Key points

• The ACCC has recently launched an internet sweep targeting misleading environmental claims across a range of business sectors. The Australian Securities and Investments Commission (ASIC) is also actively monitoring the market to take enforcement action against greenwashing, including court action.
• Both Houses of Parliament have recently passed a Bill that significantly increases the penalties for false and misleading representations made in trade or commerce, in connection with the supply or possible supply of goods and services.
• Communications that contain environmental claims should be scientifically sound and appropriately substantiated to avoid breaches of the ACL.

Background

Australian consumers are increasingly demanding products that are sustainably sourced and have minimal impact on the natural environment. However, product sustainability is not always easy to assess. Where the accuracy of market information is difficult to evaluate, consumers are vulnerable to deception.

Greenwashing and compliance action by the ACCC

Greenwashing is the deceptive marketing practice whereby claims about how environmentally friendly or sustainable a product or service is, are overrepresented or unsubstantiated. This practice can contribute to consumer scepticism of all green claims more broadly.

This month, the ACCC launched an internet sweep to identify misleading environmental and sustainability marketing claims, stating that at least 200 company websites will be reviewed across a range of targeted sectors including “energy, vehicles, household products and appliances, food and drink packaging, cosmetics, clothing and footwear”.¹ The ACCC’s findings of the sweep will be published, and the regulator has vowed to take enforcement action where it identifies instances of consumers being misled or deceived by unsubstantiated green claims.

Increasing penalties

The ACCC is no paper tiger when it says it will target misleading environmental claims. The ACL prohibits false or misleading representations about goods or services, as well as misleading or deceptive conduct more generally, provisions which apply to all forms of marketing including claims on packaging, labelling and in advertising across all mediums. The ACCC and consumers can seek compensation and injunctions for misleading or deceptive conduct in trade or commerce. Fines and pecuniary penalties also apply for making false or misleading representations. Although the law will allow for a degree of latitude where a statement is regarded as puffery (a claim so wildly exaggerated that no one could possibly treat it seriously), the relevant question is what the ordinary consumer will understand the claim to mean.

On 27 October the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Cth)passed both Houses of Parliament. Schedule 1 will commence the day after the Act receives Royal Assent and contains provisions that increase the maximum penalty for making false or misleading representations to the greater of AU$50 million, or three times the value of the benefit received from the conduct, or 30 per cent of the company’s adjusted turnover for the breach turnover period. At the limit, this represents a five-fold increase from the current penalty amount. Additionally, the ACCC may issue infringement notices (imposing penalties) where it has reasonable grounds to believe that a person has contravened the ACL.

ASIC is also closely monitoring greenwashing. This year ASIC has reviewed disclosure practices for a sample of sustainability-related superannuation and investment products with increasing scrutiny of statements made by issuers in relation to net zero commitments and the development of green technologies. ² ASIC has required clarification or retractions of prospectuses where there are no reasonable grounds for a claim.³ In releasing its report this month, ASIC Chair Joe Longo said ASIC’s near-and-medium-term priorities included greenwashing claims⁴ and on 27 October 2022 ASIC announced it had taken its first action for greenwashing, issuing infringement notices totalling AU$53,280 in relation to statements and images in two ASX announcements. ⁵ ASIC Deputy Chair Sarah Court said ‘ASIC is currently investigating a number of listed entities, super funds and managed funds in relation to their green credentials claims. ⁶

Client takeaway

To avoid penalties for breaches of the ACL and the Corporations Act 2001 (Cth), companies that make environmental and sustainability claims in advertising and financial disclosure materials should ensure that any such claims are scientifically sound and appropriately measured and evidenced. Dentons can assist to evaluate, substantiate, validate, and manage these risks for your business. The recent announcements of the ACCC and ASIC reinforce the importance of carefully considering the identity of the recipient of an advertising claim, what they will understand it to mean and not only being confident of its veracity but also of how that can be demonstrated.

1. Australian Competition and Consumer Commission, ‘ACCC internet sweeps target 'greenwashing', fake online reviews’ (online, 4 October 2022)
2. Australian Securities and Investments Commission, Annual Report 2021-22 (October 2022) 80, 93.
3. Ibid 93.
4. Australian Securities and Investments Commission, ASIC releases 2021-22 Annual Report (Media Release, 14 October 2022)
5. Australian Securities and Investments Commission, ASIC acts against greenwashing by energy company (Media Release, 27 October 2022)
6. Ibid