Eight principles to making “Trustworthy Environmental Claims” – Our review of the ACCC’s latest guidance on avoiding greenwashing

Introduction

Following a tumultuous year in the greenwashing space, the ACCC presented additional guidance to business owners (and consumers) in the form of a 42-page ‘final guidance on environmental claims’ (Final Guidance).¹

The Final Guidance was released on 12 December 2023 after consultation with 150 stakeholders and comprises eight principles that are, in the ACCC’s view, “good practice when making environmental claims, as well as making businesses aware of their obligations under the Australian Consumer Law” (ACL) (ie not to make false or misleading claims or engage in misleading or deceptive conduct).² This follows the release of a draft guidance in July 2023, which we discussed in a previous article. Click here for more information on our discussion of the draft guidance.

The eight principles in the Final Guidance have not differed from those contained in the draft guidance. They are as follows:

1. make accurate and truthful claims;
2. have evidence to back up your claims;
3. do not hide or omit important information;
4. explain any conditions or qualifications on your claims;
5. avoid broad and unqualified claims;
6. use clear and easy to understand language;
7. visual elements should not give the wrong impression; and
8. be direct and open about your environmental sustainability transition.

If the eight principles remain the same as those contained in the draft guidance, how does the Final Guidance add to what we already know?

The Final Guidance provides more detailed information, case studies and worked examples for each principle and also provides some clarification on the matters raised in the draft guidance.

We discuss some of the additional material provided by the ACCC on each principle below.

Principle 1: Make accurate and truthful claims

1. The Final Guidance explains that the requirement to take “reasonable steps” to verify supporting information may differ depending on circumstances. For instance, some small businesses may not have access to the same resources as larger businesses which can impact the scope and extent of due diligence that may be appropriate to undertake. This will be taken into account by the ACCC when assessing the steps taken to verify environmental claims.³
2. There are more tips on how to make comparisons between products, services, or businesses. The Final Guidance notes that any comparisons a business makes should not claim (explicitly or implicitly) that a product, service, or business is better for the environment than another, if this is not in fact the case. This does not mean however that comparisons must be calculated with absolute precision, but rather they should give an accurate, and not a misleading, impression to consumers. The ACCC gives the example of where a product is made from a blend of recycled and non-recycled materials. In such cases, it may not be possible to provide a precise calculation of recycled content. According to the Final Guidance, a business may calculate the proportion of recycled content based on mass balance in these circumstances, provided that the comparison provides an accurate impression to consumers.⁴
3. The Final Guidance provides more information on how businesses should approach third party studies or research when relying on them to make environmental claims.⁵ The Final Guidance recommends that businesses consider and weigh up the following factors before relying on such sources:
   • the number and quality of studies involved;
   • the age of the studies;
   • whether the findings have been replicated, or if they are in dispute; and
   • whether the studies may have been influenced by any biases.
4. The ACCC provides some further guidance about how businesses should make representations about the future by way of a detailed case study. In that case study, the ACCC considers a personal care manufacturer that includes a page on its website about its environmental sustainability goals. The manufacturer has five key goals, and each goal has a list of KPIs that it plans to achieve to meet that goal. For each goal and KPI, it is clear: 1. how the KPI will be achieved; 2. what performance against the KPI is being compared against; 3. when the KPI will be achieved; and 4.how performance against the KPI will be measured (in this example by way of a third-party audit). ​In the case example, the hypothetical manufacturer clearly outlines its progress against each of its goals and KPIs on an annual basis and is transparent about where it is not on track to meet its goals.⁶

Principle 2: Have evidence to back up your claims

1. When making environmental claims, the Final Guidance clarifies that businesses are not obliged to hold third party certification however if a business chooses to do so it should ensure that:
   • the product or service does what the business claims it does, even where the business has complied with the third-party certification;
   • its claims clearly and accurately reflect what the business has been certified for, and the scope of certification (this can be particularly important for certification schemes relating to inputs);
   • it has not mischaracterised the nature of the certification scheme;
   • it ensures continuous and ongoing compliance with the rules of the certification scheme (the Final Guidance warns that the certification is not to be treated as a one-off achievement);
   • the certification scheme is independent and there is no conflict of interest between the business and the scheme; and
   • any promotion of the fact that a particular product or service the business provides meets the requirements of a certification scheme is not disproportionately emphasised in the context of the business’ product or service offering as a whole.⁷

Principle 3: Do not hide or omit important information

1. There is further guidance on what businesses should avoid when providing information in small print or qualifications. For instance, placing text in obscure locations, using text that is too small or flashing disclaimers on screen for only a moment, will contradict Principle 3.⁸
2. The Final Guidance reinforces which information that is directly relevant to understanding a business’ claim should be available directly on the product or at the point of sale and that where appropriate additional supporting (but not contradictory or qualifying) information should be made available through a website or QR code.⁹
3. The ACCC also recommends that businesses making an environmental claim be transparent about any negative impacts that may be associated with the claim and where possible what it is doing to mitigate against those negative impacts.¹⁰

Principle 4: Explain any conditions or qualifications on your claims

1. One example under this principle that relates to waste and recycling infrastructure was amended to make it clearer to businesses making claims about a product’s recyclability. The expanded example explains that there are differences across Australia on the scope of recycling operations, including significant differences between local council areas. Therefore, what is compostable in one state may not be accepted in another. Businesses will need to be mindful of this and complete their due diligence when making claims about a product’s recyclability.¹¹
2. The Final Guidance has explained that if it is not possible to tell consumers what needs to happen for an environmental benefit to be realised (eg certain actions, facilities, or resources may be required), then the business must explain that the claim is subject to various conditions and those conditions should be easily accessible and obvious. Businesses are encouraged, in the Final Guidance, to use digital means for providing additional and up-to-date information, such as QR codes and smart labels.¹²

Principle 5: Avoid broad and unqualified claims

1. The term ‘clean’ has been added as an example of descriptions/words that are considered overly broad.¹³
2. The ‘good practice’ section under this principle has been expanded.¹⁴ Businesses are encouraged to review this section so that they understand how potentially vague terms should be qualified and explained. For example, the Final Guidance notes that consumers are likely to assume that appropriate facilities exist for the product described with the term ‘recyclable’ to be recycled. It will be misleading if there are very few facilities/collection points or none at all. Further, if there are specific instructions on how a product must be recycled, businesses are encouraged to provide that information through digital means to qualify the claim. The Final Guidance also expands on good practice for the terms, ‘recycled content’, ‘renewable energy’ and ‘free’, which businesses should review and take into consideration. For example, businesses should keep in mind that when they use the word “free”, consumers are likely to assume that this means 100% free. If a business’ product does in fact contain a trace of the ingredient, component, or characteristic that it claims to be ‘free from’, the ACCC recommends that the business use a different claim that accurately describes the product’s ingredients, components, or characteristics.
3. In relation to emissions-related claims, the Final Guidance adds that any emissions-related claims should be able to be understood by the ordinary and reasonable consumer. There are also more tips that were not in the draft guidance on what good practice entails in this regard; for example, business owners should provide clear information to consumers about what emissions are included and excluded from any assessment.¹⁵
4. The Final Guidance also takes into account businesses in highly-polluting industries and notes that they should not feel discouraged from making environmental claims if they have put genuine and meaningful measures in place to reduce their environmental impact. Such businesses should ensure however that whatever claims and measures that they are taking are realistic and transparent.¹⁶

Principle 6: Use clear and easy to understand language

1. The Final Guidance reiterates the importance of using clear and easy to read language in relation to environmental claims but draws a distinction between clear language and oversimplified language. Consumers must be able to clearly understand the specific benefit a business is trying to convey. The Final Guidance distinguishes this from oversimplified or ambiguous terms, which may be too simple to properly communicate businesses’ environmental impacts, especially if those impacts are only relevant to certain aspects of business operations.¹⁷
2. An example provided by the Final Guidance is a claim given by a manufacturer that their washing machine detergent can “save water and help the planet by reusing greywater in your garden”. The packaging containing the claim also includes a prominent disclaimer “see ingredients list for whether our greywater can help your garden grow.” All the ingredients are clearly listed, including a certain bleaching agent which is suitable for soil and grass, but not for plants. Consumers would likely not have the technical expertise to understand from the ingredients listing whether the bleaching agent will affect their plants. Instead, consumers are likely to believe from the business’ advertising that they can use greywater containing the detergent in their gardens for both the lawn area and plants.
3. Despite the above, the Final Guidance also indicates that using scientific language may sometimes be the clearest way of presenting a claim. In such circumstances businesses will need to ensure that the scientific terms used are clearly defined (or explanatory material is provided).¹⁸

Principle 7: Visual elements should not give the wrong impression

The Final Guidance confirms that what is important when determining whether visual elements suggest an environmental benefit is the overall impression that the visual element gives to an ordinary and reasonable consumer.¹⁹ The ACCC has pointed out, however, that while “green” imagery may suggest environmental benefits, and be misleading if those benefits are not true, such imagery may be applied where the business is using it for a legitimate purpose such as denoting the business’ product composition or flavours. The ACCC gives an example of a business selling fruit juice using the colour green or images of fruit trees on its products, to illustrate this point.²⁰ If a business uses green imagery to convey something other than an environmental claim (ie to provide legitimate visual imagery of what is actually being sold), this will likely not go against the spirit of Principle 7. The ACCC’s final takeaway on this principle is to consider the overall impression that the use of imagery will give to an ordinary and reasonable consumer.

Principle 8: Be direct and open about your environmental sustainability transition

An example of what ‘good practice’ entails when making claims about a business’ environmental sustainability transition has been expanded in the Final Guidance so that the steps involved are clearer.²¹ The example shows how a business that has announced an emissions reduction goal has measured its progress against the goal (the updated case study stipulates that the business has calculated its own emissions “using reputable accounting methodologies”). In the case study, the business makes clear to consumers which emissions it has included in its calculations and clearly identifies any emissions sources not included in its calculations. When making representations to consumers about this aspect of its emissions reduction plan, the business explains the proportion of its gross emissions it has reduced and separately identifies areas of its business where it has not been able to reduce its emissions but is purchasing offsets to mitigate environmental impact. The Final Guidance adds an additional explanation in the case study, reinforcing that when making representations to consumers about its future plans, it is good practice for businesses to explain the steps they are planning to take, when they expect their plans to be achieved, and any material barriers to their achievement. The case study also re-emphasises the importance of updating consumers on progress, stating this as one of the key objectives in the case study.

Some further guidance on the ACCC’s approach to Enforcement Action

The ACCC provides additional guidance on its enforcement and compliance approach, including a list of factors that may be relevant to the ACCC’s decision to take enforcement action. These factors include conduct that is of significant public interest or concern, conduct that involves a significant new or emerging market issue, situations where ACCC action is likely to have an educative or deterrent effect or where the ACCC believes that taking enforcement action will help clarify aspects of the law, especially newer provisions of the ACL.

In light of the above changes, what are the key takeaways of the Final Guidance?

The Final Guidance provides a more in-depth explanation of what good practice under each eight principle means. It clarifies concepts that may have been confusing to some when reviewing the draft guidance, such as third-party certifications and usage of vague terms.

A clear takeaway from the Final Guidance, was a warning by the ACCC that businesses using industry schemes or standards to support environmental claims need to exercise caution. The ACCC has issued a clear warning that compliance with a standard does not necessarily equate to complying with the ACL.

Businesses must remember that it is the overall impression (from an ACL perspective) in the mind of the ordinary and reasonable consumer that is key, not whether a representation is correct when compared against relevant industry standards.

The Final Guidance reminds businesses that environmental claims will “continue to evolve as markets, available technologies, and our understanding of environmental impacts develop”.²² 

But there is more to come…

The ACCC has confirmed that it will continue providing guidance on making meaningful claims in early 2024 with plans to release more tips on emission and offset claims, and on the use of trust marks.²³

Similarly, there will also be guidance directed at consumers to assist them in assessing and relying on environmental claims.²⁴

Stay tuned for our updates on these matters.

How can we help?

We have a dedicated commercial and consumer law team that can assist you with review of marketing materials and provide related advice. Please contact us if you would like more information about the services we provide.

This article was written by Teresa Torcasio, Partner and Katie Lau, Solicitor.

¹ Australian Consumer and Competition Commission, Making environmental claims – A guide for business (December 2023), <https://www.accc.gov.au/system/files/greenwashing-guidelines.pdf>.
² Australian Consumer and Competition Commission, ACCC releases eight principles to guide businesses’ environmental claims (Web Page, December 2023), <https://www.accc.gov.au/media-release/accc-releases-eight-principles-to-guide-businesses%E2%80%99-environmental-claims>.
³ Above n 1, page 6.
⁴ Above n 1, page 10.
⁵ Above n 1, page 6.
⁶ Above n 1, page 12.
⁷ Above n 1, page 15.
⁸ Above n 1, page 16.
⁹ Ibid.
¹⁰ Above n 1, page 18.
¹¹ Above n 1, page 19.
¹² Above n 1, page 20.
¹³ Above n 1, page 21.
¹⁴ Above n 1, pages 22-23.
¹⁵ Above n 1, page 24.
¹⁶ Above n 1, page 25.
¹⁷ Above n 1, page 26.
¹⁸ Ibid.
¹⁹ Above n 1, page 28.
²⁰ Above n 1, page 28.
²¹ Above n 1, pages 32-33.
²² Above n 1, page 4.
²³ Above n 2.
²⁴ Above n 2.