ACCC commences ‘greenwashing investigations’ following draft guidance

In a recent address, ACCC deputy chair Catriona Lowe said the ACCC will be undertaking further work in the area of green claims with many businesses that are genuinely changing their business practices and operations in response to climate change being negatively impacted by the effects of greenwashing.

“The concept of greenwashing refers to conduct where businesses make misleading claims or representations to appear more environmentally conscious,” said Ms Lowe in her keynote speech at the General Counsel Summit.

“This includes the use of false, overstated, vague, or unclear representations, as well as a business omitting key information that would impact a consumer’s decision-making process.”

Businesses that are taking genuine steps to adopt sustainable practices are put at a competitive disadvantage by businesses that engage in greenwashing without incurring the same costs, said Ms Lowe.

Last month, the ACCC released draft guidance for businesses to refer to when making environmental and sustainability claims. This guidance is currently open for consultation.

The draft guidance sets out what ACCC considers to be compliance with the law when businesses make environmental claims about their products and services. It also includes the ACCC’s views on good practice when making these claims.

“Our intention with this guidance is to encourage businesses to make truthful and accurate claims about the environmental benefits of their product or service,” said Ms Lowe.

The draft guidance is currently open for consultation.

Ms Lowe said the ACCC expects all businesses to familiarise themselves with this guidance and implement the eight principles into the environmental claims they are making.

“What we are looking for is accuracy in the impression that an environmental claim creates for consumers,” she said.

Following the release of the draft guidance, Ms Lowe said the ACCC already has a “number of greenwashing investigations underway”.

To complement its enforcement work, the ACCC is also conducting a range of education activities with businesses, including updating economy-wide guidance material, in addition to targeted guidance for specific sectors.

Ms Lowe stressed that the Australian Consumer Law already contains a broad prohibition against engaging in misleading or deceptive conduct.

“It also prohibits businesses making a range of false or misleading representations about specific aspects of products or services,” she said.

In determining whether to take enforcement action in respect of environmental claims, the ACCC will consider whether genuine efforts and appropriate steps were taken by the business to verify the accuracy of any information that they relied on.

“The scope and extent of due diligence undertaken will vary depending on the size of the business. The ACCC recognises that small businesses generally will not have access to the same resources as larger businesses, and this will be taken into account when assessing the steps taken to verify environmental claims,” said Ms Lowe.

“The ACCC is selective in the matters we investigate and the sectors in which we engage in education and market analysis.”

Earlier this year the Senate referred an inquiry into greenwashing for inquiry and report to the Senate Standing Committees on Environment and Communications. The Committee will hand down its report by early December.

In a submission to the inquiry, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) said the government must ensure that any regulation addressing greenwashing does not impede small businesses seeking to operate more sustainably.

“Small businesses are disproportionately burdened by regulation, lacking the resources of their larger counterparts to manage onerous, overlapping or duplicative requirements,” said ASBFEO.

“The ASBFEO advocates across government for right-sized regulation for small and family businesses, encouraging regulators to understand the full suite of regulatory requirements affecting the sector and ensure in all circumstances regulation is the minimum effective intervention necessary to achieve the desired standard or outcome.”

ASBFO said that consistent and industry-appropriate standards for environmentally sustainable activities will help small businesses better understand what activities are considered sustainable and in turn, reduce the risk of them making misleading and deceptive claims or greenwashing.

Sustainability disclosure standards to play key role in preventing greenwashing

CPA Australia and Chartered Accountants ANZ said the sustainability disclosure standards will provide a “robust foundation for sustainability-related reporting”.

“These standards build on the principles embedded within financial reporting practices. The ISSB’s IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial information focuses on the importance of the substance of any claims being reported,” the joint bodies said.

“Sustainability disclosure standards can effectively communicate an organisation’s sustainability-related risks and opportunities. The usefulness of these disclosures however is fundamentally connected to the level of consideration and understanding the organisation has about the impact of sustainability on its strategy, business models, risk management and performance management.”

The importance of the accounting profession

CPA Australia and CA ANZ said that professional accountants also play an important role in preventing greenwashing and are obligated to straightforward and honest and refrain from being associated with information that is misleading or false.

“There is a critical role for independent external assurance to lend credibility to any information reported by organisations. In our view, the goal should be for investors and other stakeholders to rely on the assurance performed and the integrity of the information provided in the same way as they do for financial information,” the professional accounting bodies said.

“Clear reporting criteria including suggested frequency of reporting are required to facilitate assurance, which will elevate the level of trust and confidence in the information reported and avoid confusion or misunderstanding amongst investors and other stakeholders.”