What is greenwashing?

Greenwashing is a tactic used by companies to make their products or services appear more environmentally friendly than they actually are.  It involves making false or exaggerated claims about the environmental benefits of a product or service to appeal to environmentally conscious consumers.  The term "greenwashing" is derived from the word "whitewashing", which means to cover up or conceal something negative.

Greenwashing can take many forms, such as using vague or meaningless environmental buzzwords, including "green", "eco-friendly", or "sustainable", without providing any specific information on how the product or service is environmentally friendly.  It can also involve exaggerating the environmental benefits of a product or service or making claims that are difficult to verify.

Why is greenwashing a problem?

Greenwashing can mislead consumers into thinking that a product or service is better for the environment than it actually is, which can result in them making purchasing decisions based on false information and inadvertently supporting companies that engage in environmentally harmful practices.

Greenwashing can damage consumer trust in environmental claims and labels, making it more difficult for consumers to make informed decisions about the environmental impact of the products they buy.  This can ultimately harm the environment by reducing the effectiveness of sustainability initiatives and slowing progress towards a more sustainable future.

Greenwashing can also undermine the efforts of companies that are genuinely committed to sustainability and environmental protection.  By making false or exaggerated claims, companies that engage in greenwashing can make it more difficult for consumers to differentiate between genuine environmental leaders and those that are improperly trying to capitalize on the growing demand for environmentally friendly products and services.

How does the law deal with greenwashing?

Under the Australian Consumer Law (ACL), it is illegal for businesses to make false or misleading claims about the environmental benefits of their products or services.  This includes claims that a product is environmentally friendly, sustainable, or has a reduced impact on the environment, if these claims cannot be substantiated.  Greenwashing could be a breach of section 18 of the ACL (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).

The Australian Competition and Consumer Commission (ACCC) monitors compliance with the ACL and is looking to step up enforcement efforts, encouraging consumers and businesses to contact the ACCC to report any potentially misleading environmental or sustainability claims.

In late 2022, the ACCC undertook an internet "sweep" of a sample of businesses to assess their environmental claims.  Releasing its findings earlier this month, the ACCC found 57% of businesses surveyed made sustainability claims that raised greenwashing concerns.  The ACCC plans to undertake a more targeted analysis of the businesses involved, in addition to a number of active investigations already underway.

Increased penalties for breaches of the ACL came into effect late last year, with the new maximum financial penalties for businesses now being the greater of:

• $50,000,000;
• 3 times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or
• if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.

It’s not just the ACCC monitoring compliance and taking action.  The Australian Securities and Investments Commission (ASIC) can also take enforcement action against greenwashing activities and has made it one of its priorities for 2023.  Late last year, ASIC issued its first penalty for greenwashing, fining Australian company Tlou Energy Limited $53,000 for making false or misleading sustainability related statements on the ASX.

In February this year, ASIC launched its first court action against alleged greenwashing conduct, commencing civil penalty proceedings in the Federal Court against Mercer Superannuation (Australia) Limited (Mercer) for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

ASIC is seeking declarations and pecuniary penalties from the Court, together with injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website. It is also seeking orders from the Court, requiring Mercer to publicise any contraventions found by the Court.

What should businesses do?

Businesses should review any environmental or sustainability claims they have made in relation to their business to ensure:

• environmental and sustainability claims take account of the entire lifecycle of their product or service, or where claims relate to only part, specify this;
• claims are clear and specific, and vague language is avoided; and
• claims are accurate and can be substantiated.

The ACCC has a published guidelines for businesses on how to make accurate and substantiated environmental claims, which are available here. These guidelines provide information on how to avoid greenwashing and ensure that environmental claims are truthful, accurate and verifiable.

Now, more than ever, businesses need to tread carefully when making ESG claims.

Please contact the Sierra Legal Team if you require further information about this topic or assistance with your ESG obligations.