy sector should be keeping this risk front of mind when communicating their environmental credentials, given the above and also because the ACCC has made “competition and consumer issues arising from the pricing and selling of essential services, with a focus on energy and telecommunications” a priority for 2022.
Key legal risks
Misleading and deceptive conduct
There is no specific consumer-protection legislation in Australia that specifically regulates greenwashing. Instead, the general consumer protections in the ACL equally apply to “green” and environmental claims. Key risks to manage include misleading and deceptive conduct and false representations, which carry significant pecuniary penalties and the risk of injunctions, corrective advertising orders and court-enforceable undertakings.
There are also equivalent misleading and deceptive conduct prohibitions to be mindful of in the Corporations Act 2001 (Cth) (Corporations Act) and Australian Securities and Investments Commission Act 2001 (Cth).
Carbon neutral and net zero claims in the “hot seat”
Popular green claims in recent years include claims of carbon neutrality, emissions reductions and net zero emissions targets. These types of claims are being increasingly made by the private sector as they’ve become more proactive in tackling climate change.
A critical starting point for any business seeking to make such a claim is to ensure that there is evidence to substantiate they are accurate. For carbon neutral claims, this will often involve obtaining carbon neutral certification from organisations like Climate Active, who awards its certification to organisations that have reached a state of carbon neutrality (either in respect of their operations or products/services). However, carbon neutral claims still carry inherent complexity and risk and have recently been the subject of shareholder activism. Importantly, obtaining certification does not provide a business with complete carte blanche to use the words “carbon neutral” in all circumstances. Businesses always need to keep in mind the scope of their carbon neutrality and avoid implicitly or explicitly exaggerating that scope.
For claims about emissions reduction targets and net zero targets it is even more critical to have evidence to substantiate the claims at the time they are made. This is because, being representations, these kinds of statements will be taken to be misleading unless a business can point to evdience showing they had reasonable grounds for these types of claims at the time they were made.
Our golden rules provide some practical guidance on key things to consider when making these types of claims.
Golden rules for green claims
Companies need to ensure that advertising and communications do not suggest that their business operations, or products or services they supply, are more environmentally positive / friendly than they actually are.
1. Be clear
Given the complexity of the scientific calculations/basis sitting behind green claims (and the potential for technical language to be used), it is especially important to ensure that the message conveyed is clear, unambiguous and not too broad in scope. To the extent that an ambiguous, unclear or overly broad claim creates a false or misleading impression, there is a risk of contravening the ACL despite not having any intention to do so. For example, when making a claim about carbon neutrality, companies need to be clear about what the carbon neutrality relates to – e.g. its business operations or a product or service – and may need to explain what it means to be carbon neutral (to avoid customers assuming that they produce zero emissions, rather than purchase offsets to neutralise those emissions).
2. Make sure you can substantiate your claims
All claims must be scientifically sound and able to be substantiated. It is important to ensure that communications do not convey a level of scientific acceptance or “authority” of a particular environmental claim that is unwarranted. For example, the Climate Active certification is a mechanism by which carbon neutral claims can be substantiated. However, as we discuss in golden rule #3, this does not mean that the certification can be used to substantiate all advertising.
3. Always consider context
Despite certifications (such as Climate Active), care still needs to be taken about how that certification is represented to consumers in the context of a particular advertisement. For example, adding words like “certified carbon neutral by Climate Active” or “certified carbon neutral” to every advertisement would be risky without considering what is being advertised, and whether it is included in the scope of your certification.
4. Representations can be implied, not just express
Claims in advertising may be express or implied. “Green” claims are particularly prone to containing implied representations which may present additional risk when considering advertising. They attract additional scrutiny from regulators and competitors because of their social value to customers, but also their scientific complexity. Remember to consider any implied, as well as express, messages that communications may convey.
5. Have reasonable grounds for making a claim about a future matter
“Green” marketing claims can often amount to representations with respect to future matters (e.g. aspirational statements about carbon neutral ambitions or forecasts about meeting certain emission reduction targets). A representation with respect to a future matter is deemed to be misleading unless its maker has reasonable grounds for making the representation. This heightens the importance of substantiation – which is particularly important for “green” claims.
6. Be extra careful about aspirational claims
Aspirational claims can be particularly fraught. As we discuss in golden rule #5, an aspirational claim can be a form of representation with respect to future matters. This means that, e.g., carbon neutral goals or commitments must be objectively based on reasonable grounds – you can’t just pick a figure and hope for the best. The level of substantiation will depend on whether absolute or qualifying language is used. How you couch the claim will also depend on whether it is aspirational or a “stretch goal”.
The private sector is increasingly being recognised for the leading role it can play in combatting climate change. While navigating this area can be complex, it also presents an exciting time and opportunity for businesses and organisations. Organisations have a chance to demonstrate their values – and authenticity, clarity and substantiation will be the key to success.
