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21 Jul 2023
Insight
Australia
The Australian Competition and Consumer Commission (ACCC) has released draft guidance on environmental and sustainability claims. The draft guidance provides a clear indication of the ACCC’s views regarding the legality of these types of claims and when the ACCC will be more likely to take enforcement action. We examine the key risk areas and practical examples.
Introduction
The ACCC has recently released its draft guidance for environmental and sustainability claims.
This is a high priority area for the ACCC. The draft guidance reflects issues they have observed in investigations already underway in relation to environmental and sustainability claims.
The draft guidance is framed around 8 principles that the ACCC considers will reduce the likelihood of environmental claims misleading consumers and contravening the Australian Consumer Law. It applies to representations wherever they appear, including product packaging and labelling, point of sale materials, marketing and advertising materials, as well as online, social media and corporate reporting materials.
The ACCC has included a range of illustrative examples in the draft guidance, with a particular focus on consumer goods, including food and beverages, cosmetics, clothes and shoes, and household items. Industries operating in emissions intense environments – such as those that rely on or sell fossil fuels – are also specifically mentioned, with a warning that in the ACCC’s view they are at higher risk of misleading consumers when making environmental and sustainability claims.
The ACCC is consulting on the draft, and businesses and consumers have been invited to comment on the draft, with submissions due by 15 September 2023. A copy of the full draft guidance can be found here.
We highlight some of the key aspects of the guidance and summarise the practical considerations included in the 8 principles and examples.
ACCC approach to enforcement
The draft guidance outlines the ACCC’s “expectations for good practice” and also notes the types of claims that the ACCC considers are likely to mislead consumers, noting in particular aspirational claims/goals and emissions-related claims.
The ACCC also outlined enforcement considerations it will take into account, including:
- whether genuine efforts and appropriate steps were taken by the business to verify the accuracy of the information relied on, taking into account the size of the business and the resources at its disposal to undertake such verification;
- whether the business has an intention or plan to implement initiatives to give effect to claims about future matters; and
- whether the business knew or was reckless about whether the claim was untrue or incorrect.
Adherence to the principles and good practice set out in the guidance is likely to significantly minimise the enforcement risk for businesses making environmental claims.
Aspirational claims and goals
Aspirational environmental claims relating to future goals for improving environmental performance or reducing greenhouse gas emissions are an area of focus in the guidance.
The ACCC expects businesses claiming that they plan to reduce emissions will have a genuine plan in place and be making progress towards achieving those plans. The ACCC uses an example of a courier company making a claim that it will reduce emissions by 80% within 5 years’ time. The claims would be accurate if the courier switched to electric vehicles, but the ACCC considered the courier did not have reasonable grounds for making the claim because it:
- had not taken any planning, budgeting or research to determine whether is the reduction was feasible,
- was not quantifying its baseline emissions for all greenhouse gases in a formal or reliable way;
- had not considered or approved at Board level any decision to switch to electric vehicles; and
- had no plan to switch to electric vehicles or monitor its progress.
The ACCC considers that good practice for setting sustainability goals requires clarity regarding how and when the goal will be achieved (KPIs) and progress will be measured, and transparency around when companies are not on track to meet their goals and KPIs and what they are doing to address this. The 8th principle in the ACCC’s guidance (summarised in the table below) expressly addresses representations about sustainability transitions.
Emissions related claims
The draft guidance states that particular caution should be exercised when making representations about greenhouse emissions and the overall impact of products, services or businesses on climate change given the complexities involved in quantifying these impacts.
The ACCC includes an example of an airline likely to be engaging in false or misleading advertising where it claims it is “reducing emissions”, where it only operates 1% of its routes using bio-based sustainable aviation fuel and is forecasting its total emissions to increase over the next 5 years due to growth. This reflects actions recently taken by Advertising Standards Authority in the UK, where fossil fuel companies have been prohibited from advertising the environmental benefits of a small part of their business focused on renewable energy, which was likely to misleading consumers about the overall impact of the company’s activities.
If emissions based claims are made, the ACCC considers it is good practice to:
- undertake a thorough emissions baseline assessment using established and recognised methodologies;
- clearly and transparently communicate the actions underpinning the claim – for example, emissions reduction activities versus reliance on offsets;
- explain how scope 2 emissions have been accounted for and verify and provide up to date information about the types of projects that offsets have been generated from;
- account for all greenhouse gas emissions, not just some (e.g., carbon dioxide);
- avoid using headline claims which create a misleading impression – for example, by emphasising emissions reduction in only a small proportion of overall emissions activities or advertising a carbon neutral product but not making clear it is not a default option but requires consumers to opt in and potentially pay a premium.
8 guiding principles and specific examples
Drop down for detail.
1. Make accurate and truthful claims
Principles and key guidance |
Examples |
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“Likely to be false or misleading”
“Good practice”
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2. Have evidence to back up your claims
Principles and key guidance |
Examples |
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“Likely to be false or misleading”
“Good practice” A shoe manufacturer chooses a factory that has robust sustainability practices, including information about suppliers and manufacturers or raw materials and energy generation. The shoe manufacturer includes the information about its supply chain on its website and presents it in an easy to understand manner. |
3. Don’t leave out or hide information
Principles and key guidance |
Examples |
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“Likely to be false or misleading”
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4. Explain any conditions or qualifications on your claims
Principles and key guidance |
Examples |
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“Likely to be false or misleading”
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5. Avoid broad and unqualified claims
Principles and key guidance |
Examples |
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“Likely to be false or misleading”
“Good practice”
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6. Use clear and easy-to-understand language
Principles and key guidance |
Examples |
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“Likely to be false or misleading”
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7. Visual elements should not give the wrong impression
Principles and key guidance |
Examples |
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“Likely to be false or misleading”
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8. Be direct and open about your sustainability transition
Principles and key guidance |
Examples |
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“Good practice”
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Key contacts
Linda Evans
Regional Head of Practice – Competition, Regulation and Trade, Australia, Sydney
Legal Notice
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
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