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Businesses warned against greenwashing

By Geoff Baldwin, Consultant Lawyer, Stacks Law Firm

  • The Australian Competition and Consumer Commission said it is actively targeting ‘greenwashing’ this year.
  • ASIC defined greenwashing as ‘the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical’.
  • Penalties under consumer law for making false or misleading claims can be extremely high.

Businesses have been warned by corporate and consumer watchdogs about ‘greenwashing’ and told they will have to be ready to substantiate any environmental claims they make when marketing their goods and services, or face severe fines under consumer law.

ACCC actively targeting businesses that are greenwashing

The Australian Competition and Consumer Commission said it is actively targeting ‘greenwashing’ this year, warning that businesses which make false or misleading claims on the climate benefits of their products or activities undermine consumer trust and confidence in the market.

ACCC deputy chair Delia Rickard said the ACCC is hearing growing concerns that some businesses are falsely promoting environmental or green credentials to capitalise on changing consumer preferences. (Please see Businesses told to be prepared to back up their environmental claims, ACCC, 20 September 2022.)

‘Broad terms like ‘environmentally friendly’, ‘green’, or ‘sustainable’ have limited value and may mislead consumers, as they rarely provide enough information about what that exactly means in terms of the product or service consumers are considering purchasing,’ Ms Rickard said.

‘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. Where we have concerns, we will be asking businesses to substantiate their claims,’ said Ms Rickard.

‘The ACCC won’t hesitate to take enforcement action where we see that consumers are being misled or deceived by green claims.’

ASIC warning investor and finance groups about greenwashing

The Australian Securities and Investments Commission also said it was cracking down on investor and finance groups that make misleading ‘greenwashing’ claims. (Please see What is ‘greenwashing’ and what are its potential threats, ASIC, July 2021.)

ASIC defined greenwashing as ‘the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical’.

Environmental groups take legal action against greenwashing

Environmental groups are also taking court action against corporations they claim are greenwashing.

Santos, one of Australia’s largest oil and gas companies, is being taken to court by activist group Australian Centre for Corporate Responsibility (ACCR) over its clean energy and net zero emissions statements. (Please see Gas giant Santos accused of ‘greenwashing’ clean energy claims, in Federal Court case, ABC News, 31 August 2022.)

Penalties for making false or misleading statements

Businesses should seek legal advice to ensure their public statements on their environmental credentials can stand up to the scrutiny of authorities like ASIC and the ACCC.

Penalties under consumer law for making false or misleading claims can be extremely high.

The Federal Court imposed a $44.7 million fine against travel group Trivago for making false claims in its advertising. Uber faces a $26 million fine for misleading customers on fares. (Please see Misleading advertising can be very costly.) Tougher penalties for breaching consumer law were contained in the Treasury Laws Amendment (2018 Measures No. 3) Act 2018. This legislation increases the maximum penalty under the Competition and Consumer Act 2010 for a company breaching relevant consumer laws from $1.1 million, up to whichever is the greater among the following: $10 million; three times the value of the benefit obtained from the offence; or ten per cent of group turnover in the previous 12 months.

The penalty that can be imposed on individuals rises from $220,000 to $500,000 per breach. Geoff Baldwin can be contacted on (02) 9635 8266 or by email at gbaldwin@stacklaw.com.au.

Material published in Governance Directions is copyright and may not be reproduced without permission. The views expressed therein are those of the author and not of Governance Institute of Australia. All views and opinions are provided as general commentary only and should not be relied upon in place of specific accounting, legal or other professional advice.

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