Greenwashing flagged as new ACCC priority

The Australian Competition and Consumer Authority (ACCC) has released its 2022/23 compliance and enforcement priorities which include a strong focus on misleading environmental and sustainability claims.  Environmental, social and governance (ESG) is an emerging area and a new priority for the ACCC, representing the important impacts and developments within this space.  Businesses that make ESG claims, including engaging in greenwashing, cause harm to consumers and are a target for ACCC enforcement action.  This article discusses greenwashing and the law on false and misleading organic claims.

What is greenwashing?

Greenwashing is the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound than a competitors.  The organisation may also provide inaccurate or misleading information with regard to the characteristics of a product, particularly that it is more environmentally friendly than others.  Unsubstantiated claims that mislead consumers to believe the company’s products are having a positive environmental impact constitutes greenwashing.

Why is greenwashing harmful?

Greenwashing is harmful to both consumers and to the environment and has the potential to harm the business itself through reputational damage and consequences for breaching relevant laws on misleading and deceptive conduct.  Greenwashing presents consumers with a misleading or untrue representation of the nature of a product.  By purchasing these products with the understanding that they contain certain characteristics such as being environmentally friendly or sustainable, consumers may end up contributing inadvertently to unsustainable practices.

Greenwashing not only has negative effects on the environment, but it may expose organisations involved in such practices to reputational risks as well as regulatory action for engaging in misleading and deceptive conduct.  Broad or unqualified claims may give rise to issues under the Australian Consumer Law (ACL), located in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Act), if they are ambiguous or cannot be substantiated.

The law on misleading and deceptive conduct

There are several different classes of conduct that generally give rise to an action under the ACL for false and misleading conduct.  Where a person or entity claims that goods are ‘organic’ or ‘certified organic’, when in fact it is not, this is referred to as a “false and misleading organic claim”.  False and misleading claims regarding products classed as therapeutic goods, cosmetics and sunscreens generally relate to issues with the ingredients, product labelling, therapeutic benefit claims and claims about the product’s results.

General classes of false and misleading claims in this sector relate to:

• claiming organic or certified organic when not;
• false therapeutic benefit;
• labelling and label claims;
• false claims regarding an association with a regulatory body or alike;
• false testimonials;
• before and after photos; and
• clinical trials and results.

The main two (2) statutory provisions of the Act that apply to false and misleading organic claims include:

• section 18 of the Act – misleading or deceptive conduct: a general prohibition against any person, in trade or commerce, that engages in misleading and deceptive conduct, or conduct that is likely to mislead or deceive; and
• section 29 of the Act – false or misleading representations about goods or services: False or misleading representations made stating that goods are of a particular standard, quality, value, grade, composition, style or model are prohibited under s29(1)(a). Furthermore, false or misleading representations purporting that goods have benefits, uses, approval or performance characteristics are also prohibited under s29(1)(g).

The connection between greenwashing and ESG risk

The ACCC 2022/23 compliance and enforcement priorities have placed a strong focus on targeting claims in relation to the environment and sustainable practices, which fall under ESG.  Misleading and deceptive conduct with respect to greenwashing, such as claiming a product is certified organic when it is not, falls under ESG risk.  This is because greenwashing involves a person or business making a claim that a certain product or provider is associated with ethical and sustainable environmental practices.

ACCC enforcement action

Unsubstantiated claims that mislead a consumer into thinking a company’s practices are environmentally friendly may result in ACCC enforcement action.  The ACCC will consider the statements made by an organisation and determine whether the overall impression created about the product is false or misleading, or if the conduct of the business is misleading and deceptive.

The ACCC has previously prosecuted entities in relation to false organic claims in the following matters:

• In Australian Competition & Consumer Commission v G.O. Drew Pty Ltd [2007] FCA 1246 Drew was ordered to pay $25,000 for supplying inorganic eggs while representing them as organic. The Company claimed for three years that the eggs were certified organic by NASAA, or produced by a NASAA-certified producer, when this was not the case.
• In Dreamz Pty Ltd, trading as GAIA Skin Naturals (GAIA) GAIA was ordered to pay $37,800 by ACCC due to alleged false or misleading representations after the enforcement body issued three infringement notices. GAIA claimed that its Natural Baby Bath & Body Wash, Baby Shampoo and Baby Moisturiser were pure, natural and organic. In fact, these products actually contained two synthetic chemical preservatives: phenoxyethanol and sodium hydroxyl methyl glycinate.

Takeaways

The ACCC 2022/23 compliance and enforcement priorities promise to take a firm stance on environmental and sustainability practices, including greenwashing.  Businesses should ensure any claims and disclosures about their products are substantiated to avoid potential breaches of the ACL and enforcement action by the ACCC.

Links and further references

Legislation

ACCC compliance and enforcement priorities for 2022/23

Cases

Australian Competition & Consumer Commission v G.O. Drew Pty Ltd [2007] FCA 1246

Dreamz Pty Ltd, trading as GAIA Skin Naturals (GAIA)

Further information about greenwashing

If you need advice about greenwashing, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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